Keep Production on Track with a Product Supply Agreement

Keep Production on Track with a Product Supply Agreement

by Michelle Kaminsky, Esq., February 2019

With an ever-increasing number of enterprises involved in transactions internationally—especially as online sales grow—it is incredibly easy to lose track of which party is responsible for what actions in a business arrangement.

Man with clipboard talking to woman with apron in supermarket

A product supply agreement can help both parties be clear about their individual rights and responsibilities, while also maintaining a steady stream of goods to customers and protecting your business from eventual legal trouble.

What a Product Supply Agreement Is

A product supply agreement details the terms on which a seller supplies goods to a buyer, and an effective contract is as specific as possible regarding the obligations and expectations of each party.

Whether it's a mutual agreement to supply products on credit or an exclusive standard product supply agreement between one specific buyer and seller, the main objective is to get all the pertinent terms down in writing so that products keep flowing to the marketplace without interruption.

Product Supply Agreement Tips

The primary function of a product supply agreement is to regulate and streamline the product supply between a manufacturer and a buyer. Ultimately, your goal is to get your products to customers as quickly and seamlessly as possible, and, ideally, a carefully drafted product supply agreement ensures that both parties are reaching all measurable outcomes as well.

To that end, each party's roles should be explicit and clear. A standard product supply agreement includes the parties' names and contact information, along with the item or items being exchanged—often along with minimum quantities—and pricing.

Other items you may wish to cover in a product supply agreement include the following:

  • Inspection and acceptance: the time frame within which any defects in the merchandise must be reported, as well as the process for returns
  • Shipping concerns: shipping charges and methods, as well as when during the shipping process responsibility for the products shifts from one party to the other
  • Failure to supply or purchase: the ramifications for each party should it fail to meet the minimum quantities provided for in the contract; these remedies may include liquidated damages, which are the damage amounts specified by the parties in case of a particular type of breach of the contract
  • Other remedies: besides damages, whether the buyer, for instance, is entitled to purchase products from another seller to cover its losses and have those goods count toward the minimum quantities requirement in the product supply agreement
  • Warranties and disclaimers: the types of defects and problems covered by the agreement, as well as a time frame and procedure for recovery of damages
  • Termination: how and when the parties may end the arrangement
  • Choice of law and forum: which state's law and what legal forum govern the agreement
  • Assignment of rights: whether the parties may legally assign its rights and obligations to another party

The legality of a product supply agreement depends on how you have executed your contract, so it's important to follow all applicable state law along the way.

If you're unsure whether your agreement is valid, or simply want to make sure you're compiling one correctly, you may wish to seek advice from an attorney to help guide you through the process.