Contract issues

Supply Chain Risk Management BPLM II

03/11/2024 1
Sem I
 Contract terms
– Express terms
explicitly inserted into a contract by either or both of the parties
– Implied terms
automatically assumed to be part of a contract, by virtue of relevant statute, custom or
business and other factors
– Exclusion or exemption clause
states that one party will not be liable (or will have only limited liability) for some specific
breach of contract
– Force majeure clause
specifies special circumstances in which a party will not be liable for failure to fulfil its
contract obligations
– Conditions
vital terms of the contract, the breach of which entitles the wronged party to cancel or
‘repudiate’ the contract
– Warranties
non-vital terms of the contract, the breach of which entitles the wronged party to
damages
Supply Chain Risk Management BPLM II
03/11/2024 2
Sem I
 Remedies for contract failure
• Damages
financial compensation for losses suffered as a result of the breach
• Specific performance
the court orders the defendant to carry out his obligations under
the contract, if damages would not be an adequate remedy
• Injunction
the court orders a person to do something (mandatory injunction)
or not to do something (prohibitory injunction), in order to avoid
a breach of contract
• Quantum meruit
a remedy available when a contract has been partly performed,
entitling a party to be paid a fair amount for it

Supply Chain Risk Management BPLM II

03/11/2024 3
Sem I
 Liability

– Strict liability
a situation in which an entity is legally responsible
for the damage or loss caused by acts or
omissions – regardless of fault (such as
malicious intent or negligence)
– Vicarious liability
a situation in which a superior bears responsibility
for the acts of the subordinate: organisations
are generally liable for the conduct of their
employees, in the course of their work
Supply Chain Risk Management BPLM II
03/11/2024 4
Sem I
 Limitation of liability

• The term ‘exclusion clause’ is applied to

contract clauses which;
– Totally exclude one party from the liability which
would otherwise arise from some breach of
contract (such as the supply of goods of inferior
quality); or which
– Restrict or limit its liability in some way; or which
– Seek to offer some form of ‘guarantee’ in place of
normal liability for breach of contract
Supply Chain Risk Management BPLM II
03/11/2024 5
Sem I
 Passing of title

• A buyer may wish to stipulate that ownership passes when the

goods have been delivered and formally accepted, following
inspection, testing or other procedures.
• A supplier may wish to stipulate that ownership passes only
when goods have been paid for in full, so that it can repossess
the goods if the buyer does not pay for them (or becomes
insolvent). This is called a retention of title clause, or Romalpa
clause.
• A buyer may secure ownership of the goods upon inspection
and payment, but may ask the supplier to retain possession of
some or all of the goods, in order to reduce its own
stockholding.
Supply Chain Risk Management BPLM II
03/11/2024 6
Sem I
 Contract clauses on price
– Examples include
• A fixed price clause for the duration of the contract
• A contract price adjustment clause, detailing how
new prices or price changes will be determined and
jointly agreed
• Dispute resolution clauses, detailing how disputes on
price will be resolved

Supply Chain Risk Management BPLM II

03/11/2024 7
Sem I
 A force majeure clause should:
– State the events that will constitute force majeure
– Oblige either party to notify the other if force majeure
events have occurred which may materially affect the
performance of the contract
– State that a party will not be considered in default of its
contract obligations, as long as it can show that full
performance was prevented by force majeure events
– Provide for the contract to be suspended for up to 30 days,
if performance is prevented by force majeure for this
period
– Provide for the termination of the contract, by mutual
consent, if the force majeure event continues to prevent
performance for more than 30 days
Supply Chain Risk Management BPLM II
03/11/2024 8
Sem I
 Grievance mechanisms
• Consultation

• Negotiation

• Conciliation

• Mediation

• Arbitration
Supply Chain Risk Management BPLM II
03/11/2024 9
Sem I
 Intellectual property rights (IPR)
• Technological inventions may be protected by the law relating to
patents (such as the Patents Act 2004).
• Products carrying a distinctive design (shape, pattern or
ornament) may be protected by the law relating to registered
designs
• The goodwill attaching to a particular mark or logo used by a
business may be protected by the law of trade marks and service
marks (Trade Marks Act 1994)
• Protection of original literary, dramatic, musical and artistic work
(including graphic work and computer programmes) is afforded
by the law of copyright (Copyright, Designs and Patents Act 1988)
Supply Chain Risk Management BPLM II
03/11/2024 10
Sem I