What is a long-term agreement?

A long-term agreement is an agreement between two parties that lasts for an extended period of time. This type of agreement is often used in business relationships, such as when a company contracts with another company for services.

A long-term agreement isn’t a basic contract, as the clauses involved are larger.

Naturally, each circumstance is unique, and any type of contract carries some risk. But before making a choice, it’s important to weigh the advantages and disadvantages of signing an LTA.

What are the benefits of a long-term agreement?

Several significant ways set an LTA apart from a short-term contract.

An LTA typically has a much longer term of at least one year. As a result, the relationship is more stable and predictable for both parties. It’s a unique way to create a long and fruitful partnership with your suppliers. Indeed, very few suppliers will invest valuable resources and long-term projects in a « spot » also called short-term relations, even in the world of commodities (packaging, agriculture, undifferentiated ingredients or components,…) where organizations usually involved limited resources that need to be cautiously allocated.

An LTA usually entails contracts with higher euro amounts and calls for greater dedication on both sides. LTAs frequently have provisions allowing for automatic renewals at the end of the initial term.

What are the drawbacks of a long-term agreement?

The signing of a long-term contract has some disadvantages. First, even if the service or item no longer meets your needs, you might be obligated to stay in a contract for a specific amount of time. If you need to break the agreement early, it might be expensive to do so. 

What is the recommended duration of a long-term agreement?

In general, in FMCG industries or related industries, the duration can vary from 3 to 10 years depending on the type of object addressed by the LTA (supply contract or contract linked to an industrial investment or project requiring a long period of commitment for its realization).

How to negotiate a long-term agreement?

It’s critical to comprehend the details of long-term agreements before engaging in any negotiations. A legally binding contract between two parties that establishes an ongoing relationship for a considerable amount of time is known as a long-term agreement. These kinds of agreements are typically used in commercial relationships where both parties are dedicated to cooperating on a regular basis.

Conclusion

In business partnerships, long-term agreements are typical and can be used to specify the obligations and goals of each party. If you are thinking about signing a long-term contract, you should speak with an experienced lawyer to make sure the agreement satisfies your needs and safeguards your interests.