• 30 Sep 2024
• •
• 3 min read

Contract Focus On: Supply of Goods Agreements

Who is this article intended for?

This article series is aimed at new or junior lawyers and can also be shared by in-house legal teams with their commercial colleagues who deal with contracts. The aim of the series is to provide a foundational understanding of common contracts businesses will enter into, offering insights into why they are important and what key legal aspects need to be considered. Whether you are just starting in the legal field or need to ensure that your business colleagues are well-informed about contract essentials, this guide will help with navigating the complexities of commercial agreements effectively.

What are Supply of Goods Agreements and why are they important?

Supply of goods agreements are formal contracts between a customer and supplier that define the terms under which goods are supplied. These agreements can be customised to meet the specific needs of a customer and the commercial terms agreed by both parties. Some key aspects of such contracts may include:

• Fixed term supply arrangements
• Exclusivity of supply
• Minimum purchase commitments
• Customised product specifications
• Special pricing arrangements

In contrast to standard terms and conditions of sale, which apply on an order-by-order basis without requiring amendments or signatures, supply of goods agreements offer more flexibility. This makes them more suitable for larger customers or high-volume transactions where ongoing commitments exist. 

Supplier perspective

Supply of goods agreements are essential for businesses selling goods for several reasons:

1. Obligations. The agreement allows the supplier to clearly define their obligations, setting customer’s expectations around key aspects such as delivery, returns and refunds.

• Ownership and retention of title. The agreement should specify when ownership of the goods transfers to the customer. Typically, ownership is retained until the goods are paid for, and retention of title clauses can allow the supplier to collect the goods if they haven’t been paid for by the due date and are still in the customer’s possession.

• Warranties. The supplier can set out what warranties / guarantees it gives in relation to the goods supplied and importantly what the supplier is not responsible for. For example, if a supplier is asked by a customer to manufacture goods using raw materials supplied by the customer and based on the customer’s design then the supplier would want to exclude liability for issues with the raw materials supplied or the design in the agreement.

• Liability. A ‘limitation of liability’ clause is key for any supplier and may include an exclusion of certain types of losses (for example indirect and consequential losses and loss of profits) and caps on total liability (for example, limiting the claim amount to the price paid for the goods).

Customer perspective

On the other hand what is important to a customer when entering into a supply of goods agreement:

1. Obligations. The supplier must meet obligations concerning the goods, such as compliance with legal standards (e.g. CE/UKCA markings) and provision of appropriate use and storage instructions.

• Delivery. Clear expectations around delivery timelines or collection processes, with recourse for delays, incomplete deliveries or non-delivery.

• Warranties. Comprehensive warranties that protect the customer if there are issues with the goods supplied, even if the issues are not immediately evident.

• Liability. Customers ideally want the ability to recover all losses resulting from a supplier’s breach, particularly where these relate to quality and condition of the goods or delivery failures or delays.

Risks for both parties

The key for both the supplier and customer is that the agreement is tailored to the specific supply arrangement and commercial terms. While template agreements provide a useful starting point, they may need to be adapted to ensure sufficient protection for both parties involved.

A litigator’s perspective

It is always best to err on the side of caution and include terms which may seem obvious to the parties but reduce the likelihood of a dispute later on. It is worth bearing in mind that when a contractual dispute goes before a Judge, s/he will not be privy to any of the correspondence and negotiations leading up to the contract and so everything agreed/understood between the parties should be in the Supply Agreement or incorporated documents.