Before putting your supply chain in motion, you need to confirm the collaboration with a contract. How you approach writing this contract can directly affect the outcomes of your supply chain.
The supply management contract is there to ensure transparency and mutual agreement of both parties. It will also formalise rights and obligations for both supplier and vendor.
Omitting a vital section can create room for disagreement, confusion, and messy termination of the contract. That’s why you need to pay close attention to how you write it.
Do you want to write a supply management contract that ensures streamlined collaboration? Then take the following steps when writing the contract.
Check the Identity of Other Party
If you haven’t already researched the other party, it is not too late. Before you invest your time creating the agreement, make sure that you’ve chosen the right partner.
The internet provides us with insight into a variety of information. A credible and reputable supplier must have an online presence.
Take a closer look at their website as well as their social media accounts.
Dig up some details on the other party. Pay close attention to the reviews and testimonials of previous clients. They will present the true image of that company.
Elements of the Contract
The supply contract should include the following elements and sections:
- Introduction of the basic information
- The Introductory statement
- Term
- Consideration
- Quantity and quality
- Terms of delivery
- Failure to comply
- Indemnification
- The concluding section
Now, let’s see what each section or element of the contract should contain.
Introduce the Basics
The first section needs to provide necessary information about the collaboration. That basic information includes:
- The date when you’ll sign the contract
- Full names of the parties involved
- Names and addresses of involved companies
- The role of the involved companies
For example:
This Supply Management Contract, dated June 21, 2021, is made by and between Johnathan Doe of J.D. Company, with the principal address of 2457 Sherman Street, Chicago Illinois 60617 (the “Supplier”) and Mary Perry of M.P. Company, with the principal address 1086 Arthur Avenue, Amboy Illinois 61310 (the “Buyer”).
The Introductory Statement
This section needs to get more into details about the contract and the companies involved.
The introductory statements or recitals need to set out the parties’ intentions.
Explain what the contract is for, what are the intentions of the involved parties, and provide further details on those parties.
The information you can state here are:
- The type of activities that both parties are obliged to perform
- The type of business that both parties run
- Whether some requirements in the contract have already been fulfilled
- What kind of need provoked the creation of this contract
The type of details you share depends on the agreement between the supplier and buyer.
However, here is an example of what kind of recital you can include:
The Supplier will sell, transfer, and deliver a daily supply of two hundred pounds (200lbs) of fresh beef needed for the Buyer’s daily restaurant operations.
The Term Section
The term section needs to define the duration of your collaboration. This section must include:
- The contract duration
- The contract termination conditions
- The contract renewal conditions (if applicable)
For example:
The undersigned parties agree that the term of this Contract is for five (5) years unless one or both Parties mutually agree to terminate this Contract before the expiration of the said period. The contract will automatically renew after the end of five (5) years for additional five (5) years unless one of the Parties provides termination notice in writing at least three (3) months before the end of Contract.
The Consideration Section
Clarify the pricing and cost plan within this section. You want to specify the amount and payment method as per your verbal agreement. This will ensure that the other party clearly understands how the payment will be made.
The type of information you can state is:
- The amount that will be paid
- Who makes the payment
- The payment method
- When the payment is due
- What the payment is for
- Who shoulders which costs
For example:
The Buyer will pay the Supplier a consideration of twenty thousand dollars ($20,000) via bank transfer between 10th and 15th of the month for a month’s worth of supply. Subject to the Terms and Conditions of this Contract, the Supplier shall shoulder the costs pertaining to the delivery of the products and materials as well as the accompanying charges and taxes.
The Quantity and Quality Section
You want to make sure that both parties deliver the agreed quantity and quality of the product. It won’t be possible for you to improve the productivity of the supply chain if there is a hold up due to the poor quality or lack in quantity of delivered products.
Stating in the contract, the consequences of failing to respect the agreement are crucial for protecting one or both parties.
Here’s the type of clause you can share in this section:
The Buyer is entitled to refuse to accept any products or materials delivered by the Supplier that do not suffice the quality standard or quantity agreement.
The Terms of Delivery Section
It is essential that you openly state how the delivery will be carried out during the duration of the contract. Defining this section will lead to consistent and regulated delivery service.
This is one way of how you can formulate this section:
The Supplier is obliged to exercise diligence in the course of transporting and delivering the said products or materials. The said products or materials must be in good condition when they reach the Buyer.
Failure to Comply
To eliminate the risks of disrespecting the contract, you must state the consequences of not respecting the agreement.
Be specific about what kind of actions will lead to paying the fine or seeking legal remedies. Typically it’s the failure to buy or supply the minimum quantity.
For example:
In the event that the undersigned Supplier fails to comply with its obligations to the Buyer, including failing to supply the minimum product quantity, the Buyer is entitled to a ten thousand dollars ($10,000) of liquidated damages within one (1) month, in a form and manner agreed by both parties.
Whether the compensation will be a monetary fine or seeking the applicable legal remedies provided under a law depends on the type of failure to comply.
If you need help with defining and clearly writing different failures to comply and corresponding consequences, turn to writing services for help.
The Indemnification Section
What you want to state within the indemnification section is what kind of compensation will follow if a certain party suffers some kind of loss due to the other party’s inability to act properly.
Here’s how you can cover this section:
Subject to the terms and conditions of this Contract, the Supplier is bound to indemnify the Buyer for any damages that the latter may incur due to the negligence of the former.
The Concluding Section
End of the contract with a simple statement that rounds up the entire contract. Something like this:
This Contract constitutes the final and entire agreement between the Buyer and Supplier and supersedes any other prior agreement of Contracts.
Wrapping Up
The aforementioned tips should help you understand the basics of writing a supply management contract. The sections you include and statements you make need to clarify your collaboration and identify each aspect of it.
Before you put your agreement on paper, make sure that both parties agree on every term. This will save you some valuable time and unnecessary rewriting.
Author’s bio. Jessica Fender is a copywriter and blogger at GetGoodGrade with a background in marketing and sales. She enjoys sharing her experience with like-minded professionals who aim to provide customers with high-quality services.