How can you reduce risk in supply chain contracts- in Cardiff

When you're managing contracts across a supply chain, you're also managing risk, especially in an uncertain trading environment. The logistics of manufacturing and transporting goods during a global supply chain crisis have become increasingly complex, with rising fuel costs, shortages of HGV drivers, escalating raw material prices, and post-Brexit regulatory changes all adding pressure. If you're dealing with late deliveries, inflated costs, or supplier disputes, it’s not just frustrating; it can be financially damaging. You need to know that your supply contracts are protecting your business, not exposing it.

Our commercial law solicitors work with you to build strong contractual protections, clarify liability, and effectively manage risk allocation, enabling you to operate with greater confidence and fewer commercial vulnerabilities. Our commercial contract dispute solicitors often deal with requests for legal advice on supply chain contract topics such as:

• Can a transport company escape a supply chain contract that is no longer economic to fulfil because of the sudden rise in salaries for HGV drivers and rapid increase in petrol prices?
• Can a manufacturer sue their sub-contractor as the company has not met an agreed delivery timescale resulting in the manufacturer being in breach of their sales contract with a retailer?
• Can a company terminate a contract for non-performance when the fault lies with the supply of goods rather than their quality?
• Can a retailer claim reputational damage and consequent loss from a manufacturer or supplier as failure to supply goods to the end consumer has led to complaints and refunds?

Whether your company is a start-up, a well-established retail brand or is at the top or bottom of a vertical supply chain contract chain, you must have a specialist commercial solicitor on board to ensure that your business is not the one ‘holding the can’ for all the supply chain issues. Especially as others in the vertical supply chain will have ensured their contracts include review clauses, termination clauses, and liability limitation clauses that work in their favour.

In today’s economic climate, it’s more important than ever that your supply chain contracts are robust, forward-thinking, and designed to withstand disruption. For context on the legal framework around these arrangements, take a look at how horizontal and vertical agreement structures can affect your position. Gone are the days when a company could contract with another company to supply or deliver goods and ignore any associated legal or reputational risks.

When it comes to supply chain contracts, price is not always the determining factor of who wins a tender or gets the contract. In the opinion of commercial solicitors, choosing the cheapest supplier or haulier may actually increase your risk of commercial litigation through contract disputes, ultimately costing your business more and damaging your reputation with a manufacturer further up in the supply chain or with the end consumer.

Supply chain risk factors include:

• Governance: Any hint of bribery, corruption or tax evasive practices can not only result in investigation that damages your supply chain but can also risk your reputation, even if you are only part of the supply chain and not directly concerned in the governance issue.
• Data protection and confidentiality: It is inevitable that those in a supply chain need to share data but contractors may not be as diligent as your company in complying with data protection, client confidentiality, cyber security and GDPR. This can lead to breaches of data protection legislation that may not directly result in GDPR non-compliance for your business, but can still cause significant reputational damage if your company is linked to a data breach.
• Treatment of supply chain workforce: However far removed your company may be in a vertical contract supply chain your business can still be affected if a supplier or carrier fails to treat their workforce properly. Examples include failing to pay the national minimum wage, allowing HGV drivers to work beyond permitted hours, not complying with illegal working legislation or the Modern Slavery Act 2015, and discriminating against some workers in contravention of The Equality Act 2010.
• The environment: If your business has a unique selling point, for example, being environmentally friendly or committed to animal welfare, it is important that those in the supply chain are equally committed to those principles and will adhere to the same standards that you have introduced within your own business. Failure to address environmental issues in the supply chain can create significant damage to your brand.

Due diligence in the supply chain: Commercial solicitors say that putting the time in with due diligence prior to the signing of commercial contracts significantly reduces supply chain breakdown and, just as importantly, the potential for commercial litigation over supply chain disputes. Requiring contractors to complete due diligence questionnaires so that your business knows its supply chain in the same way as you ‘know your client’ should be one element of the due diligence procurement process, as well as ensuring that potential business partners fully understand the environmental or other standards they will need to work to if involved in your supply chain.

Managing risk through specialist supply chain contracts: The management of risk, after the due diligence phase, includes ensuring that your supply chain contracts limit your risks (whether those are legal or reputational) and your liabilities. Examples of clauses that can help manage supply chain risks include:

• Compliance with regulations: The supplier must comply with any industry specific regulations and legislation and, where relevant, must maintain membership of an industry professional body and comply with training regimes. If the supplier fails to comply with these requirements, you could include this as a reason for you to have the right to terminate the contract.
• Insurance cover: The supplier must maintain insurance cover at a specified level. Insurance will not cover every risk and a contracting party may want to include a force majeure clause so that a contracting party is not liable for forces outside its control.
• Data protection: A data protection clause emphasises the importance of a contracting party complying with GDPR, not only in relation to the legislation but the potential for the termination of the contract or penalties.
• Use of sub-contractors: Your business may want to specify that the contracting party should only sub-contract with sub-contractors approved by you or who are members of a recognised industry body. If you are being asked to commit to this type of agreement it could affect profit margins if your hands are tied on your choice of sub-contractor. One way to minimise risk is to include a list of pre-agreed sub-contractors.
• Audit provisions: Audit provisions help manage risk by those in the vertical contract regime being clear that their performance is being monitored in accordance with agreed standards, key performance indicators and the consequences of non-compliance with the contractual standards.
• Review provisions: Any supply chain contract should include industry-specific review provisions. It is also crucial to regularly update your commercial contracts to ensure they remain fit for purpose.
• Termination clause: The termination clause needs to consider if a supplier can terminate for breach of contract or if there are scenarios where a contracting party can be allowed to remedy their breach of contract.
• Dispute resolution: With an increased risk of commercial contract disputes arising from the global supply chain crisis, it is essential to be proactive in managing disputes to achieve a quick and cost-effective resolution.

Reviewing your supply chain contracts: It can take petrol shortages, motorway demonstrations and threats of port blockades for a company to realise just how exposed they are to protracted and expensive commercial supply chain litigation. No commercial litigation solicitor would suggest that a review of a supply chain contract will eradicate all risk but you may be able to minimise your risk, shift the risk and liability to your sub-contractor or review your level of insurance cover or your participation in a market that is too high risk for the level of remuneration and reward.

Whilst reviewing a supply chain contract may appear to be a job of a commercial solicitor the reality is that a joined-up approach is needed with industry specific accountancy, financial and legal advice. This is because there may be a need to trigger a termination clause in an existing commercial contract rather than review and rewrite an existing commercial contract.

Tips on managing risk in supply chain contracts: In an ideal world, you’ll dot the i’s and cross the t’s from the outset, but often reusing old contracts or relying on email conversations to avoid lengthy negotiations seems the easiest way to move forward. Whether this rings true for your business or not, following these tips will help you reduce the potential risks in your supply chain contracts:

• Be proactive – do not wait until a supply chain problem occurs.
• Talk to your commercial solicitor – taking early commercial legal advice can avoid expensive litigation through contract review or negotiation.
• Give supply chain contract reviews the priority they deserve – reviewing contracts proactively can nip problems in the bud.
• Evolution happens – the best commercial contractual terms for your business will change.

Preparing your supply chain contracts for continued uncertainty: Managing risk in your supply chain contracts isn’t just about reacting to disruption; it’s about planning for it. You need contracts that are flexible enough to accommodate the changing commercial landscape, from post-Brexit trading conditions to inflation-driven cost pressures and delivery uncertainties. The ability to adapt starts with how your contracts are structured and how regularly they are reviewed.

Our expert commercial law solicitors help you take control of supply chain risk through strategic contract reviews, transparent risk allocation, and forward-looking commercial advice. Whether you’re a manufacturer, supplier, or retailer, we’ll make sure your agreements give you the clarity, control and protection you need in uncertain times.