5 key ideas to improve supply chain contracts

Supply chains create complex legal issues and risks at the best of times. If a supplier is unable to deliver or meet it's contractual commitments this can all too easily mean, in turn, that your business then is unable to fully or at all comply with onward contractual obligations to an end user.

Supply chain problems are most problematic with supply of goods (sometimes with ancillary services) contracts and construction contracts.  So, what can you do to mitigate risks to the supply chain commercial contracts in the current environment?

Key supply chain issues in commercial contracts

First and foremost, check your existing commercial contracts very carefully. This includes the technical details which can easily be overlooked. Many contracts have lengthy schedules to accompany the boilerplate type clauses. It could be that technical issues or defaults could provide options you would otherwise overlook, which might even include termination if that would assist you. However, care should always be taken before terminating a contract, as there may be significant legal risks associated.

Other aspects to check under your commercial contracts include:

• Alternative suppliers - Check whether your contracts give you any rights to seek alternative suppliers if the other party cannot comply with it's obligations. If your contracts do not include such rights, consider seeking agreed variations to the contract to include such clauses.
• Contract variations and waivers -  What should you do if, for example, suppliers ask for additional time to comply with the contractual obligations? Or, customers may request additional time to pay or other contract variations. In each case you need to consider how you should protect your legal interests. Options might include some sort of  security or personal guarantee.
• Retention of title clauses - Such clauses, if professionally drafted, can enable a supplier to repossess goods which have been supplied but not paid for. Retention of title clauses provide potential protection where a buyer goes into liquidation or administration.
• Price - does your contract include any mechanisms allowing for price adjustments? With supply chains, aspects can be out of your control and this is a key reason why wherever possible clauses should be cross-checked and  harmonised in terms of the supply to you and your onward sale contracts. Some contracts include clauses allowing any costs increases to be passed on. If your contracts do not include these types of clauses when the next opportunity to renegotiate arises, it is worth considering inclusion to make yourself stronger.

Supply chain dispute?

If you have a legal dispute caused by issues in your supply chain, we can help. Getting good advice early on is important and there can be practical and tactical implications of being in a dispute which effectively involves a number of parties. The earlier you act to mitigate the damage the better.