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Last edited 02 Feb 2021

Supply contracts in the construction industry

A contract generally establishes the terms of a relationship between two parties. The same generally applies in a supply contract, in which the parties are on the one hand a vendor (who contracts to supply the goods) and on the other hand a client/customer/purchaser (who contracts to buy the goods).

The contract serves to protect the rights of both parties, defining what they can expect, their obligations, and what they are entitled to. The customer will generally know the nature of the goods they will get, the quantity and the delivery method and date, while the supplier knows the price and how payment will be received.

Typically, the clauses of a supply contract may stipulate:

General terms.
Pricing terms.
The supplier’s main responsibilities.
Terms of payment, e.g how to pay, whether by post, online payment, direct transfer, other method, etc.
Terms for the delivery of goods (how they will be shipped).
Additional charges for shipping in cases that are over and above the normal terms of the contract.
Supplier’s delivery guarantees within a specific period following placement of order.
Quality management.
Compensation events e.g options for the supplier if payment terms are transgressed, including cancelling any discounts, rendering the contract null and void, etc.
Liabilities and insurance.
Termination, resolving and avoiding disputes.
Standards and specifications with which the supplied items must comply.
Discounts.

There may be a pricing schedule that determines the prices of the goods to be supplied to the customer. It will often identify the ‘special’ nature of the prices to the customer either as a flat rate or on a sliding scale based on the volume of goods in question. The rates so specified will usually be in force for the duration of the contract.

Having standardised forms of contract can mean contract terms are homogenised over a project and across different projects giving suppliers and purchasers a familiarity which engenders confidence and can save time, money and frustration.

The NEC4 Supply Contract (SC), for example, is used for the local and international procurement and supply of high-value goods and associated services such as transformers, turbine rotors, rolling stock, loading bridges, transmission plant, cable and process plant, together with related services such as design.The NEC4 Supply Contract is the first set of standardised terms designed for local and international procurement of high-value goods and related services including design.

The NEC4 Supply Short Contract can be used for local and international procurement of goods on less complex projects that do not require sophisticated management techniques.

NB The term 'supplier' has grown to have a very wide meaning in the construction industry, and any member of a project team may now be considered a supplier, including contractors, designers, subcontractors and so on. This means that any form of agreement within this extended supply chain might be considered a supply contract, including the contract for the main contractor or subcontractors, or appointment agreements for designers and other consultants. See supplier for more information.