Suppliers: 6 Key Provisions to Include in your Commercial Contracts

April 19, 2022

Suppliers: 6 Key Provisions to Include in your Commercial Contracts

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By Siobhan Williams

When your business agrees to provide a service or product to another business, your terms and conditions should clearly reflect what you have agreed. It is vital your terms mirror how you operate in practice to protect your business. Here are six key provisions that every supplier should consider including in its terms of business:

1. Payment terms: Every agreement should set out clearly the fees chargeable for the services and/or products and when payment is due. Ensure that your terms are clear whether VAT is included or excluded in the price provided. Set out the circumstances in which you may increase your charges, including any notice period required. It is also good practice to set out default provisions in the event of non or late payment.

2. Limitation of liabilities: Attempt to reduce your exposure by limiting your liability under the contract to a particular sum. Suppliers often match limits of liability to its insurance cover. It is also common for suppliers to exclude its liability for any indirect or consequential loss. Some types of liability cannot legally be limited or excluded, such as liability for fraud. It is therefore important to expressly state in your terms that there is no attempt to exclude or limit liability that cannot by law be limited or excluded.

3. Force majeure: Such a clause excuses a party from performance of the agreement following the occurrence of an event beyond the reasonable control of that party which has hindered performance or made it impossible. An example would be a natural catastrophe such as an earthquake where a shipment schedule may be unavoidably disrupted.  Given that obligations for performance of a service or delivery of a product will fall on a supplier under a contract, it is crucial that suppliers reduce its risk of being in breach of the contract following the occurrence of an unprecedented event. Such a clause should also deal with whether the agreement continues, is suspended or is terminated in such circumstances.

4. Termination provisions: Consider your ability to exit a contract in the context of the goods and/or services you will be providing. You will likely wish to retain the ability to terminate the contract on notice for convenience (i.e., without having to show cause). You should ensure that you have an express contractual right to terminate the contract for breach by the other party, for instance, for failure to pay a sum owed when due. It is also common to reserve the right to terminate for insolvency-related events related to the other party.

5. Intellectual property rights: You should assess the nature of the services and/or goods you are offering, and whether any intellectual property (IP) arises from it, such as copyright, rights in design, database rights. Consider whether you wish to retain ownership of any IP rights in any deliverables. Determine whether it is appropriate to grant a non-exclusive licence to a customer to use the IP or whether such IP is to be transferred outright to the customer as part of your product offering.

6. Governing law and jurisdiction: You should ensure that your terms make clear which country’s substantive law will be applied to identify and interpret the rights and obligations of the parties to the contract. It is also essential to include a jurisdiction clause – such a clause determines which country’s (or countries’) courts are to have jurisdiction to hear disputes arising from the contract. These types of clauses are particularly vital if you enter into cross-border transactions.

If you would like more information about the above or a related matter, get in touch with Siobhan Williams via email on swilliams@darwingray.com, or call on 029 2082 9124 for a free, no obligation conversation.