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Procurement 101 – Supplier Contracts

By Lee Rhodes Lee Rhodes

Procurement 101 – Supplier Contracts

4 mins read

Supplier relationship management is one of the key skills for a business to have when looking after supply, demand and efficiency of your processes. When you enter into an agreement with a supplier, the supplier contract is the vital piece of information that will help you to measure performance across the working relationship.

This article breaks down all the key elements of a supplier contract and gives an overview of the most important information you will need to know for your business.

1. Contract Cover

The Contract Cover, although self-explanatory, is equally important as other parts of the agreement. This cover sets out clearly to the contracting parties what service they are going to contract.

2. Contents Page and Definitions Page

The contents page of the contract clearly sets out the structure and flow of the actual contract sections. This is a core requirement of the contract in order to aid quick referencing.

The definitions page will make clear any terminology being used in order to avoid any misinterpretations of those terms throughout the contract.

3. Recitals

The recitals of an agreement, or ‘Background’ provisions, are normally expressly slated to be non-binding. They are meant to show the commercial context of the agreement and thereby assist with proper reading of the parties’ rights and obligations under the main section of the agreement.

4. Contractual Terms and Conditions

The terms and conditions of a commercial contract should be clear and unambiguous. These terms and conditions set out expectations of the agreement between both parties. The main areas to be aware of are:

Payment Terms, Termination and Limitation of liability.

5. Specification of Service

The Specification of Service is to clearly set out the detail of what you expect the supplier to deliver and what’s required in order to maximise the quality of the supplier capabilities and ensure the client’s expectations are continually delivered and developed. This clause also links closely with the KPI/SLA section of the contract.

6. KPI/SLA Schedules

These are elements of business process management, which is often abbreviated as BPM.

Both of these pertain to monitoring specific measurements of the performance of your business.

KPI- Key Performance Indicator

Which key performance indicators will serve you best can vary by the size of your business and the type of market you’re in. Your KPIs might include some combination of uptime of your IT Infrastructure or number of client complaints received on products or services you offer. The performance measurements for a cleaning contract will likely be very different from the KPIs for an M&E provider or waste management contract, for example.

SLA- Service Level Agreement

You might have a service level agreement to set expectations with a vendor providing supplies or services to your business. Or you might have a service level agreement to document the expectations for your contribution to your clients or business partners. Your SLA could set the standards for timelines, quality levels or the amount of service you expect a business deal to include.

It’s really important to read and understand your supplier contracts and ensure that these are referred to regularly in order to continually monitor performance throughout the contracting period. Getting the best out of this working relationship means more innovation and better service.


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