What Is a Supplier Contract?

A supplier contract is an official agreement between an individual or company and a supplier. The latter may also be referred to as the vendor. It is a contract that lays down the terms and conditions of a business supply transaction.  

According to an online article by the Chartered Institute of Procurement and Supply, supplier management refers to the relationship between a supplier and a buyer. A healthy and working supplier relationship can  have several benefits. The article enumerates four main benefits: price reduction, cost information exchange, technology and innovation exchanges, and improved or prioritized service levels.   

Types of Suppliers

In the same way that there are different industries and sectors, there are several kinds of business suppliers as well. They act as providers of raw material, services, labor, and all-around support to businesses.    

Service Providers: When there is a service gap in business, the obvious thing to do is to outsource that particular service. Independent contractors are often synonymous with service contractors. These contractors could be installation professionals who cater to residential or commercial clients. Rental equipment services can fall under this category too. Other companies often need heavy machinery like backhoes and forklifts to accomplish various tasks, whether that be periodically or just a single occasion. These service provider companies lease out the heavy equipment thereby supplying the client with an essential service. Events Management: Another aspect of independent contracting is event management. When companies are unable to oversee their own events whether it’s due to lack of manpower, time, or resources; they will often resort to hiring a third party and transfer responsibility to them. For example, a beauty manufacturing company is set to introduce a new skincare line to the public. But because the company does not have enough in-house marketing professionals to take care of the event, an events management agency is tapped to handle the product launch. A more universal example would be the case of wedding ceremonies and receptions. Some couples prefer to do DIY weddings and plan everything on their own. But for those who do not have the luxury of time, hiring a wedding planner is the most convenient option. Wedding planners act as independent contractors who take care of everything from the program to the flower arrangements. What they supply to their clients is their service and labor. PR & Marketing: In corporate environments, marketing is a key department that requires firm and clear strategies. However, some individuals and small businesses would rather delegate all marketing tasks to a separate entity. Advertising agencies and public relations (PR) firms cater exclusively to marketing needs. Businesses pay these agencies to handle their social media accounts and to even face the press occasionally. Some of these functions include curating scheduled social media posts on multiple platforms, commenting and replying to customer queries online, dealing with the press, and handling the overall promotions and branding. A lot of businessmen and businesswomen opt to source out marketing work so as to focus on the operations side of their company. Materials Supplier: Another type of supplier is the raw material supplier. This is especially prevalent in the construction and real estate industries. The physical supply is provided for by an external agent. The market that these suppliers have will always be lucrative as long as there is steady demand. For instance, a real estate developer would need to procure construction materials in order to put up a subdivision or a commercial complex. The typical business transaction would consist of requesting for materials by placing a purchase order. These can be for all types of materials like concrete, glass, wood, floor tiles, etc. Another common example would be the case of restaurant businesses. In order to maintain sufficient supply and keep operations running, restaurant owners would need a constant and fresh supply of ingredients to feed their customers.

Parts of a Supplier Contract 

A supplier contract may contain various terms depending on the nature of the business transaction. But there are several common elements that can be found in most supplier contracts. The items listed below are just some examples: 

Timeline: Much like a job order, a supplier contract should always contain a clear timeline. A contract is only good for a certain time. In other words, there is a start and finish date. The supplier is accountable to the client to deliver his services within a set timeframe. Of course, delays and unforeseen events cannot be prevented. That is why prior terms and conditions should already be put in place to anticipate any potential issues or problems. For example, a construction company taps a concrete manufacturer to supply cement for their various residential projects. Having a specific timeline set in the contract will help ensure that the supplier keeps his end of the bargain by delivering the materials on time. Roles and Responsibilities: Like in any written agreement, the roles and functions of each party should be outlined and properly identified. In the case of supplier contracts, the duties of a supplier should be listed and described individually. In the same way, the client also needs to be held accountable. A client’s responsibilities may include conducting regular reviews and updates, securing on-time approval, and making sure the supplier is paid on time. Deliverables: A client’s satisfaction would be gauged by the ability of the supplier or vendor to deliver what is expected of him. Clear and specific deliverables need to be stated in the contract so as to firmly establish accountability for both parties. For instance, a client engages the services of a construction supplier. Each phase of construction should be identified in the agreement with the corresponding deadline or due date. Deliverables might include the completion of the skeletal structure in a building, painting works, electrical and plumbing installation, light fixtures, etc. In other scenarios like wedding suppliers for instance, deliverables could include the printing of physical invitations, setting up the reception venue and wedding decorations, booking the event host, or completing the audiovisual presentation. Payment Scheme: The most basic thing a client can do is to follow through with on-time payments to their suppliers. An agreement contract would need specific details not just regarding the total amount to be paid, but also the payment guidelines to be followed. Both parties need to lay down the terms for when and how compensation will be fulfilled. You also want to make sure to indicate payment schedules in the supplier contract. This could be weekly, bi-weekly, or monthly payments depending on the parties. What are the preferred payment methods? If it is through check payment, make sure to provide the necessary bank details as well. Termination of Contract: In the event of any conflict, grounds need to be established first before a cancellation can be initiated by either party. Termination would require that certain criteria is met for the contract to be absolved. Examples of grounds for termination would be chronic delays in deliverables, frequent unresolved payments, violation of trade secret non-disclosure, subpar service or quality, serious misconduct, etc. It is important that these grounds are clearly identified and itemized within a supplier contract. Liability Policy: The question of liability would greatly depend on the agreement made between the involved parties. Unforeseen events and accidents can lead to involuntary delays or even forestall productivity. It is important to set boundaries in the event of these unplanned circumstances. Whose responsibility is it when a worker meets an accident over the course of a project? Both client and supplier need to agree on who shoulders the liability in cases like these.

How to Create a Supplier Contract

For a supplier contract to be comprehensive, it needs to cover key areas and include essential sections. The content can be quite technical and it is much more convenient to make use of an existing template than to start from scratch. Follow the simple step-by-step guide below to customize your own supplier contract.  

Step 1: Involved Parties

As previously stated, the parties involved are the supplier and the client or customer. As part of your introduction, you need to state their complete names (or the complete name of the organization), and their complete business address. Identify and assign each party as either the supplier or client. You can also indicate the date the agreement was made.    

Step 2: Nature of Agreement

The next step is to describe the nature of the agreement. What is the purpose for forming a contract? Is it for an upcoming event? If it is, specify if the event is a one-time occasion or a recurring one. What is the vendor supplying? Maybe it is raw materials, labor, goods, and other commercial services. Before proceeding to the contract’s stipulations, always make sure that your agreement has defined each party’s role and tasks. This will help clear the air and prevent any unnecessary disagreements.  

Step 3: Terms and Conditions

Once you have established the contract’s objective and delegated the responsibilities, you need to draw up a list of terms and conditions that both parties have to uphold. These provisions can be as general or specific as needed. You can get ideas from the terms and examples given above. Some sample terms could involve quantity, price breakdown, payment guidelines, severability or cancellation clauses, deliverables schedule, etc. It is important for a supplier contract to be comprehensive yet concise.       

Step 4: Confirmation of Agreement 

To conclude your supplier contract, provide a brief declaration stating that the aforementioned terms and conditions are agreed upon by each party. Provide enough space at the bottom of the contract for both parties to affix their names, signatures, and the date. A closing confirmation statement is crucial to further validate the agreement.     


What should a supplier agreement include?

A supplier agreement contract should include an outline of the parties involved; basic information about the nature of the agreement; the roles and responsibilities of each party; and general stipulations or conditions such as payment terms, description of services, scope of work, etc.

Do I need a contract with my supplier?

Yes, it is advisable to have a written agreement whenever you intend to engage the services or products of a supplier. This is to ensure that both you and the supplier know what to expect of each other because it is clearly stated in an official contract. Having a binding contract can also protect you from unnecessary inconveniences or prevent potential issues in the future.

What are the 3 types of contracts?

According to an online article by ContractsCounsel, there are three common types of contracts. These are fixed-price contracts, cost-plus contracts, and time and materials contracts.

What are the four requirements for a valid contract?

According to Cornell Law School, a contract needs several requirements for it to be considered valid. There must be mutual consent expressed by a valid offer and formal acceptance. There should also be adequate consideration, capacity, and lastly, legality. 

The ideal supplier-client relationship is one that is based on trust, clarity, and accountability. To achieve this, a comprehensive and clear supplier contract must be established between both parties. Browse the sample templates above to get started on your own supplier contract!