What is a supply agreement?
A supply agreement is an agreement between two parties where one party (usually a business) supplies goods or a service to another party (also usually a business) for money. These agreements are generally made to establish the terms of an ongoing commercial relationship between the two businesses.
These agreements have a lot in common with distributor agreements except that distributor agreements are usually more complex. Distributor agreements usually restrict the location and to whom goods may be sold. Distributor agreements also often involve larger business operations, distributing a product over an area rather than selling it from one shopfront. Click for more information on Distribution Agreements
What should be in a supply agreement?
A good supply agreement will state the obligations and rights of each party and balance their business needs. They need to cover:
- Who the parties are – who is the supplier, are they the manufacturer or a wholesaler or another vendor? Who is the purchaser?
- The term of the agreement – Is there a trial period? Is the agreement for a specified term of ongoing? Can the agreement be renewed?
- The goods or services that the agreement covers – the more detail that is included, the better.
- The quantity or volume of goods and how often the goods should be delivered or the frequency of the service.
- Minimum orders – are there any minimum order requirements for an initial order or ongoing (e.g. each year or each month)?
- Additional orders – what notice does the purchaser need to give to order more or less of the product.
- The timeframe for delivery and what rights the purchaser has if the delivery is late.
- When does title in the goods pass?
- Can the seller register its interest in the products on the Personal Property Securities Register?
- Who has to insure the goods in transit?
- How and when will the supplier be paid – are they paid upfront or do they provide an invoice? Is part payment accepted with full payment to be received once the goods are sold?
- Will the supplier be liable for anything that goes wrong with the good or product? Have they limited their liability to a certain amount of money?
- Any warranties or guarantees that the supplier provides that are additional to the Australian Consumer Law.
- The intellectual property arrangements – (if applicable) does the purchaser have a license to use the intellectual property of the goods or service? Is the intellectual property being assigned to the purchaser?
- How the agreement complies with Australian Consumer Law.
- What flexibility does the agreement provide for each party if market conditions change?
- A process for resolving disputes.
- A termination clause – how and when can the agreement be terminated? Can either party terminate the agreement by giving notice? If so, how much notice is needed?
The Australian Consumer Law
Remember that supply agreements will need to comply with the Australian Consumer Law. For example, the law provides minimum guarantees that products will be of a certain quality and gives consumers the right to return products to the shop that sold them or the manufacturer. So even if the supply agreement is between 2 companies, where one of those companies is then selling products to consumers the supply agreement should deal with returns, refunds etc.
Finally, a good supply agreement allows some movement and flexibility. Market conditions change, business needs change and the supply agreement needs to allow both parties to re-evaluate when needed.
Supplying products or services? You might want to let us give you a hand. Call us today.