Following our tips on negotiating distribution agreements, we bring you the next in our Top 10 series ...

If your business supplies or receives goods or services, then you will have come across a supply agreement in some shape or form. Known by many other names, these agreements set out the terms and conditions governing the supply of a certain good or service, and should be drafted to appropriately reflect each party’s intentions.

Whether you are the supplier or the customer, there are a few things you should consider when negotiating supply agreements:

  1. If you are the supplier:
    1. Is the price fixed for a certain term? Or can you increase the price if there are cost increases beyond your control (e.g. raw materials)?
    2. What warranties are you prepared to give? There are certain statutory warranties under the Australian Consumer Law that you can’t contract out of. If you are importing goods from overseas you may still be liable for manufacturer warranties, so you should consider how best to minimise this risk in the agreement.
    3. What are the confidentiality provisions? You might want to keep the pricing details top secret and away from your competitors’ eyes.
    4. If there is a termination for convenience clause, is the notice period enough time for you to stop any third party orders?
    5. Upon termination, ensure you get full payment for all goods and/or services supplied and any other costs you reasonably incur.
  2. If you are the customer:
    1. Are the deliverables time critical? If so, consider whether liquidated damages are appropriate.
    2. Ensure you have the appropriate IP licences, or that the IP is assigned to you, so you can continue using the deliverables.
    3. Consider whether the warranties provided by the supplier are sufficient. Don’t forget you may also have rights under the Australian Consumer Law.
    4. Is there a renewal period for the term? If so, is it automatic or at your discretion? Diarise any notice periods so you don’t forget!
    5. Has the supplier limited their liability? If so, will it still cover your worst case scenario? If not, request for the liability cap to be increased, or consider any relevant carve outs.