Maintaining quality and brand image in a supply chain can pose a business risk if you’re a manufacturer. You have authorized dealers whose core operations you don’t fully control. In addition, you may also use brand ambassadors who help promote your company. Therefore a supply chain contract or sponsorship agreement would be best in such instances.
Your legal team can draft the legal documents you need for a supply chain contract. Alternatively, you can also search online for contract templates. For instance, an online supply chain or sponsorship agreement template can help outline the legally binding details you need.
This can prevent possible neglect on both parties. They can also provide guidelines for dispute resolutions and set expectations for each party.
Getting your legal aspects right is a risk mitigation step in a supply chain contract. Furthermore, it can help maximize the supply chain’s value to your brand.
Below are essential provisions you should indicate in your supply chain contract.
1. Duration Of The Contract
Your supply chain contract might as well be null and void if it doesn’t set out start and end dates. The contract’s duration can be annual or bi-annual. But it can also depend on your industry of operation and local regulations.
A contract without a specific duration can offer flexibility. However, it can create significant uncertainty and instability in your supply chain. Thus, some of your contractors may not provide the best commitment you want. Furthermore, such a contract can also open avenues for premature termination, disrupting your brand’s supply lines.
Indicating how long your supply chain contract lasts shows trust and belief in your business partners. Thus, they can fully dedicate their available resources to promoting your brand. In addition, you can also safely commit significant financial and resource investments.
It’s also essential to indicate the notice period necessary for early and full-term termination. In addition, your supply chain contract should also show the notice period for the contract’s extension. These notice clauses are necessary for business adjustments or the negotiation of terms. Whichever the case, a notice period can help both parties have an amicable separation or healthy continuity.
2. Quantity And Quality Requirements
Outlining quantity and quality parameters clearly in your supply chain contract is vital. You can express the quantity terms in physical form. However, it can also be in value form. How you define your quantity terms will depend on your industry of operation.
Additionally, the quantity should have a duration relative to it. For instance, the clause can say, ‘both parties agree to a monthly goods supply value of CAD$20,000.00 for three years.’ This can help indicate what you expect from your business partners and for how long.
On the other hand, quality terms help outline the minimum standards you expect. These terms can indicate such requirements as your products’ shape, colour, weight, and size. They should also show quality-assurance test requirements.
Precise quality requirements ensure a standard product or service delivery across your supply chain. Furthermore, it helps eliminate the introduction of replicas which might erode your brand’s image and trust.
Both quality and quantity terms should indicate the consequences of their breach. For instance, the consequences can come as penalties or contract suspension. The concerned party should countersign against these terms to make them valid and enforceable.
3. Disclaimers And Necessary Warranties
Supply chain contracts may naturally include disclaimers and warranties. However, indicating the extent of each in the agreement would be best. Furthermore, some locations can supply other implied warranties that are binding once the contract is in effect.
For instance, if you’re in the United States, your agreement might follow the fitness and merchantability implied warranties under the uniform commercial code (UCC). Your company will need to fulfill its obligations under such warranties.
However, you can also indicate disclaimers that may not apply to your company. These disclaimers should show the parameters of the warranties. The parameters can include the product’s condition at the point of purchase or duration from purchase when you can still honour the product’s warranty.
4. Intellectual Property Protection
Including an intellectual property (IP) clause in your contract can help incentivize your suppliers to protect your company from counterfeits and guard your trade secrets. An IP can also help prevent non-approved third-party sales by your suppliers. These sales include the improper sale of excess and rejected products.
Including a liquidated damages clause in your IP provision would also be best. This clause can prevent malicious contract termination and misuse of your IP. The liquidated damages clause can also help provide injunctive relief if your suppliers contravene the supply chain contract parts.
5. Limitation Of Remedies Clause
This clause can often be a limitation of remedies and damages in full. It resembles the limitation of liability clause, which controls the extent of your company’s contractual responsibility. However, the limitation of remedies and damages clause controls the potential remedies and damages available in case of a breach of contract. Furthermore, it controls the remedies available to a non-breaching contractual party.
A typical limitation of a remedy indicates when a buyer can seek replacement or repair of a particular defective product. Your supply chain contract can specify the remedies available to your customers for such products. However, your company must be willing to fulfill its obligation to enforce this limitation.
A limitation of damages controls the damages available to a contractual party in case of a breach of contract. This control can state the maximum amount a party can pay as damages. Furthermore, it specifies the categories of damages available to the aggrieved party.
For instance, the delivery of defective products can cause a contract breach. Thus, your supplier can seek compensation for these products. A limitation of damage clause can help outline that the supplier can seek compensation for the value of the defective products.
Alternatively, it can state if the supplier’s claims can include potential profit lost due to the defective products.
6. Termination Clause
Your supply chain contract may indicate how long its in effect. However, circumstances can change, and one party might opt to terminate the agreement for various reasons. Contract termination can also be due to failure to meet agreed-upon performance levels.
Therefore, it’s essential to include acceptable circumstances that warrant early termination. Indicating the necessary notice period would also be best. The notice period should be sufficient enough to avoid disruption of normal operations.
Conclusion
A supply chain contract is essential in setting clear obligations for each party. This helps avoid the risk of future disputes. It also makes dispute resolution easier and non-partisan.
Ensuring your supply chain contract has the above provisions is essential in preventing or limiting the scope of any disputes. Thus, improving the relationship within your supply chain.