Key Clauses Every Supplier Contract Should Include

Most SMEs sign supplier contracts with far less scrutiny than they deserve. A badly drafted or one-sided supplier agreement can expose you to unlimited liability, lock you into services you can't exit, or leave your intellectual property unprotected. Here are the clauses that matter most.

Liability caps

One of the most important and most commonly absent clauses. A liability cap limits the amount either party can claim against the other, usually set at 12 months' fees paid. Without one, a supplier's liability to you - and yours to them - is theoretically unlimited.

Check also for carve-outs from the cap: death and personal injury, fraud, and breaches of data protection obligations are typically excluded. Make sure any cap protects you, not just the supplier.

Indemnities

An indemnity is a promise to compensate you for a specific type of loss. Common indemnities in supplier contracts cover IP infringement (the supplier's software infringes a third party's patent), data breaches caused by the supplier, and regulatory fines resulting from the supplier's non-compliance.

Read indemnities carefully - they can be mutual or one-sided. A supplier may seek broad indemnities from you while limiting their own.

Termination rights

You should be able to exit the contract without penalty in certain circumstances. Look for:

• Termination for convenience (notice period - 30, 60 or 90 days is standard)
• Termination for cause - what constitutes a material breach and how quickly it must be remedied
• What happens on termination - data return or deletion, handover assistance, transition support
• Automatic renewal clauses - these can lock you in if you miss a notice window (often 60–90 days before renewal date)

Intellectual property

If you commission bespoke work - software, content, designs - confirm that the IP vests in you. Without an express assignment clause, the default position under UK law may be that the supplier retains the IP even though you paid for it.

For off-the-shelf software and SaaS services, you will typically receive a licence to use the supplier's IP - check the scope of the licence carefully.

Confidentiality

A mutual confidentiality clause protects your business information shared with the supplier and their information shared with you. Check the duration - does it survive termination? - and the definition of "confidential information". Overly broad definitions can restrict legitimate business activities.

Data protection

Any supplier handling personal data on your behalf must have a Data Processing Agreement in place (see our separate guide). This is a legal requirement under UK GDPR - ensure it is included in or appended to the commercial agreement.

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