Ensuring confidence in your international supply chain contracts

Article posted by Giles Searby, on behalf of hlw Keeble Hawson

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Giles Searby, partner at law firm hlw Keeble Hawson, gives his top tips to avoid the pitfalls of international supply chain contracts.

1. Pushing down risk

Remember that wherever your business fits into the supply chain, every contractor above will be seeking to minimise their risk and potential liabilities by pushing them down to the next level through terms and conditions incorporated into their contracts.

2. Beware standard terms and conditions

Think carefully before accepting standard terms and conditions. If you have something that your customer can’t easily find elsewhere, your negotiating position may be stronger than you might expect.

3. Specify terms and conditions

Don’t accept “standard terms” that you can’t comply with. It is possible to alter “standard terms” – special conditions can be agreed that will be specific to your contract with your customer and take precedence over any competing provision in the standard terms.

4. Understand your obligations

Ensure you have a very clear understanding of what all your obligations will be under the finalised contract.

5. Deliver on time

Be aware that an integral element of a supply chain delivery is that your product is delivered on time – and the penalties for late delivery can be severe. If you miss the consignment date your customer might, for instance, have included a clause to require you to ship the products via air-freight rather than by sea, which can be up to 10 times more expensive.

6. Back-to-back provisions

If your performance is reliant on a supply of materials/parts from a sub-contractor, ensure that, the terms and conditions passing down potential risk and liability from your customer are matched by back-to-back provisions in your supply contracts.

7. Clarify your potential liabilities

Be very clear on the extent of your potential liabilities. It would usually be sensible to try and agree a cap on liability – in many cases this comprises a multiple of the contract value.

8. Limit your limit liability to “direct losses”

Ensure you limit liability to “direct” losses only and avoid any provision which includes “indirect or consequential losses” – in a worst case scenario (eg. if your component product’s delivery is delayed and the final production line has to be halted) these can destroy your business as consequential losses can multiply very quickly.

9. Consider the governing law of the international contract

Always take into account the governing law of the international contract.  In the unwelcome face of a dispute, it is always better if you can have it heard in your local court, with your own lawyers and in your own language. If involved in an overseas jurisdiction, obtain local legal advice on the terms – provisions may be implied into contracts by way of the national law of the chosen country.

10. Avoid pitfalls at the contracting stage

Ultimately, avoiding potential pitfalls at the contracting stage is more effective and less costly than extricating your business from a problem later arising from an onerous clause. The value of contacting your specialist international trade lawyer for early advice cannot be underestimated.

For more information contact hlw Keeble Hawson online.