Supply agreement
How to review a supply agreement
In a supply agreement, check the specification and quantities, delivery terms and when risk passes, inspection and acceptance, price adjustment, warranties and remedies for late or defective goods. One-sided late-delivery remedies and unclear risk transfer cause most disputes.
Legal background
- Governing sale-of-goods law (for example UCC in the US, UN CISG for international sales unless excluded)
- Incoterms where used for delivery terms
- Product-safety and consumer rules where relevant
Main risks
01Loose specification and quantities
Product description and forecasts are vague, with no binding minimums or tolerance, so disputes arise over what was ordered.
02Delivery terms and risk transfer
Delivery term (Incoterm) is missing or inconsistent, and it is unclear who bears loss or damage in transit.
03No inspection or acceptance regime
No time limit or process to inspect and reject goods, so defects are discovered too late to claim.
04One-sided remedies
Late-payment interest applies to the buyer, but the supplier has no liability for late or short delivery beyond refund.
05Price adjustment
The supplier may change prices unilaterally for costs, currency or raw materials without limit or notice.
06Warranty and recall
Short or disclaimed warranty and no process for recalls or replacements.
Example finding and redline
Clause in the contract
“Buyer shall pay interest of 1% per day on overdue amounts.”
Why it is risky
Remedies apply only against the buyer; there is no remedy for late or short delivery.
Suggested fix
“For late delivery, Supplier shall pay liquidated damages of 0.5% of the value of the late goods per week, up to 10%.”
Pre-signing checklist
- Product specification, quantities and ordering process
- Delivery term, place and date; transfer of risk and title
- Inspection, acceptance and rejection procedure
- Price, currency, taxes and adjustment mechanism
- Warranty period and remedies (repair, replace, refund)
- Late-delivery and late-payment consequences for both sides
- Liability cap, force majeure and termination rights
- Governing law and dispute resolution; CISG exclusion if wanted
FAQ
- What do Incoterms do?
- Incoterms are standard trade terms that allocate costs, risk and tasks between seller and buyer for delivery, for example EXW, FOB or DAP. Name the Incoterms edition and the exact place.
- What happens if goods arrive defective?
- It depends on the contract and governing law. Make sure the agreement sets an inspection period, a notice procedure and remedies such as repair, replacement or refund.
This material is for general information and is not legal advice. Rules differ by jurisdiction; have a lawyer review any significant contract before you sign.