What is a Supply Agreement?

A Supply Agreement is a document setting out the relationship between a supplier and a purchaser. It is a crucial agreement that covers the rights and responsibilities of both the supplier and the purchaser. A properly drafted agreement can provide assurance as well as monetary savings for the parties. Alternatively, an ill-defined Supply Agreement may result in court proceedings, as well as a loss of reputation for both parties.

Below are some of the main things a Supply Agreement will cover:

Table of Contents

Pricing and Payment

The price and methods of payment are the most important clauses in the agreement. Parties to the agreement should consider questions such as ‘When and how should the purchaser pay for the goods?’, ‘Who bears the risk of insurance?’, and ‘Whether the purchaser should pay in lump-sum or in instalments?’.

Quality

The Australian Consumer Law (ACL) provides certain consumer guarantees, stating that the goods supplied to a purchaser be of acceptable quality; fit for their purpose; safe; and match the description. The Supply Agreement thus requires the supplier to confirm that the product meets all the ACL requirements, as well as any other applicable legal requirements.

The nature of services to be performed

A substantial number of disputes in a business relationship arise due to disagreement regarding the supplier/purchaser obligations. Therefore, a supplier agreement should also contain a clause containing the exact nature of services required from the supplier, as well as purchaser liabilities. For example, the extent of supplier’s liability to replace or repair goods if there is a defect on the part of the manufacturer’s defect.

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Duration/ Termination Clause

Parties should also consider the duration of their agreement and determine if the agreement is a single transaction or open-ended. In an open-ended agreement, parties can terminate the contract based on the agreement’s termination clause. The terminating party can do so by sending a written notice and completing all outstanding payments.

Default/ Dispute Resolution

The agreement should also contain provisions on a party’s defaults, such as when a purchaser defaults in payment. A clause detailing the preferred method of dispute resolution for both parties ensures clarity and assurance of results to both parties.

Sale of goods/ International Sale of Goods

Finally, the Supply Agreement should include provisions applicable under special circumstances. Some of them include the Sale of Goods Act (sale agreement between two merchants) and the Sale of Goods (Vienna Convention) Act (sale agreement involving parties based in different countries).

Conclusion

Supply Agreement is a crucial document detailing the provisions of the supplier/purchaser relationship. A properly drafted agreement helps create a long and fulfilling partnership between the two parties. Alternatively, an ill-prepared document may lead to court proceedings as well as a loss of reputation for the parties. Consider speaking to a specialist contract lawyer to receive comprehensive information about the process.

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