Supply Contract Drafting: Clauses That Protect the Buyer from Delay and Defects

Which law governs the supply contract?

Before drafting any clause, decide which law the contract will be interpreted under, because the protection the buyer gets varies from one law to another. The United Nations Convention on Contracts for the International Sale of Goods (CISG) applies to sales between parties whose places of business are in different Contracting States, or where the rules of private international law lead to the law of a Contracting State. ^[1]

There is no single position in the Gulf. The Convention has been in force in Bahrain since 1 October 2014. Saudi Arabia acceded on 3 August 2023 and the Convention entered into force for it on 1 September 2024, but it declared that it is not bound by Part III, which governs the obligations of seller and buyer and the remedies for breach. ^[2] The UAE, Qatar, Kuwait and Oman are not on the list of Contracting States. ^[2]

The parties may exclude the Convention or vary the effect of its provisions. ^[1] They may also choose the UNIDROIT Principles of International Commercial Contracts to govern the contract. ^[3] The practical rule: state the governing law and the dispute resolution forum expressly, and do not rely on CISG remedies in a contract with a Saudi party.

In the UAE, the new Civil Transactions Law (Federal Decree-Law No. 25 of 2025) replaced the 1985 law from 1 June 2026, and it does not apply retrospectively to rights that arose before that date. ^[5] Qatar, Kuwait, Oman and Bahrain each have their own civil code, which should be checked when it is chosen.

The delivery clause: a date beyond argument

If the contract sets no date, the CISG requires the seller to deliver within a reasonable time after the contract is concluded, ^[1] a phrase that invites dispute. A good clause therefore sets out:

• The delivery date, or a schedule of partial deliveries and their quantities.
• The place of delivery and the agreed shipping term, such as an Incoterms rule, stating which edition of the rules is used.
• The documents required with each shipment, such as a certificate of origin and a certificate of conformity.
• The supplier’s duty to notify the buyer in writing as soon as it expects a delay, with the reason and a revised date.

Liquidated damages for delay: how do you make them stick?

A liquidated damages clause spares the buyer from proving the size of its loss for every delay, but it is not an untouchable figure. Under the UNIDROIT Principles, the aggrieved party is entitled to the agreed sum irrespective of its actual harm, but the sum may be reduced to a reasonable amount where it is grossly excessive in relation to the harm, even if the parties agreed otherwise. ^[3]

In Saudi Arabia, the Civil Transactions Law allows the parties to agree compensation in advance and does not require prior notice to the debtor. However, the sum is not payable if the debtor proves the creditor suffered no harm; the court may reduce it if the debtor shows it is excessive or the obligation was partly performed, and increase it if the creditor shows that the debtor’s fraud or gross negligence pushed the loss above the agreed sum; and any agreement to the contrary is void. ^[4] Agreed compensation is not permitted where the obligation is a sum of money, ^[4] but that does not prevent liquidated damages for late delivery, because the supplier’s obligation here is to deliver goods. In the UAE, Article 340 of the new law gives the court a similar power, and a no-reduction clause is at high risk of being void. ^[5]

So draft the clause as follows:

1. A daily or weekly rate based on the value of the late delivery, not the whole contract.
2. A clear cap on the total amount.
3. Keep an internal note explaining how the rate was estimated from the expected loss.
4. Give the buyer the right to deduct the amount from sums due, and provide that reaching the cap entitles the buyer to terminate.

If the buyer is a government body, check the government procurement law in its country first, as it may set its own delay penalties and caps.

An additional period, then termination

The CISG allows the buyer to fix an additional period of reasonable length for the seller to perform, and to avoid the contract if the breach is fundamental or the seller does not deliver within that additional period. ^[1] A fundamental breach is one that substantially deprives the other party of what it was entitled to expect under the contract. ^[1]

The UNIDROIT Principles list, among the factors for termination, whether strict compliance with the obligation was of essence under the contract. ^[3] If a particular date is decisive, such as fitting out a site before it opens, say so expressly, and define what counts as a fundamental breach: a delay beyond a set number of days, or reaching the liquidated damages cap.

Inspection and acceptance: separate receipt from acceptance

The CISG requires the buyer to examine the goods within as short a period as is practicable, and the buyer loses the right to rely on a lack of conformity if it does not notify the seller of its nature within a reasonable time after discovering it, and in any event within two years of actual handover unless this is inconsistent with a contractual guarantee period. ^[1] In Saudi Arabia, the buyer is deemed to have accepted the goods if it does not inspect them in the customary way and notify the seller of a defect within a reasonable time; a defect that ordinary inspection cannot reveal must be notified as soon as it is discovered. ^[4]

The contract should therefore state that signing the delivery note proves physical receipt only, that acceptance follows a defined inspection or test within a set number of days, and that acceptance does not waive claims for latent defects.

Defect warranty and the claim period

The CISG requires the seller to deliver goods of the quantity, quality, description and packaging the contract requires, fit for their ordinary purpose and for any particular purpose made known to the seller, and matching any sample. ^[1] It gives the buyer the right to require repair, to require substitute goods where the breach is fundamental, or to reduce the price. ^[1]

Statutory periods differ between countries. In Saudi Arabia, a defect claim is not heard after 180 days from delivery unless the seller has given a longer warranty, and the parties may limit or extend the warranty unless the seller intentionally concealed the defect. ^[4] In the UAE, the new law extends the period from six months to one year from the day after delivery, unless the seller has undertaken a longer one. ^[6]

Wording that protects the buyer starts the warranty from acceptance, not from shipment, lets the buyer choose between repair, replacement or price reduction, and commits the supplier to a response time and to bearing repair and transport costs. Watch out for broad exemption clauses proposed by the supplier: under the UNIDROIT Principles, an exemption clause may not be invoked if doing so would be grossly unfair. ^[3]

Force majeure: do not make it an open exit

The CISG and the UNIDROIT Principles excuse a party that proves the failure was due to an impediment beyond its control that it could not reasonably have taken into account at the time of contracting, or avoided or overcome. ^{[1, 3]} The UNIDROIT Principles require the affected party to notify the other of the impediment and its effect, make it liable for damages if notice arrives late, and limit a temporary impediment’s excuse to a reasonable period. ^[3]

So require written notice within a set number of days with supporting evidence, a duty on the supplier to mitigate and find an alternative source, and a right for the buyer to terminate if the impediment lasts beyond a set period.

Hypothetical example

Hypothetical example: an organisation buys generators worth SAR 2,000,000 in two deliveries. The contract sets liquidated damages of 0.5% a week of the value of the late delivery, capped at 10% of it, with a right to terminate when the cap is reached. The second delivery (SAR 1,000,000) arrives four weeks late, so SAR 20,000 becomes due and is deducted from payments. Eight months after acceptance a defect appears in one unit, and it is covered by a 12-month warranty running from acceptance, longer than the statutory period.

Conclusion

A supply contract that protects the buyer starts by fixing the governing law, then ties every obligation to a date, a means of proof and a remedy. Draft liquidated damages as a reasonable, capped estimate, separate receipt from acceptance, set a warranty longer than the statutory period, and have the final wording reviewed by a lawyer licensed in the relevant country.