Whether your business is a large corporation or you’re a one-person band, you will likely need to engage suppliers of some kind at some point. They may be manufacturers who can transform your designs into products, marketing professionals or agencies who can help you build your brand, tech companies who can develop systems or platforms for your business or any other kind of company or individual who can supply your business with the expertise or capabilities you need to grow.
Engaging suppliers is usually a sign that your company is ready to embark on something new so should be a cause for celebration. Partnering with the right people can transform your business and lead to robust and productive working relationships that benefit both parties. However, to achieve this, certain processes must be followed and there are some legal considerations to be mindful of.
If you’ve already selected a supplier and are ready to draft an agreement then you may either download my Supplier Agreement Template to ensure your business is protected or get in touch if you require a bespoke agreement.
However, if you’re just starting to engage suppliers and need some guidance on the questions you need to ask, the legal matters to consider and the aspects of the relationship you might want to clarify before selecting a supplier, then this guide is for you.
Supplier Due Diligence
Due diligence can mean different things to different companies. Some may need to ensure they’re working with financially stable suppliers, especially if the intended supplier is expected to provide essential services over a longer period of time.
Due diligence usually refers to checking a company’s finances. When buying or investing in a company this is a very thorough process. However, when engaging suppliers you’ll likely only request basic reports and documents that support the company’s ability to deliver the service.
In recent years, supplier due diligence has sometimes also encompassed assessing shared values and assessing data protection practices. Since brand reputation has become more valuable, companies may need to assess their suppliers to ensure their values align.
For instance, if you’re a business with strong environmental values then it may be most important for you to partner only with companies with sustainable practices. So you may require proof of environmental policies, in some form.
There are several ways to conduct due diligence and it can be very basic or far more in-depth. You may even outsource this if required. However, most companies will have policies/documentation that you may request to ensure their practices meet necessary standards. These might include:
Privacy Policy - which should outline how they process and protect personal data, which may well include yours or that of your clients.
Modern Slavery Statement - commonly used in retail to declare that processes are in place to ensure the Modern Slavery Act is being adhered to.
Supply Chain - documentation of the supply chain may be required to ensure that practices meet with your ethical values (fair trade, environmental, etc.).
Environmental policies - that outline sustainable practices the company adheres to
Financial records - many will be public but you may request private records if necessary.
When considering if, and to what extent, you will conduct due diligence, it’s important to be reasonable. Entering into supplier agreements that are costly and high-risk may justify a thorough investigation into the company's credentials and records. However, if you’re working with a freelancer or small business it may be unfair to expect them to share confidential information with you. Ask only for what is necessary to minimise your risk and protect your business.
Intellectual Property And Supplier Relationships
Agreeing on intellectual property (IP) rights is essential when engaging suppliers. We’ve probably all heard of stories where a manufacturer has ‘stolen’ a design and been able to do so because the IP ownership was unclear. You may also have heard of tech companies that had their concepts used by former partners. Hence why it's important to follow processes and clarify in legal documents who owns IP and for what.
Of course, you will do this within a robust supplier agreement or your terms of business, once you have begun the onboarding process for your chosen supplier. However, as this is such an important aspect of the supplier relationship, you may wish to address it when engaging and assessing potential suppliers.
Let potential suppliers know what you expect to own/retain the rights to, such as code, photography, designs, content, etc. It’s important to recognise that in the UK, the work belongs to the originator. In some cases, this may be the supplier. For instance, if you outsource a developer to build an app for you based on your idea. Therefore, you need a legal document that specifies the copyright for any work done on your behalf is assigned to you.
For more on copyright law, read my article - 5 Things Every Business Should Know About Copyright
Non-Disclosure Agreements (NDAs)
In some cases, when working with suppliers, non-disclosure agreements (NDAs) may be necessary. A non-disclosure agreement is a confidentiality contract between two parties. It should specify what it is that must be kept confidential, which may refer to specific information or even ideas shared that should remain private. Non-disclosure agreements can help businesses retain a competitive edge and aid open discussion and idea/information sharing.
NDAs may be separate agreements or they may be part of supplier agreements. Depending upon the importance and complexity of confidentiality. For example, you may wish a speechwriter you hire to not disclose publicly that they script your speeches. In which case a contract clause will likely suffice. Or, you may need a consultant, given access to all your private company information in order to advise and develop a business strategy for you, to be legally blocked from sharing this information with others, especially competitors whom they may also be working with (or may work with in the future). An NDA would be advisable in this situation and many others.
However, NDAs are not necessary for every supplier relationship. Contracting a stationery supplier, for instance, will not require confidentiality (typically). This is not a legal document to use as a standard. Partly because it must be drafted properly to robustly protect your interests against serious breaches of confidentiality.
When engaging suppliers, you may find that you need an NDA in place before you progress talks. For instance, if assessing a supplier’s ability to deliver means you need to share confidential information, then you may need to form a non-disclosure agreement with potential partners during procurement to aid open sharing. An NDA does not mean you are obliged to procure the services of the other party but it does mean they may not share the information specified within the agreement with anyone else.
Not sure if you need an NDA? Check out my article on When Your Business Should Use Non-Disclosure Agreements.
Supplier Payment Terms And Termination Of Supplier Agreements
You and your supplier will need to agree upon payment terms, including how fees will be paid and when, as well as how much fees will be.
Although payment terms will need to be clarified in a legal document, such as a supplier agreement, it’s a good idea to discuss these early on as it may impact upon who you choose to work with or whether they would be able to work with you. When agreeing upon payment terms you’ll need to consider your cash flow and be realistic.
In your supplier contract, you’ll also need to establish termination of service and notice periods. Define specific conditions under which either party can terminate the agreement. Causes for termination should cover issues such as breaches of contract and non-performance, but you also need to be able to terminate the agreement if you have a change in business requirements or circumstances.
There may be scenarios where immediate termination of the contract is reasonable and necessary. However, generally, both parties will be expected to give notice. Specify notice periods for termination to allow for adequate time to transition to alternative suppliers or make alternative arrangements.
Drafting A Supplier Agreement
Whether you’re engaging a supplier on a short-term basis or establishing a long-term relationship, it’s important to have a supplier agreement in place. This ensures both parties benefit from the working relationship and expectations are clarified.You may have a bespoke supplier agreement drawn up, and if that’s your preference please get in touch to discuss my contract drafting service. However, many businesses will find that having a contract template that they can adapt for different suppliers, is more cost effective. Fortunately for you, you can download a supplier agreement template from my website for just £150.
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