Difference among Supply, Services & Works Contracts (1)

Hi Friends,

In the previous posts, we have covered Basic Concepts and Definition of a Contract. Now the next step in the journey is discuss different kind of contracts and rationale behind their classification.

Contracts could be classified into various types based on the followings categories;

In this post, we will discuss various types of contracts based on: Nature of Transaction. Contracts types based on other categories shall be covered in the subsequent posts. After reading all blogs under this chapter, we will come to know the characteristics and application of each kind. Accordingly, we would be able to appreciate their distinguishing features

A) Contract Classification based on Nature of Transaction

There exists thousands of firms, companies or commercial organization across the world who are doing business locally, regionally or globally. Can we think off what exactly they are doing? You know that all business entities either sells goods or provides services or both. This is true irrespective of whether a firm is small, medium, large or local, national, multinational

At macro level, nothing exists beyond goods or services, a business entity may be doing or can think of doing. So, all commercial entities around the globe undertake transaction of selling goods and/or providing services to their customers. And they are earning profits out of such transactions.

So, depending upon whether the transaction is a Sale or Service or a combination of both, contracts are classified as Supply; Services or Works, as further explained below

1 Supply Contracts

There are the contracts for SALE and PURCHASE of GOODS between the parties. The party who sells the GOODS is known as Seller or Supplier and party who buy/purchase the goods is called buyer or purchaser.

[In the above, ‘GOODS’ means “moveable property” and as defined under the Sale of Goods Act. Sale of immoveable property such as residential house and others is outside the purview of this blog. As per Section 2.7 of Sale of Goods Act, ‘Goods’ means every kind of moveable property other than the actionable claims and money and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale]

[In the above, ‘GOODS’ means “moveable property” and as defined under the Sale of Goods Act. Sale of immoveable property such as residential house and others is outside the purview of this blog. As per Section 2.7 of Sale of Goods Act, ‘Goods’ means every kind of moveable property other than the actionable claims and money and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale]

Under supply contracts, seller transfers the property in the GOODS to buyer for money consideration and transaction between the parties is known as SALE (or Purchase) of GOODS.

Important ingredients of Supply Contracts are as follows:

  • Sale of moveable property (called ‘Goods’)
  • Transfer of ownership of ‘goods’ from Seller to buyer
  • Delivery of goods (or transfer of possession) from seller to buyer
  • Payment of money consideration from buyer to seller

The GOODS as described above may be readily available with the seller or alternately, seller need to procure or manufacture it before supply. Accordingly, Seller transfer the possession of goods to buyer if goods already existing or Seller agree to transfer the possession of goods at later mutually agreed date (if goods need to be procured or manufactured) as per the terms of Contract of Sale of Goods between the parties. So under supply contracts there is a physical movement of goods from one party to another. And this is key distinguishing features of Supply Contracts when compared with Service Contracts

Examples of Supply Contracts:

Supply Contracts are pure sale contracts without any element of service. We deal with supply contracts daily sometime consciously or sometime even not knowing that we are doing so. Few examples of supply contracts are as follows;

i) Procurement of general provision items from local retail shops; Purchase of furniture, mobiles phone, garments, TV & AC from a retail stores are typical example of supply contracts in personal life

ii) Procurement of raw materials, components, finished product or a complete package/system from our vendors by the organization byers are typical example of supply contract in our work life.

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