Supplier agreements are between a business and its suppliers of services or goods. You may hear them called, “details of supply,” “service contracts,” “trade agreements,” “schedule of services,” or “details of service.”
You should use, or require, a supplier agreement anytime you purchase products or services from another business. A well-thought-through agreement leads to a much better understanding between the owner and supplier. It references important milestones like the delivery date for goods and services and the payment schedule. The terms and clauses will be different depending on the industry and products provided.
Some of the elements of a supplier agreement are the items the supplier must provide; the pricing and payments for the goods or services; expected time frames for work completion and payments; the responsibilities of each party; remedies in the event of a breach of the agreement; and the terms of the relationship.
If you want to charge the supplier for any attorney’s fees and costs incurred should the supplier not perform as agreed and you must take them to court, the agreement must state that this will occur. Otherwise, you will most likely not be able to recover those fees.
A written agreement with a supplier is also an important method of establishing that the supplier is operating as an independent contractor. This would be helpful if you are audited by the IRS and need to prove their status.
A signed written agreement is also legally necessary for specific types of deals in most states. The requirement of a signed written agreement is defined in the Statute of Frauds provisions of the Uniform Commercial Code. Typically, these are, (1) contracts for the sale of goods over $500, (2) agreements for the sale or transfer of real estate, (3) contracts, that by their terms, cannot be completed in one year, and (4) several other specific types of contracts.
Propriety information could be an important part of the agreement. If there are any trade secrets involved in your business, a confidentiality agreement, or clause, could be crucial to the continued safeguard of that information. Requiring a confidentiality agreement with your suppliers, manufacturers, or distributors ensures they do not share your trade secrets or formulas. If they do share this information, it provides a legal remedy to recover lost revenues in court.
Supplier agreements can be used in several ways such as outlining the provisions of service; proving the services an organization will provide to the business; information regarding the management and order fulfillment process for products or services; licensing agreements; rental agreements and the supply of rental items; leasing or franchising of equipment; and any aspect of the relationship between suppliers and your business. If there are any regulatory requirements, those should be included. Of course, I am going to mention the need for liability clauses to protect you should they be injured on your property even though this should be covered by your liability insurance.