Supply of services – five terms to look out for in UK supplier contracts

Alternative protein products are the result of innovation and research, but translating the product from the lab to the supermarket and millions of people's homes will require collaboration with other parties by way of a contract – whether it is, for instance, to replicate a manufacturing process on a commercial scale, distribute products to new geographic areas, or provide quality assurance.

Contracts for the supply of services therefore require very careful consideration. They will touch on issues such as which party is liable and for how much, when the contract can be terminated, and how the contract can be interpreted and enforced. We highlight five contractual terms which companies at any stage of development in the alternative proteins space should be looking out for in supplier contracts.

1. Termination

Specifically, termination for convenience. This allows a party to terminate the contract without requiring fault on behalf of the other party.

There may be circumstances where the flexibility to terminate a contract is desirable, such as where an arrangement with a supplier has become unprofitable, there is a change in business strategy, or a desire to switch to a different supplier.

In most circumstances, however, suppliers will want to at least mitigate such a term by including a minimum initial period during which the contract cannot be terminated, to give it a chance to recoup its initial investment. Whether a termination for convenience works for you will depend on which of the parties benefits from the provision and the particular circumstances of the arrangement.

2. Indemnities

An indemnity is a promise by the party giving the indemnity to protect the beneficiary of the indemnity against an identified loss, by paying money on a pound-for-pound basis if an event specified in the contract occurs.

A common example is where one party indemnifies the other party for losses in relation to infringement of third party intellectual property (IP) rights. If a customer has infringed a third party's IP rights due to the customer's use of a supplier's product, and incurs liability as a result of that infringement, an indemnity is advantageous as it allows for recovery of losses in relation to that liability from the supplier. The type of indemnities that are desirable vary based on the risks and liabilities involved in the provision of the specific services that are the subject of the contract, and advice should be sought as to what is appropriate in each case.

3. Limitation of liability

Liability under the contract will be unlimited unless it is expressly limited by a term of the contract.

A party might look to cap their liability, for instance, in line with the liability coverage offered by relevant insurances.

The supplier will normally insist on a limitation of liability, as the risk of liability is typically regarded as greater when supplying services. However, the customer may also benefit from limiting liability under the contract, as it may also have obligations beyond payment in relation to which it could incur liability. In those circumstances, it is important to strike a balance between what each party considers to be an acceptable level of risk.

4. Implied terms

It is important to be aware that legislation can sometimes imply certain terms into the contract, beyond what is simply written in the terms. For instance, there are terms that can be implied into a contract which require suppliers to carry out services with reasonable care and skill, and within a "reasonable time" where the time for performance is not fixed by the contract. There are also implied terms that require customers to pay suppliers a "reasonable" amount where the price is not fixed by the contract.

To an extent, parties can seek to exclude or vary these implied terms, but careful legal consideration should be given to any such variation so that they are not found to be unreasonable and therefore ineffective.

5. Boilerplate

Collectively, boilerplate terms address various important issues such as choice of law and jurisdiction (for example, the contract can be governed by the laws of England and Wales and the courts of England and Wales can be stipulated as having jurisdiction to deal with disputes), variations (to provide certainty as to how the contract can be validly amended, such as requiring all variations to be agreed in writing) and "Entire Agreement" clauses (which identify the express contract terms and deny contractual effect to statements made outside of the contract, such as in negotiations).

Boilerplate terms are key to the interpretation and enforcement of contracts and, as such, despite often being ignored, the parties should make sure to give sufficient attention to their drafting.

There is huge opportunity for growth in the food market for alternative protein products and the negotiation of contracts is important at every stage from launch to the expansion and consolidation of existing positions. Contracts for the supply of services touch on a wide range of important issues not limited to the five we have highlighted. Please reach out to our team to see how we can help you navigate supplier contracts and other commercial agreements.