How can I ensure I’m getting the best out of my supermarket deal?
I'm in late stage negotiations with a major supermarket to stock my range of allergy friendly cakes and biscuits but I'm quite daunted by the contract I've been presented with. My budget for legal costs is very limited but what can I do to protect myself and make sure I'm getting a good deal?
Danvers Baillieu writes:
I’m assuming your legal budget is not going to stretch to having the contract reviewed by a lawyer. If it is an important deal for you, it is important to ensure you have got proper advice, but bear in mind that big companies are unlikely to negotiate their standard terms with small suppliers, so don’t expect many changes to be made. The good news is that the courts are likely to be very sympathetic to you, and will interpret clauses in your favour as far as possible if the contract is ever disputed.
You should really focus on the commercial terms – such as price, how long you will have to wait for payment, what happens to unsold or damaged stock and whether there is any long term commitment by the supermarket to keep ordering or by you to keep supplying.
For example, supermarkets are notorious for making their suppliers wait for payment. You need to be sure that you can keep trading on this basis. On the other hand, dealing with a large supermarket you can be reasonably confident that it is good for the money, whereas if you were supplying a small chain, you might want to check their creditworthiness before extending generous payment terms.
That said, the important thing is that you read the contract very carefully, highlight any legal jargon you don’t understand and with a small amount of effort, you’ll find clear explanations on the internet, for example on Wikipedia. You should also check the basics, for instance make sure the contract is with the right entity – i.e. with you personally (if you are a sole trader) or is it through your company?
In particular, you need to be aware if you are giving any indemnities in the contract. For example, if you supplied a faulty product, you might have to indemnify the supermarket for all its loss in relation to that, which could be very expensive for you. Once you have figured out what you might be liable for, you should see if you can get insurance cover for any of these risks, so if something does go wrong your exposure is limited. Some contracts will insist that you have insurance, so check if that is the case and make sure it is in place.
Depending on your long term plans, you may want to be able to sell your business in the future. Your contract with the supermarket will be an important part of your business so you should ensure that the contract cannot be terminated as a result of a change of control of your company.