A Master Supply Agreement governs the ongoing supply of goods between buyer and supplier, setting pricing, logistics, and quality standards. This playbook provides insights into balancing continuity of supply, cost control, and contractual accountability.
Why This Matters: Without liability caps, a single incident could trigger catastrophic losses that exceed insurance and financial reserves, threatening business viability.
Negotiation strategy
If you're the Buyer:
Ensure the liability cap aligns with your insurance coverage. Clearly define exclusions for fraud, gross negligence, and willful misconduct to protect your interests.
If you're the Supplier:
Negotiate for a reasonable liability cap that reflects the scope of work. Advocate for exclusions to be limited to intentional misconduct to avoid undue risk.
Essential elements
1
Liability Cap
Maximum recoverable amount.
2
Exclusions
Liabilities not capped.
3
Insurance Alignment
Cap matches insurance coverage.
Action framework
ACCEPT
Propose edits if the cap exceeds insurance limits or lacks clear exclusions.
EDIT
Reject if the clause imposes unlimited liability or lacks necessary exclusions.
ADD
Add language to align the cap with industry standards and insurance coverage.
PRO TIP
Always align liability caps with your insurance policy to ensure coverage adequacy.
Example clauses
FAVORABLE
Standard Liability Cap
"The liability of either party shall not exceed [specified amount or percentage], except in cases of fraud, gross negligence, or willful misconduct."
NEUTRAL
Basic Liability Clause
"Liability is limited to direct damages up to [specified amount]."
UNFAVORABLE
Unlimited Liability
"Each party shall be liable for all damages without limitation."
Fallbacks
High-Risk Contracts
Contracts involving high-value transactions or sensitive data require robust liability limitations. Engage with risk management to assess exposure and adjust caps.
Technology Agreements
In tech contracts, ensure liability caps cover potential data breaches and align with cybersecurity insurance.
International Deals
For cross-border agreements, consider jurisdictional differences in liability laws and adjust caps accordingly.
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