1. Minimum
Quantities. Liquidated Damages. Does the Buyer have an obligation to buy any
quantities? If so, what is the fee for failing to do so? Such a fee is called “liquidated damages.”
Courts are sometimes reluctant to enforce liquidated damages unless the clause
contains the language stating that the liquidated damages fee is not meant as a
penalty but is a good-faith attempt to estimate actual damages since such
actual damages would be impractical or impossible to ascertain.
2. IP,
Confidentiality, Non-Circumvention, Non-Competition. Supplier will learn about
the Buyer’s product, market, transactions, business partners. Buyer will want
to make sure to retain all intellectual property rights in the product and to
prevent Supplier from going over Buyer’s head to compete while using Buyer’s
contacts and other information learned. This is a good place to include a
Liquidated Damages clause (see above).
3. Prevailing
Language clause ensures that, if your contract is written in more than one
language, your language will control in case of discrepancies and ambiguities
in translation. This is especially important in countries with legal systems
different from that of the US, and a lot of the American legal concepts don't translate well or simply don’t
exist. For example, injunctive relief, intellectual property rights are often quite
literally foreign concepts in countries like Russia, China and India.
4. Term and
Termination. Can both or either of the parties terminate the agreement early
for any reason or no reason at all? Early termination fee? It’s usually better
to include a fixed price in short-term agreements but give Supplier some
flexibility with price if it’s a long-term contract (e.g. Supplier must give
___% discount off of its normal wholesale list prices, beat competitors’
prices, etc.).
5. Acceptance.
Outline the procedure for the Buyer to reject defective products upon
inspection. Supplier must replace defective products or give refund.
6. Warranties.
Suppliers will want to disclaim as many warranties as legally possible, while
Buyers will want to include such warranties into the supply contract.
7. Remedies
Cumulative or Exclusive? Can a party seek all possible remedies listed in the
agreement or does the suffering party have to pick one remedy?
8. Shipping
risk allocation (what if products are damaged, lost, stolen, delayed in the
mail?).
9. Who pays
taxes, fees, import clearance?
11. Indemnification. A party must be reimbursed for damages resulting from the other party’s
negligence.
12. Governing
Law, Jurisdiction and Dispute Resolution. This is particularly important if your supplier is
in a country like China but you don’t want to end up having to go there to sue
them in Chinese if anything goes wrong. One alternative would be to include an arbitration clause, so the disputes
are resolved quickly, inexpensively and confidentially in your hometown or
close by. Some countries restrict the use of arbitration clauses.
14. Severability/Survival Clause ensures that even if some clause(s) of the agreement are held invalid by a competent authority, the rest of the agreement still remains
in force. So, even if the arbitration clause or liquidated damages are not
allowed or disfavored in that jurisdiction, you still have an otherwise valid
contract.
