Supply Agreement Best Practices

According to a recent report by Aberdeen Research Group, top-class companies achieve up to 80 percent more savings than others through a clearly defined contractual compliance process. Despite this impressive ratio, only 48% of companies have a centralized contract management process. If you strive in advance to adopt best practices in your business, the time and cost of verifying supplier compliance, tracking value metrics, and pursuing strong supplier relationships will be reduced. This NASPO resource contains the best practices of central public procurement bodies for contract management, which take place after the award and signing of a contract (i.e. after negotiation), including contract monitoring and management activities. With regard to the question of duration, the parties must take into account the impact of the provisions providing for a right of early termination. Early termination can have significant financial consequences for both the buyer and the seller. A party that considers that it binds its customer or supplier to a long-term agreement risks losing the benefits of that agreement if it is not very attentive to the provisions relating to early termination. If the contract contains early termination clauses, the parties should consider considering the financial consequences of early termination in the contract. For example, sellers should negotiate the right to recover undepreciated investments under the contract. Here are some observations for suppliers in my experience that can help reduce contractual risks in delivery contracts.

Both buyers and sellers should be mindful of any limitations on remedies or damages contained in the agreement. While limitation of damages and limitations of remedies have a common goal – the transfer of risk – these are different approaches. A limitation of redress is one of the most widely used instruments by sellers to reduce the remedies a buyer may seek in the event of an infringement. The most common example is a provision that limits the buyer`s rights to „repair or replace“ defective goods. A seller who wishes to include such a provision in its contracts should take steps to ensure that it is indeed ready and able to comply with its request for recourse. Where it is found that the appeal `has not achieved its essential objective`, it is considered inapplicable. Finally, install important milestone alerts or reminders so that you can continue to analyze the vendor-reseller relationship before an automatic extension or termination. Automatic renewal clauses can benefit both the supplier and the customer if properly managed. For the vendor, it allows its sales and business development teams to focus resources elsewhere, instead of trying to recover the business after expiration.. .

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