What should be in a basic supplier or service contract?

A basic supplier or service contract needs to answer nine questions in writing: who the parties are, what exactly is being supplied, what it costs and when it is paid, when and how it is delivered, what is promised about quality, how much each side can be held liable for, how either side can end it, how disputes get resolved, and what general rules govern the document. If your customer is a consumer, the contract must also comply with the Consumer Protection Act 68 of 2008 on plain language and unfair terms.

You do not need a lawyer to have a contract. Most contracts in South Africa are valid without any writing at all. You need writing because, when the relationship goes wrong, the argument is always about what was agreed, and the side with the signed document usually wins that argument.

What makes a contract in the first place

A contract exists when there is an offer, an acceptance of that offer, an intention by both sides to be legally bound, and terms that are lawful, possible to perform and certain enough to be enforced. A quote that a customer accepts by email is a contract. A WhatsApp message saying "go ahead" in response to a price is a contract.

Writing is only legally required for a handful of contract types, such as the sale of land and suretyships. For everything else, writing is about proof.

The nine clauses, step by step

1. The parties. Full legal names, registration numbers for companies and close corporations, identity numbers for individuals, and physical addresses. "Mike's Plumbing" is not a legal person. Mike is, or Mike's Plumbing (Pty) Ltd is. If you get this wrong you may find yourself suing a trading name that owns nothing.

2. The scope. What precisely is being supplied. For goods: description, quantity, specification, and what is excluded. For services: the deliverables, the standard they must meet, and what is not included. Vague scope is the single biggest cause of small business contract disputes. Attach a quote or a schedule and say that it forms part of the contract.

3. Price and payment terms. The price, whether it includes VAT, when invoices are issued, when payment is due, and what happens if it is late. Say whether a deposit is payable and whether it is refundable. State the interest rate on late payment, within what the law permits, and say that the customer bears collection costs. See how to recover a debt from a customer who will not pay for why this clause matters later.

4. Delivery and performance. Dates or timeframes, where delivery happens, who carries the risk of loss in transit, and what counts as acceptance. For services: milestones and what triggers each payment.

5. Warranties. What you promise about the goods or service. Keep these honest and specific. A promise that goods are free from defects for six months is enforceable and manageable. A promise that they are "perfect" is neither.

6. Limitation of liability. A cap on what you can be held liable for, often the value of the contract, and an exclusion of indirect losses such as the customer's lost profits. These clauses are enforceable between businesses if drafted clearly, but courts read them narrowly and they cannot exclude liability for your own fraud. Against consumers, the Consumer Protection Act limits how far you can go.

7. Termination. How either side ends the contract. Notice periods, what counts as a breach, how long the breaching party has to fix it, and what is owed on termination. For fixed term contracts with consumers, the Act gives the consumer a right to cancel on notice subject to a reasonable cancellation charge. Use the fixed term contract cancellation calculator to see how that works.

8. Dispute resolution. Negotiation first, then mediation, then either arbitration or court. Say which court has jurisdiction. Arbitration is private and can be faster, but it is not free.

9. General clauses. That the written document is the whole agreement, that changes must be in writing, that neither party can transfer the contract without consent, and the addresses for legal notices. These sound like boilerplate. They decide cases.

The Consumer Protection Act, in brief

If your customer is an individual, or a small business below the size threshold set by regulation, the Consumer Protection Act 68 of 2008 applies to most transactions. In plain terms it requires your contract to be in language that an ordinary person can understand, prohibits terms that are unfair, unreasonable or unjust, requires certain terms to be drawn to the consumer's attention, gives the consumer a right to return defective goods within a set period, and regulates fixed term contracts, cancellations and advance bookings.

Do not try to contract out of it. A clause that tries to remove a consumer's rights under the Act is simply void.

A worked example: Karoo Signage CC

This example is illustrative only.

Karoo Signage makes shopfront signs. A new restaurant orders a lit sign for R38 000. The owner sends a quote by email, the restaurant replies "confirmed", and Karoo starts work.

Halfway through, the restaurant asks for a bigger sign in a different font. Karoo does the extra work. The sign is installed two weeks late because the restaurant's shopfront was not ready. The restaurant then refuses to pay the last R18 000, saying the sign is the wrong colour and was late.

Without a written contract, Karoo has a valid contract but cannot easily prove its terms. Was the colour specified? Was the deadline conditional on site readiness? Was the extra work chargeable?

With a one page contract attached to the quote, all three are answered. The scope clause references a signed artwork proof. The delivery clause says installation dates depend on site readiness confirmed in writing. The variation clause says changes are quoted and confirmed in writing before work starts. The payment clause requires the balance on installation with interest thereafter. Karoo's letter of demand quotes the clauses, and the restaurant pays within a fortnight.

What to do this week

1. Write a standard one or two page terms and conditions document for your business, covering the nine clauses above.
2. Attach it to every quote and make the quote say that acceptance includes the terms.
3. Get a signature or a clear written acceptance before you start work. An email saying "confirmed" in reply to a quote that references the terms is usually enough.
4. Check who your customers are. If most are consumers, have the document reviewed for Consumer Protection Act compliance.
5. Set up a variation form. Any change to scope gets written down and priced before it is done.

Documents and records to set up

• Standard terms and conditions, dated, with version numbers.
• A quote template that references the terms.
• A signed acceptance or order confirmation for every job.
• A variation form or an email template for changes.
• Delivery notes or completion certificates signed by the customer.
• Invoices that state the payment date and the interest rate on late payment.
• A folder for each customer holding all of the above.

If you collect personal information from customers, which almost every business does, your terms should also say what you collect and why. Read does POPIA apply to my small business.

Realistic timeline

• Drafting your own standard terms from a checklist: a weekend.
• An attorney reviewing them: one to two weeks.
• An attorney drafting a bespoke supplier or service agreement: two to four weeks including revisions.
• Negotiating a contract with a larger customer that has its own terms: anything from a week to several months.

Common mistakes and what they cost

• Contracting with a trading name. You may be unable to enforce the contract or even to find out who owes you money.
• No written scope. Every dispute becomes an argument about what was promised. Unpaid final invoices are the usual result.
• Doing extra work without a written variation. Expect not to be paid for it.
• Accepting the customer's terms without reading them. Large customers' terms often include unlimited liability for the supplier, long payment terms and the right to cancel at will.
• Copying terms from a foreign website. References to laws that do not exist here, and terms that are void under the Consumer Protection Act.
• No interest clause. Without one you may have to rely on the prescribed rate, and interest is in any event capped by law. Use the debt interest and in duplum calculator to see what accumulates.
• Not keeping the signed copy. A contract you cannot find is a contract you cannot prove.

If you cannot afford an attorney

The Small Enterprise Development Agency provides free business advice and sometimes template documents. The Companies and Intellectual Property Commission can confirm the legal name and number of a company you are about to contract with. The National Consumer Commission publishes guidance on the Consumer Protection Act and handles complaints. University law clinics will often review a short set of standard terms at no charge, subject to their means tests. Legal Aid South Africa on 0800 110 110 rarely acts for a business but may assist you as an individual.

If a customer fails to pay and you trade in your own name as a sole proprietor, you can sue in the Small Claims Court up to its limit, without an attorney. A company or close corporation cannot use the Small Claims Court and must sue in the Magistrates' Court. Check the limit with the Small Claims Court calculator. Remember that most debts prescribe three years after they fall due, so use the prescription checker on any old invoice.

Frequently asked questions

Is an emailed quote and a "yes" a binding contract? Usually, yes, if the quote is clear enough about the goods or services and the price. The problem is not validity, it is proof of the finer terms.

Do I have to use a lawyer to draft my terms? No. Many small businesses draft their own from a checklist. A review by an attorney is worth it once the document is being used across many customers, because one bad clause repeats across every job.

Can I charge a cancellation fee? Between businesses, yes, if the contract provides for it. With consumers, the Consumer Protection Act allows a reasonable cancellation charge on fixed term contracts and advance bookings, but not a penalty designed to trap the customer.

Can I limit my liability to the value of the contract? Between businesses, generally yes, if the clause is clear and does not try to cover fraud or intentional wrongdoing. Against consumers, only to the extent the Consumer Protection Act allows.