How to effectively negotiate your suppliers agreement - tips for customers and suppliers

What is a supply of services agreement?

A supply of services agreement (also known as a suppliers agreement) is a legal contract between a supplier of services and the customer receiving those services. It sets out the terms that apply to the provision of services, including obligations and restrictions on both parties.

Whether you are the supplier providing the services under the suppliers agreement or the customer receiving those services, it’s really important that the terms of the suppliers agreement protect your interests. Find out below some top tips to use when negotiating a suppliers agreement, that can protect your business.

Tips for suppliers when negotiating a supply of services agreement

1. Limit liability - a supplier’s “liability” under a suppliers agreement is its potential financial exposure in the event of a successful claim under the contract by the customer. If no limitations or exclusions of liability are included in a suppliers agreement, in the event of a claim by the customer under the contract, the supplier's potential financial exposure will be unlimited and uncapped. It is therefore really important that the supplier seeks to include limits and exclusions on its liability in the suppliers agreement - this could include a monetary cap on liability (known as a liability cap) or specific heads of loss being listed in the supplier agreement as excluded losses that the customer cannot recover.

2. Get what you need from customers - sometimes, in order to be able to provide the services correctly, a supplier will require certain action to be taken by the customer (sometimes known as customer dependencies). If this is the case, it is crucial that those customer dependencies are listed in the suppliers agreement as contractual obligations on the customer. Otherwise, the supplier may not be able to provide the services as a result of a customer inaction, but be in breach of the contract itself. Customer dependencies may include things like providing access to the customer's premises and staff, or giving the supplier certain data, materials or information.

3. Protect revenue - one of the most important reasons that a supplier will want to put a suppliers agreement in place is in order to guarantee its revenue stream from a particular customer. A contract can be used as a tool for ensuring customers are legally required to pay, in line with agreed timeframes. A supplier should pay particular attention to payment terms (i.e. how long a customer has to pay an invoice) and remedies for late payments (i.e. what the supplier can do if payment is overdue, such as suspending the services or terminating the contract) when negotiating a suppliers agreement, to ensure it receives revenue when expected and has a proper recourse when customers fail to pay.

Tips for customers when negotiating a supply of services agreement

1. Think carefully about service standards - as a customer receiving services, it is important to guarantee that the services will be provided to you in line with your expectations. Service standards in a suppliers agreement can be a mechanism for achieving this. For example, if you receive customer support as part of your services, you may want to include service standards (sometimes known as service levels) that the supplier will respond to customer queries within agreed periods. If they fail to respond within those periods, the supplier will be in breach of contract. Sometimes suppliers agreements go one step further by including agreed remedies for breach of service standards/levels - for example, a reduction in the monthly price where service levels are continuously not achieved.

2. Don’t get caught out by automatic renewal - as a customer, you will want to ensure that you retain control over how long the suppliers agreement lasts for. Automatic renewal clauses provide a mechanism for contracts to automatically renew after an initial agreed period, without having to ask the parties if they want to continue with the agreement. It can be easy to get caught out by a clause that allows for automatic renewal, meaning that you could be locked into the contract for an additional period that you did not account for. This is particularly a problem where the supplier has a right to increase prices.

3. Ask for warranties - requesting warranties from suppliers can be a method of protection for customers in the event that something goes wrong. A warranty is a contractual promise or statement of fact that is true at the date of the contract. If it can be proved that a warranty is untrue, the customer could claim that there has been a breach of contract. As a result, the customer may be entitled to recover all losses incurred due to the breach of contract. The types of warranties that will be important to customers include that: (i) the services will be provided to a certain standard; (ii) the services are being provided in accordance with the law; and (iii) the supplier has all necessary consents etc to provide the services legally.

How can Docue help? Use our supply of services agreement template now!

Docue’s suppliers agreement template can easily be customised to your needs, so it protects your interests are either a supplier or customer. Docue’s lawyer-drafted guidance notes are there to guide you through the contract creation process so that you know which options to select.

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