Lifecycle of a business: Part 5 - Supplier & Customer contracts and disputes

Lifecycle of a business: Part 5 - Contracts and disputes

Supplier & Customer contracts and disputes

It is important that businesses maintain a good working relationship with their suppliers and customers. A business will sit in the middle of a chain of relationships created from suppliers and customers, where raw materials, products or services are obtained from one and then value added by your business to produce profit from the other. Without strong and controlled relationships with suppliers or customers a business cannot function. It sounds obvious, but achieving those relationships is not always as easy as it might seem.

To do this efficiently, you should discuss obligations and expectations in detail before the agreement is completed and the supplies begin. For instance, precisely how work is going to be carried out and the processes needed should be included. In broad terms, you should seek to specify terms and conditions such as timescales; delivery; service levels; legal jurisdiction; payments; dispute resolution guidance; confidentiality and termination. So yes, whilst all seems well at the outset, make sure you address what happens if things go wrong. They often do. For example, if a supplier fails to deliver products or services on time, this can cause financial loss to your business, worsening the relationship between the supplier and your business and putting pressure on your relationship with your customer base.

When to seek legal advice

Imagine Widget Ltd have a suppliers contract with a stationery company named Pen-up Ltd, where PUL provides rubbers with WL’s name on them. PUL supply WL with samples and the Directors, Amy and Oliver, are satisfied with samples received and make a large order. The goods are delivered on time, but PUL has supplied WL with rubbers with WL’s miss-spelt on them (“Wiglet Limited”).  The goods also do not match the quality of the sample delivered before the sale.  Statutory implied terms would come to WL’s rescue, providing that  the goods are not fit for purpose, do not match their description nor the samples Amy and Oliver received before the sale, giving WL a right to reject the goods and seek damages. In this situation, it is advisable to seek proper legal advice.  

Setting out terms and conditions

To avoid deterioration in the relationship between a supplier and your business, it is very important to draw up appropriate working terms and commit to them. Bespoke agreements are there to clarify what is expected from each party. A properly drafted supplier agreement, setting out what is expected of the parties and what will happen if things go wrong will benefit both parties in the planning running of their businesses and reduce the scope for time consuming and expensive disputes. In the inevitable circumstances where a dispute does arise, our BLM team can provide legal expertise on commercial and contractual disputes.

Of course, it goes without saying that if the boot is on the other foot and you are the supplier to your customer base, proper legal advice on the agreement with your supplier is equally essential. In that position, you will want to be reviewing the extent of the rights and remedies that your customer may have and seeking to get comfort on matters such as the precise scope of your obligations and limiting things like the time period for settlement of invoices.

Summary

Finally, do bear in mind that things can change quickly. The excellent supplier of today may suffer changes in their own supply chain, financial pressures, and sudden departures of key staff, alterations to their shareholding or group structure or something as simple as a change of business focus. So whilst track record and reputation are important, always have that watertight contract in your pocket in case you need to react to those changes and get a new supplier. At which point, it is back to basics, and the negotiations and legal drafting start all over again…

What now?

Our team of business experts can advise you on this key stage of your business, find out more and request further information to support you and your business.

Read further into our series with part 6: Lifecycle of a Business - Making Decisions.

Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of BLM. Specialist legal advice should always be sought in any particular case.

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Who to contact

Stuart
Evans

Partner , London

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