Whether you are buying raw materials, engaging a distributor or onboarding a regular vendor, a clear supply agreement protects both sides from disputes over late deliveries, defective goods and unpaid invoices. This guide explains what a supply agreement is, breaks down the key clauses, and gives you a sample format you can adapt. Use it as a starting point - then have a lawyer tailor it to your business through our contractual documentation service.
What a supply agreement is and when you need one
A supply agreement (also called a vendor or purchase agreement) is a contract under which one party - the supplier - agrees to provide goods or services to another party - the buyer - on agreed terms of quantity, price, quality and time. In Pakistan it draws its enforceability from the Contract Act 1872: there must be a lawful offer and acceptance, lawful consideration, free consent and competent parties. Where the subject is physical goods, the Sale of Goods Act 1930 also applies and implies conditions of title, description, merchantable quality and fitness for purpose unless the contract says otherwise.
You need a written supply agreement whenever the relationship is ongoing or the value is significant - for example a manufacturer sourcing components monthly, a retailer stocking from a wholesaler, or a company appointing an exclusive distributor. A verbal understanding is technically valid but almost impossible to prove, which is why important commercial arrangements should always be reduced to writing and signed.
Key clauses in a Pakistani supply agreement
The strength of a supply agreement lies in its clauses. Below are the provisions that decide who bears the risk when something goes wrong:
| Clause | What it covers |
|---|---|
| Scope & specifications | Exact goods or services, quantities, technical specs and any agreed brand or standard. |
| Delivery schedule | Delivery dates, place of delivery, mode of transport, and who bears freight, insurance and risk in transit. |
| Price & payment terms | Unit price, taxes (sales tax, withholding), credit period, invoicing, and mode of payment - often cheque, subject to the Negotiable Instruments Act 1881. |
| Quality & inspection | Acceptance standards, inspection window, and the buyer's right to reject or return non-conforming goods. |
| Penalties / liquidated damages | A pre-agreed sum for late delivery or short supply - a genuine estimate of loss, not a windfall, so it survives scrutiny under the Contract Act. |
| Warranties & indemnity | Supplier's guarantees on quality and title, and cover against third-party claims and defects. |
| Force majeure | Relief from liability for events beyond control - floods, strikes, import bans or other disruptions. |
| Term & termination | Duration, renewal, notice period, and grounds for early termination such as repeated breach or insolvency. |
| Confidentiality | Protection of pricing, designs and commercial data shared during the supply. |
| Governing law & dispute resolution | Laws of Pakistan, jurisdiction of a named court, and an arbitration clause under the Arbitration Act 1940. |
Getting delivery, payment and penalty clauses right
Three clauses cause the most litigation, so draft them carefully:
Delivery. State delivery dates precisely and say whether time is "of the essence" - if it is, a delay is itself a breach that lets the buyer terminate. Fix the delivery point (ex-works, delivered, or a named warehouse) because that determines when risk passes to the buyer under the Sale of Goods Act 1930.
Payment. Spell out the credit period, the exact invoice requirements, and the consequence of delay. If payment is by cheque, remember that a dishonoured cheque can attract remedies under the Negotiable Instruments Act 1881, so it is worth referencing. Where a company is a party, make sure the person signing is authorised - ideally supported by a board resolution or authority under the Companies Act 2017.
Penalties. A liquidated-damages figure for late or defective supply is enforceable only if it is a genuine pre-estimate of loss. Courts in Pakistan can reduce an amount that looks like a penalty, so keep it reasonable and tie it to a daily or per-unit rate.
Stamp duty, registration and execution
A supply agreement should be executed on judicial stamp paper of the correct value under the Stamp Act 1899. An instrument that is unstamped or under-stamped cannot be admitted in evidence until the deficient duty and a penalty are paid - so this is not a formality to skip. Stamp duty is not uniform across Pakistan: each province sets and periodically revises its own rate through its provincial Finance Act, and some provinces levy an ad valorem duty calculated on the contract value. Because the figure changes and depends on where the agreement is executed, confirm the current rate for your province before signing rather than relying on an old number.
Registration under the Registration Act 1908 is generally not required for a plain supply of goods or services. It becomes relevant only if the agreement creates an interest in immovable property - for example a lease of storage premises. Duty is normally paid before execution, and the agreement is signed and dated by authorised representatives of both parties, ideally with two witnesses.
Please note: exact stamp-duty values vary by province and are revised periodically. Treat any figure you find online as indicative only and verify the current rate through a consultation before you execute the agreement.
Sample supply agreement format
Below is a generic skeleton to illustrate structure. It is a starting point only - the placeholders in square brackets must be completed, and the whole document reviewed by a lawyer before use:
This skeleton omits many terms a real agreement needs - insurance, intellectual property, minimum order volumes, exclusivity and more. Do not sign a document like this without a lawyer adapting it to your goods, credit terms and risk profile.
Frequently asked questions
Is a supply agreement legally binding in Pakistan?
Yes. Once there is offer, acceptance, lawful consideration and free consent it is enforceable under the Contract Act 1872, and the Sale of Goods Act 1930 adds implied conditions for goods.
Does it need to be on stamp paper?
For evidentiary strength, yes - on judicial stamp paper of the value fixed under the Stamp Act 1899. An unstamped agreement can be refused as evidence until the duty and penalty are paid.
How much is the stamp duty?
It varies by province and is revised through provincial Finance Acts, so confirm the current Punjab, Sindh, KP or Balochistan rate before signing.
Does a supply agreement need registration?
Usually no. Registration under the Registration Act 1908 is relevant only where the contract creates an interest in immovable property, such as a lease of premises.
Can I just use this template as-is?
Treat it as a starting point. Have a lawyer tailor the delivery, penalty, indemnity and termination clauses so they are enforceable and fit your business.