Business-to-business sales contracts
Advice for businesses on their rights when purchasing goods or services from another business, and how these are different from consumer transactions.
All businesses routinely enter into contracts with other businesses to buy goods or services. Examples include buying a new computer system, a training package or office cleaning services.
When you buy goods and services for your business, you face many of the issues that consumers do - like ensuring their quality and resolving any problems. But as a business, you don't necessarily have the same buying rights and protection as individual consumers.
This guide explains your rights when buying goods and services from another business. It doesn't cover your rights or obligations when selling goods or services to other businesses or consumers.
This guide covers the Unfair Contract Terms Act. It explains how to use terms and conditions to get more from your supplier.
Business-to-business transaction rights
In general, when your business purchases goods or services from another business, you have similar rights to a consumer. This is the case provided there is no contract that contradicts this.
While these basic rights can't be excluded from contracts with consumers, they can be excluded from business to business contracts. So if you're buying goods and services from another business, you should make sure that the terms and conditions of the contract don't put you at a disadvantage.
Business to business rights when buying goods
In the case of goods, unless otherwise stated, you are entitled to demand that your purchases:
- correspond with the seller's description
- are of satisfactory quality - safe, in working order and free of minor defects
- are fit for purpose - capable of doing what they're meant to do
Business to business rights when buying services
Similar rights also apply if you're buying services. You can expect services you buy from other businesses to be carried out:
- with reasonable care and skill
- within a reasonable time (where not fixed by contract)
- for a reasonable charge (where not fixed by contract)
It's important to note that these rights don't just apply to purchases. They also cover transactions such as hiring, hire purchase and part exchange.
Protection under the Consumer Credit Act
If you operate as a sole trader you are also protected by the Consumer Credit Act, under which you count as an 'individual'. This applies to partnerships and unincorporated associations. The Act extends consumer credit regulation to business lending where the amount of the credit or hire agreement is 拢25,000 or less.
The Act does not apply to:
- limited companies
- limited liability partnerships
- individuals of 'high net worth' (as long as this is agreed in writing beforehand).
In general, credit agreements between businesses - ie where credit is provided to limited companies - do not fall under the regulations. You should seek legal advice before entering into a credit agreement with another business.
Terms and conditions when buying goods and services from another business
Businesses buying goods or services from another business should make sure the seller hasn't inserted any exclusion clauses and left you at a disadvantage.
Make sure you read the terms and conditions thoroughly before you enter into a contract for goods or services from another business. The principle of buyer beware applies. Businesses buying goods or services do not have the same rights as consumers.
Check whether there are any terms or conditions in the contract that may be too heavily weighted in favour of your supplier. Look for exclusion clauses. These are clauses which the seller might use to remove certain liabilities from the contract.
If you're unhappy with any terms or conditions in a contract a supplier has drawn up, don't agree to them without first checking your position. You might want to seek legal advice. You may wish to contact Consumerline for further information, Tel: 0300 123 6262.
The Unfair Contract Terms Act
Restrictions on business-to-business contracts - exclusion clauses and the test of reasonableness and how these apply to your business, including sole traders.
The Unfair Contract Terms Act 1977 (UCTA) cover transactions between businesses. In general, businesses are assumed to be free to enter into whatever contracts they agree between themselves. You should make sure you're happy with the contracts you agree with other businesses.
The UCTA places some restrictions on the contract terms businesses can agree to. It lays down rules for the ways in which vendor businesses can use exclusion clauses to limit liability in certain areas. The business selling the goods or services isn't allowed to exclude liability for:
- death or injury - under any circumstances
- losses or damage caused by negligence - unless to do so is 'reasonable'
- defective or poor quality goods - unless to do so is 'reasonable'
The test of reasonableness
The UCTA doesn't define precisely what 'reasonable' means but does set out guidelines. Courts will usually take into account:
- the information available to both parties when the contract was drawn up
- whether the contract was negotiated or in standard form
- whether the buyer had the bargaining power to negotiate better terms
Consumer vs business contracts
You don't have the same protection as individual consumers when you make purchases exclusively for the use of your business. A term in a consumer contract excluding liability for defective goods would be automatically invalid. But when buying as a business it's up to you to check in advance what terms and conditions you're agreeing to.
The Consumer Rights Act 2015 addresses unfair terms in consumer contracts.
Sole traders count as businesses rather than consumers for any business purchases they make. However, if the trader offers you credit terms up to 拢25,000, you receive the same protection as individuals under the Consumer Credit Act 1974.
Use terms and conditions to get more from your supplier
When buying goods or services from another business, try to negotiate with your suppliers to include contract terms and conditions that benefit your business.
Don't be afraid to take the initiative when negotiating contracts with your suppliers. You might find you can have terms and conditions amended or added - improving your position significantly. This will depend on your bargaining power.
Always read the contract carefully. You should make sure that the contract reflects what has been agreed in terms of:
- quantities
- price
- payment terms
- delivery schedule
- defective goods
If you have the bargaining power, negotiate clauses that improve the transaction from your perspective. For example, a contract for the purchase of an IT system might have clauses added to include a period of free on-site servicing or initial training for key staff.
You should also insist on removing exclusion clauses limiting the seller's liability for defective goods or for losses due to negligence.
You should consider seeking legal advice when drawing up important contracts.
Remedies for breach of supplier contracts
What to do if the goods or services you purchase don't match the contract you've agreed with your supplier and what laws apply in these situations.
Remember some rights that consumers are legally entitled to can be excluded from business to business contracts. For example, being supplied with defective goods may not be a breach if the contract includes an exclusion clause limiting your supplier's liability.
However, you might be able to challenge the exclusion clause on the grounds that it was unreasonable under the Unfair Contract Terms Act.
Goods contracts
If your supplier's liability is not limited by reasonable exclusion clauses, you may be able to reject them and recover any money you have paid. You would need to reject the goods within a reasonable time after delivery and at least one of the following must apply:
- the goods aren't fit for purpose
- the goods are of unsatisfactory quality
- the goods don't match the seller's description
Services contracts
Similar remedies are available when buying services. If services aren't carried out with reasonable skill, you're entitled to ask for the work to be redone at no extra cost. Or, if your supplier won't do this, you're entitled to ask another supplier to put the work right and then claim the cost from the original supplier.
Pricing and deadlines
When you agree on a price as part of the contract, you aren't obliged to pay any more. And where you have agreed on a deadline for carrying out the service but it has not been met, you are entitled to compensation for any foreseeable losses you may suffer as a result.
If contractual problems arise, you should clarify your position with your legal adviser.
Terms and conditions for IT and online contracts
Advice on protecting your intellectual property with contacts when procuring certain IT services and on checking how web-based contracts will be concluded.
There are specific contractual issues you need to be aware of when buying IT services or completing online contracts.
Contracts for IT services
A number of IT services have important intellectual property implications. When buying services such as IT consultancy, web design and website hosting, it's important that you have contracts drawn up clearly. This can ensure you keep any intellectual property rights that might benefit your business.
For example:
- if a third party registers a domain name on your behalf - eg an internet service provider - make sure it's registered in your name
- if you use a professional to design your website - make sure you hold the rights to any intellectual property in the design
- if you use an IT consultancy to build a proprietary software package - you should either take ownership of the package or pay a lower price if the developer retains ownership
You may need to incorporate other issues in your contracts for IT services, such as regular training and updates.
Online contracts
Make sure that you understand the terms and conditions and know exactly when the online contract is complete. Usually this won't be when your order is placed, but when you receive an email from the supplier confirming it.
Unless you agree otherwise with your online suppliers, they must make it clear to you the steps needed to complete the online contract and when the contract concludes.