Supply Commitment Agreement

8. If you manufacture for “stock”, make sure that the customer is contractually obliged to purchase it. If you agree to keep a stock of prefabricated parts or to purchase equipment for the customer, the agreement you sign should clearly oblige the customer to purchase the warehouse and equipment after the termination of the contract. Pressure on volume commitments can be particularly punishable for existing customers. Imagine, for example, an organization that buys $1.5 million from industrial suppliers from a supplier, which represents 90 percent of its total spending in this category. They are contacted by the supplier and are asked to enter into a contractual agreement with an additional annual obligation of expenses. They could propose a term “persistent” that automatically renews. For example, the agreement may be valid for two years, but after the first year, an additional year is automatically added, and so on, so that there are exactly two years left on each anniversary. What needs to be done? Here are 10 problematic provisions (from the supplier`s perspective) that are common to these agreements. For the purposes of this article, the sales or delivery contract of the customer “Master” (or “Framework” or “Preferred Supplier”) is called “Master Form”. 10.

Be sure to limit consequential damages. Most customers will agree to waive their right to claim against a supplier for “consequential and/or other consequential damages”, and you should demand such a clause. But what happens if the customer wants this clause to be reciprocal? Be careful: before agreeing, be sure to make a clear exception for the supplier`s loss of profit if the customer has not fulfilled his contractual obligation to purchase. Loss of profit is the main criterion for damages if the customer does not comply with the purchase obligations of a delivery contract, so the supplier must take care not to untnowingly waive the right to claim the loss of profit under these conditions. 2. Boilerplate Terms and Conditions. Many master forms automatically contain the customer`s terms and conditions; Typically, these are attached to the master form and are likely skewed to the benefit of the customer (e.g.B. a wide unlimited warranty, very long payment terms, unilateral compensation, penalties for late delivery and/or a customer`s right to terminate for convenience – which denies, among other things, any purchase obligation you may have negotiated). Therefore, the standard terms attached to the master form must also be read and negotiated. If the customer`s right of termination is very broad, it could be worse than not having an obligation at all, because you may have made capital investments, reserved capacity or accumulated inventory by relying on a customer`s commitment, without knowing that the contract can be terminated in a loose “standard” language. Particularly dangerous are very broad clauses that allow the termination of any infringement, large or minor (without the right to correct it in good time) or clauses allowing to terminate in case of lack of quality or late delivery (in particular if the late delivery is measured from the date of receipt of the customer, which is normally beyond the control of the supplier).

It is important to carefully analyze and understand the obligations to buy and sell.. . .