By Attorney H. Robert Fischer III
Introduction
Whether you’re sourcing raw materials or selling finished goods, well-drafted supply and distribution contracts in Pennsylvania are mission-critical for small businesses. Too many still rely on handshake deals or vague emails. A clear, written supply agreement protects your pricing, inventory, and legal position when problems arise.
Why Supply Contracts Matter for Small Businesses
Supply and distribution agreements control the flow of your most valuable asset—your product. These contracts define who delivers what, when, where, and at what price. Without that clarity, you’re exposed to late shipments, surprise costs, and disputes that your business may not be ready to handle.
Key Clauses to Watch in a Distribution Contract
Exclusivity Clauses
Will your distributor have exclusive rights in a region or industry? Exclusive distribution agreements in Pennsylvania can secure commitment and focus—but they can also limit your growth if the relationship fails. Be specific: outline whether exclusivity covers product lines, territories, or sales channels.
Minimum Purchase Requirements
For sellers, these clauses guarantee sales volume. For buyers, they can create a financial burden. Understand the minimum purchase terms and the consequences of non-compliance in any small business distribution agreement.
Delivery Terms & Risk of Loss (FOB Shipping Terms)
Terms like “FOB Origin” or “FOB Destination” determine when risk of loss transfers. “FOB Origin” means the buyer assumes risk when goods are shipped; “FOB Destination” means the seller is liable until delivery. This can make the difference in who pays if goods are damaged in transit.
Termination Rights
Can either party terminate the contract? Are there required notice periods or penalties? Avoid being locked into a long-term contract without a clean exit strategy. A mutual 30- or 60-day written notice is typical—just be sure it’s included clearly in your supply contract.
Price Adjustments & Payment Terms
Are prices fixed, floating, or index-based? Look for caps on increases, required notice, and clear formulas. Avoid vague “market price” language unless you trust the supplier and can independently verify pricing.
Force Majeure (Acts of God)
Clearly define what counts as a force majeure event—natural disasters, pandemics, strikes—and whether it delays performance or excuses it entirely. Don’t leave this clause open to interpretation.
Always Review (and Negotiate) the Other Party’s Contract
Suppliers and distributors often use contracts that protect their interests. Watch for:
• Indemnification clauses that shield only them
• Risk-shifting terms that place all liability on your business
• Penalty clauses for minor or unintentional breaches
• Dispute resolution clauses requiring out-of-state arbitration, increasing your enforcement costs
If your company has leverage, push back. Many of these terms are negotiable. Even small edits can significantly reduce your risk and protect your cash flow.
Pennsylvania-Specific Legal Tip
Under Pennsylvania contract law and the Uniform Commercial Code (UCC), most sales of goods over $500 require a written agreement to be enforceable—unless exceptions like part performance or merchant confirmations apply. While courts may enforce emails or invoices, you’re far better off with a formal signed contract covering all key terms.
Final Thoughts
A poorly written—or nonexistent—contract can cost you far more than a legal review ever will. If you’re scaling, entering new markets, or changing vendors, invest time into crafting the right supply or distribution contract. It’s your legal backbone for protecting growth, pricing, and product delivery.
