A supply agreement with a manufacturer or major supplier sets the operational and financial foundation of your business. Get it right and you have a reliable supply chain at predictable cost. Get it wrong and you’re locked into minimum order quantities you can’t sell, paying for tooling you don’t own, or accepting quality you can’t reject.
Before signing — particularly with overseas manufacturers — the contract review needs to surface the operational landmines.
The clauses that matter most
- Pricing and price reviews. Fixed for the term, indexed to commodity inputs, or annual review? “Subject to review” with no methodology gives the supplier free rein.
- Minimum Order Quantities (MOQ) and minimum annual purchase. The supplier wants volume commitments. You want flexibility. Common middle ground: rolling forecasts (binding for 3 months, indicative for 12), with take-or-pay only on the binding window.
- Lead times and delivery terms. Standard lead time, expedite premium, INCOTERMS (FOB, CIF, DDP — each shifts cost and risk differently), penalties for late delivery (liquidated damages typically 0.1–0.5% per day).
- Quality specifications and inspection rights. Reference specifications attached as schedules. Pre-shipment inspection rights, third-party QA (SGS, Bureau Veritas), Acceptance Quality Limit (AQL) standards. Right to reject non-conforming product — at whose cost?
- Tooling ownership. If you’ve paid for moulds, dies, or jigs, the agreement must explicitly state YOU own them. Otherwise the manufacturer can refuse to release them at end of contract — leaving you unable to switch suppliers.
- Intellectual property. Your designs, your specifications, your branding. Manufacturer must not use your IP for any other customer. Confidentiality obligations on your designs.
- Force majeure and supply continuity. Pandemic, war, natural disaster, port closure — who bears risk? Alternative supply arrangements? Stock buffer obligations?
- Termination and run-off. Notice period (typically 6–12 months for established arrangements), treatment of work-in-progress and inventory on termination, payment for non-cancellable purchase orders.
Common red flags
- Take-or-pay on annual minimums with no demand-fluctuation safety valve
- “Best-efforts” delivery commitments instead of binding lead times
- Quality dispute resolution requiring inspection at supplier’s facility (overseas) at your cost
- Tooling clauses stating “tooling remains property of supplier” even when you paid for it
- Price escalation tied to opaque indices with no audit right
- One-sided force majeure excusing supplier but holding you liable
- Limitation of liability caps at the value of the defective product only — no consequential damages
- Foreign governing law and arbitration in jurisdictions where enforcement is impractical
What Claim Done’s contract review delivers
Upload the supply agreement and any quality schedules or order forms. The AI returns a 15-minute A4 PDF flagging MOQ exposure, tooling ownership ambiguity, quality rejection mechanics, force majeure asymmetry, and termination run-off provisions. Specific suggested redrafts ranked by operational risk. Flat $79, 24/7.
When to take it to a lawyer
For supply arrangements over $1M annual throughput, contracts with overseas manufacturers in non-Hague Convention jurisdictions, agreements with regulatory product compliance issues (TGA, FSANZ), or arrangements involving exclusive supply or capacity commitments — engage a commercial lawyer with supply chain experience.
The tooling-hostage pattern
One of the most damaging mistakes Australian importers make is paying for tooling — moulds, dies, custom jigs — without securing explicit ownership in the supply agreement. A typical injection moulding tool costs $15,000-$80,000. When the relationship sours and you want to switch suppliers, the manufacturer refuses to release the tooling, claims it’s their property, or demands a “release fee” of $10,000+. By that point you have no leverage. Fix this BEFORE production starts: explicit written ownership in your name, tool labelled with your business identifier, photographs of the tool in situ, and a contractual right of inspection. Without these, you don’t really own what you paid for.