What Is a Master Supply Agreement?

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Master supply agreements offer advantages to buyers and sellers.
Master supply agreements offer advantages to buyers and sellers. (Image: contract 20309 image by pablo from Fotolia.com)

Companies that maintain several contracts with the same supplier often opt to transform them to a master supply agreement. These agreements have cost and other advantages for the supplier and buyer.

Definition

A master supply agreement is a contract between two parties consolidating two or more agreements into one harmonized agreement. As an example, a supplier may have an agreement that provides parts. The same supplier may have a separate agreement to provide another good or service to same company. If the two agreements are combined, it is termed a master supply agreement.

Benefits

Master supply agreements standardize contracts and make them easier to administer. Combined agreements may provide economies of scale for the seller and volume discounts for the buyer. They make it easier to standardize specifications and monitor quality control. Corporate offices may sign agreements covering all branches, increasing efficiency.

Features

Master supply agreements specify price, payment policies and often include purchase commitments. Delivery schedules are outlined, along with any penalties incurred should delivery and quality commitments not be met. Administrative details include purchase protocol as well as processes to alter or terminate the agreement

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