Contract

Contracts & Legal

Definition

A legally binding agreement between buyer and supplier setting out what will be supplied, at what price and on what terms.

Explanation

The contract governs the relationship for its duration: scope, pricing, service levels, liabilities, term and exit. Well-drafted contracts prevent disputes and, when actively managed, deliver the value that was negotiated.

Example

The two-year supply contract fixes prices, defines a 48-hour delivery SLA and caps annual increases at inflation.

Related terms

Contract Management — The active administration of contracts through their life — from execution and compliance monitoring to renewal or termination.
Master Service Agreement (MSA) — An overarching contract setting the general terms governing a relationship, under which specific work is commissioned via SOWs or orders.
Terms and Conditions (T&Cs) — The standard clauses governing a transaction or relationship, covering rights, obligations, liabilities and remedies.
Service Level Agreement (SLA) — A contractual commitment defining the level of service a supplier must deliver, with measurable targets and consequences for missing them.

Related concepts

Source-to-Pay (S2P) — The widest procurement cycle — sourcing and supplier selection on top of the operational procure-to-pay buying process.

Frequently Asked Questions

What is Contract?

A legally binding agreement between buyer and supplier setting out what will be supplied, at what price and on what terms. The contract governs the relationship for its duration: scope, pricing, service levels, liabilities, term and exit. Well-drafted contracts prevent disputes and, when actively managed, deliver the value that was negotiated.

Can you give an example of Contract?

The two-year supply contract fixes prices, defines a 48-hour delivery SLA and caps annual increases at inflation.

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