15 MIN READ

Dealing With Supplier Contracts

Understanding the Terms and Risks of Agreements

Don't sign a contract until you've done your research.

Imagine that you've spent weeks vetting potential materials suppliers, and that you've finally found one that meets your organization's needs.

Your next step is to review the supplier's contract. You know that a fair contract will help you ensure that both parties are satisfied with how the materials will be delivered and paid for.

But you're not a lawyer, and you're nervous about reviewing a legal contract. How do you know what needs to be included? And how can you make sure that the contract is fair?

In this article, we'll look at what contracts are. We'll explain some common legal terminology, and we'll look at why you need to know this. We'll also explore how you can review and negotiate contracts with suppliers.

Note 1:

This article focuses on U.S. and English & Welsh contract law. Research the laws in the area that you're doing business in, especially if your supplier is based in a different country or region.

Note 2:

This article is for general information only. Consult your boss, a lawyer, or a suitably qualified professional before you sign important contracts, particularly if you haven't reviewed contracts before; if the contract is of significant value or key to your business; or if the consequences of getting things wrong could be costly.

Note 3:

To keep things simple, we've focused this article on contracts for the supply of materials. If you're dealing with contracts for products and services, you can use this article as a guide, but bear in mind that there will be some differences.

Note 4:

Purchasing is a business discipline in its own right, and your organization may have a specialist team that manages it. Make sure that you're aware of your organization's purchasing policies before you engage in a supplier selection process. If people with relevant expertise are available in your organization, then seek their help, particularly if the markets or materials concerned are business-critical, or if they are specialized.

Why Contracts Matter

A contract is an agreement between two or more parties. It spells out the terms and conditions of an offer, and, once it's accepted, it shows that the offer (including its terms and conditions) has been converted into a contract.

Contracts can exist between many different kinds of parties and in many different forms – for example, a verbal exchange or an exchange of emails may be enough to make a contract....