Contracts and the supply chain

In its recent report, Pulling Together, the CBI found that 78 per cent of companies said improving their supply chain was important to their future growth.

Elaine-Hurn-Taylors-3-3By Elaine Hurn, managing partner, Taylors Solicitors.

Yet our experience is that many are not tackling the key issues and have inadequate contractual arrangements in place.

If your key supplier is taken over by a competitor, do you know your rights when they refuse to accept your further orders? Where do you stand if the supplier knows the identity of your customers and their specific requirements - but you don’t have a long-term exclusive supply agreement in place with confidentiality provisions preventing them dealing direct?

Your contractual relationships should be working for you to achieve your commercial goals, but how often is a long-term supply relationship governed by just a succession of purchase orders?

Even if you have a contract in place, have you checked the small print? Can the contract be terminated either for convenience or breach? Could you be faced with a Premier Foods situation where your customer is able to demand that you “pay to stay” in order to continue to receive their orders?

You might believe that if you’ve had a customer/supplier relationship for many years that an “implied contract” exists. Well, when M&S decided (without any prior warning) to stop buying on an order-by-order basis from Baird Textiles (an exclusive supplier of clothes to them for thirty years), the Court of Appeal held that:

a) there was no long term contract implied through their course of dealings; and

b) M&S was not required to give reasonable prior notice of termination.

There is still currently no European-wide contract law to give certainty and some consistency to the way in which supply chain contracts are interpreted in EU member state countries; that still depends on the law governing the contract - so always check the small print terms of a purchase order. It may provide that any legal action is not only governed by, for example, German law but also that all proceedings must take place in a particular regional court in Germany and be conducted in German.