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What is a supply contract?

| Nov 8, 2019 | Vendor Disputes |

Many businesses in San Jose and the rest of the Bay Area must purchase the raw materials they need to continue to operate. Even businesses that are not manufacturing goods will need a regular stream of supplies.

For instance, just about any office environment is going to need at least some paper, even if they have gone to exclusively digital communication. Even something like coffee for the break room can be the subject of a supply contract.

The advantage to a supply contract, or a supply agreement, is that it allows both the supplier and the buyer to lock in the price of what is being sold. The purchaser can better budget for its expenses if it knows how much raw materials are going to cost over time.

Moreover, because most supply agreements will also address items like time of delivery, as well as quantity and quality, a purchaser can also rest assured that it will have the materials it needs to run its business in the way that it wants. On the other hand, the beauty of a supply contract for a seller is that it can be a guaranteed source of revenue for the business supplying the materials.

When properly thought out and drafted, a supply agreement works to the advantage of all parties involved. Unfortunately, not every agreement is sufficiently clear and detailed to head off vendor disputes. Moreover, sometimes disputes arise because economic circumstances unexpectedly change to the point that the agreement is no longer profitable. Supply agreements are an important part of the California economy as a whole and can be profoundly important for an individual business’s needs. However, they can also lead to litigation.