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SCM Agreement in Bangladesh: Legal Framework and Practical Guidance
An SCM Agreement in Bangladesh sets out roles, delivery and payment terms, and compliance responsibilities for parties in a supply chain. This guide explains the domestic statutes and international rules commonly referenced, highlights core contractual provisions and drafting approaches, and provides a practical checklist and FAQs to help businesses align operations with the regulatory environment.
Introduction
An SCM Agreement in Bangladesh governs relationships among suppliers, buyers, logistics providers and financiers engaged in procurement, movement and delivery of goods and services. Because supply chains cross multiple legal and commercial boundaries, the contract must allocate obligations, identify who bears delivery risk, set payment security, and address compliance with local laws and international standards. This guide explains the legal framework commonly referenced in such agreements, identifies contract provisions that are frequently included in practice, and sets out practical drafting and negotiation considerations. Where the source material is limited, this guide points to the practical issues parties should review and to where they should seek tailored legal advice.Legal foundations applicable to SCM Agreements in Bangladesh
SCM Agreements in Bangladesh sit within a multi-layered legal environment: domestic statutes and procedural rules, sector-specific regulatory instruments such as import and export policies, and international trade rules and standards that parties commonly incorporate into their contracts. The legal basis described here is drawn from the reference material provided and explains the typically relevant instruments rather than offering exhaustive coverage.Relevant domestic statutes and regulations
- Customs Act 1969: Governs import and export procedures, duties and customs clearance process—matters that affect timing, cost and obligations for customs documentation and clearance.
- Import Policy Order 2021-2024 and Export Policy 2024-2027: Regulatory instruments that set licensing, restrictions and other conditions affecting imports and exports; contracts should reflect any licensing obligations and compliance steps required by these policy orders.
- Foreign Exchange Regulation Act 1947: Controls foreign currency transactions; agreements involving cross-border payments should address currency, conversion and compliance with applicable foreign exchange controls.
- Secured Transactions (Movable Property) Act 2023: Establishes a framework for taking and registering security interests in movable property, which is often used to secure financing of goods in transit or inventory.
- Bank Company Act 1991: Regulates banking institutions that provide financing and payment instruments used in supply chain transactions.
- CPC 1908 (Code of Civil Procedure): Provides procedural rules for enforcement of contractual rights through civil proceedings in Bangladesh.
- NI Act 1881 (Negotiable Instruments Act): Governs common payment instruments such as promissory notes and cheques that may be used in supply chain finance.
International conventions and commercial standards commonly used in SCM Agreements
- INCOTERMS 2020: Widely used rules to clarify delivery points, cost allocation and transfer of risk between seller and buyer in international trade.
- ICC instruments and rules such as UCP 600 (for documentary credits/letters of credit) and URDG 758 (for demand guarantees): Frequently referred to where banks are providing payment security.
- UNCITRAL model laws and international frameworks for electronic commerce and cross-border contracting: Often adopted by reference for electronic communications or dispute settlement rules.
- WTO agreements and other international trade instruments: These can affect tariffs and non-tariff measures that in turn affect the commercial terms of supply chain contracts.
Core components of an effective SCM Agreement in Bangladesh
An SCM Agreement should be drafted to allocate commercial risk clearly, identify compliance responsibilities, and set out mechanisms for operational coordination and dispute resolution. The following provisions are commonly included or considered essential.Scope and operational terms
Define the scope of services and goods with sufficient precision: product specifications, quality standards, delivery schedules, packaging requirements and acceptance testing protocols. Ambiguity in scope or specifications is a frequent source of disputes—draft precise definitions and acceptance criteria where practicable.Pricing, currency and payment terms
Specify price, currency and the method of payment (e.g., open account, letter of credit). If a letter of credit is used, reference to the appropriate set of rules such as UCP 600 and the applicable bank practices is customary. Include late payment interest, invoicing requirements and conditions precedent to payment (for example, presentation of shipping documents and customs clearance proofs).Delivery, transfer of risk and INCOTERMS
Use INCOTERMS 2020 or another recognized set of trade terms to establish where responsibility for delivery and risk transfer lies. Explicitly state the chosen INCOTERM (for example, CIF, FOB, DDP) and the named place or port so there is no uncertainty about obligations for carriage, insurance and customs clearance.Compliance with laws and regulatory obligations
Include obligations for the parties to comply with applicable statutes and policy instruments, such as the Customs Act and the relevant import/export policy orders. Require prompt notification if a change in law or policy affects performance and set out how the parties will allocate the risk of such changes.Security, financing and registration of rights
Where supply chain financing is involved, describe the security interests and whether they will be perfected or registered under the Secured Transactions (Movable Property) Act 2023. Set out documentation and cooperation required from the parties to support financing arrangements.Force majeure and change-of-law clauses
Draft force majeure provisions to identify the types of events covered, notice requirements, the effect on performance and any suspension or termination rights. A clear change-of-law clause can help parties allocate the commercial consequences of new regulatory measures such as import restrictions or foreign exchange controls.Dispute resolution and enforcement
Specify a multi-tiered dispute resolution process: negotiation, escalation, mediation, arbitration or litigation. If litigation is contemplated, note the procedural rules and courts that will have jurisdiction; CPC 1908 governs civil procedure if a matter is litigated in Bangladesh courts. If arbitration or international ADR is preferred, specify the seat, governing rules and enforcement regime.Confidentiality and intellectual property
Address protection of proprietary information, data sharing limits, and any IP licensing relevant to manufacturing processes, software or specification data used in the supply chain.Incorporating Bangladesh-specific regulatory and commercial requirements
Because Bangladesh maintains specific controls and administrative requirements, parties should tailor agreements to ensure compliance and to allocate related risks.- Registration and licensing: Confirm who is responsible for arranging import/export licences or approvals required by the Import Policy Order 2021-2024 or Export Policy 2024-2027 and how failure to obtain licences will be treated contractually.
- Foreign exchange compliance: For cross-border payments, the contract should address currency, compliance with any foreign exchange requirements under the Foreign Exchange Regulation Act 1947, and practical steps if currency convertibility is affected.
- Banking and financing practices: Identify how banks will be involved for letters of credit or guarantees and align documentation with bank requirements governed by the Bank Company Act 1991 and international banking rules such as UCP 600.
- Local labour and environmental compliance: Where supply chain activities include local operations, ensure compliance obligations with applicable labour and environmental regulations are allocated and documented.
Benefits of a well-structured SCM Agreement
A robust SCM Agreement reduces operational friction and supports risk management. Typical commercial benefits include clearer responsibility for customs clearance and related costs, improved cash-flow planning through defined payment terms, and lowered dispute risk through agreed dispute-resolution steps and precise technical specifications.Common challenges and practical approaches
Parties negotiating SCM Agreements in Bangladesh commonly face a number of recurring challenges. The discussion below describes these issues and practical approaches suggested by the source material rather than definitive solutions.Regulatory complexity and changes
Import and export policies and foreign exchange rules may change, affecting costs and the ability to perform. Include contractual obligations to monitor and comply with changes; consider mechanisms to renegotiate or allocate costs if regulatory changes materially affect performance.Dispute resolution and enforcement
Delays and expense in litigation are a concern in any jurisdiction. A multi-tiered dispute resolution clause that prioritizes negotiation and mediation before arbitration or litigation can reduce time and cost. If litigation becomes necessary, procedural rules under CPC 1908 and domestic court jurisdiction are relevant; parties should be aware of these procedural frameworks when defining dispute resolution options.Payment security and financing risks
Payment risk arises from currency fluctuations, banking practices and counterparty solvency. Common mitigants include letters of credit, demand guarantees governed by internationally recognized rules (e.g., UCP 600, URDG 758) and the use of registered security interests under the Secured Transactions (Movable Property) Act 2023.Practical drafting and negotiation guidance
The following practical considerations reflect commonly used approaches when drafting SCM Agreements in the Bangladesh context. They are intended to help parties think through clauses that are frequently negotiated and enforced.- Use precise definitions for goods, delivery points and instruments. Poorly defined terms invite disputes.
- Choose an INCOTERM and name the precise point or place of delivery. Avoid vague terms such as "port" without naming it.
- Link payment obligations to documentary conditions that can be objectively verified (shipping documents, customs clearance certificates).
- Where financing is anticipated, document collateral steps and registration obligations to avoid later disputes about priority of rights.
- Draft notice provisions and timelines for performance and dispute escalations so parties know how and when to act if issues arise.
- Include an explicit compliance clause and duty to cooperate for customs clearance and licensing processes.
Useful table: Contract aspect, best practice and applicable law/standard
| Aspect | Best Practice | Relevant Law / Standard |
|---|---|---|
| Delivery terms | Use a named INCOTERM (INCOTERMS 2020) and precise delivery location | INCOTERMS 2020 |
| Payment security | Use letters of credit or demand guarantees governed by recognized rules | UCP 600, URDG 758 |
| Customs compliance | Allocate responsibility for customs documents and duties; require cooperation | Customs Act 1969; Import/Export Policy Orders |
| Dispute resolution | Provide multi-tiered ADR options before litigation | CPC 1908 (for litigation); arbitration/mediation rules by agreement |
| Security interests | Register movable property security where required to perfect priority | Secured Transactions (Movable Property) Act 2023 |
Practical checklist for contracting parties
Use this checklist during drafting and negotiation to reduce common risks:- Define goods and specifications with objective acceptance criteria.
- Name the INCOTERM and specify the delivery point (port/place/address).
- Specify currency, payment method and documentary conditions for payment.
- Identify which party handles customs clearance, duties and related paperwork.
- Include a compliance clause referring to the Customs Act, Import/Export Policy Orders and foreign exchange obligations where applicable.
- State whether security interests will be taken and whether they will be registered under the Secured Transactions (Movable Property) Act 2023.
- Draft force majeure and change-of-law terms with clear notice and mitigation steps.
- Provide a clear escalation path and identify arbitration or court options, including seat and applicable procedural rules.
- Include confidentiality protections and IP clauses where design or technology is shared.
- Document amendment procedures and record-keeping obligations for changes in regulatory policy.
Next steps and practical resources
Parties considering an SCM Agreement in Bangladesh should review the statutory instruments and bank/finance rules referenced above and consider engaging counsel for tailored drafting and negotiation. For background on organisational and practice areas that commonly support supply chain contracting, please see our pages on our firm, our practices and the specific services that align with trade, finance and dispute resolution. To discuss a particular contract or regulatory question, use the contact page, book a consultation directly at Book consultation or send an email to info@trw.org.TRW Law Firm is a full-service international law firm based in Dhaka. We bring together 220+ lawyers and legal professionals.FAQ
1. What is an SCM Agreement and why do I need one in Bangladesh?
An SCM Agreement is a contract that structures the commercial relationship among parties in a supply chain—defining scope, delivery, payment, compliance and remedies. In the Bangladesh context, such an agreement is important because it helps allocate responsibilities for customs clearance, licensing and foreign exchange matters which are governed by domestic statutes and policy orders listed above. Parties should view the agreement as a practical risk allocation tool and seek tailored legal review where regulatory obligations are implicated.2. Which Bangladeshi laws should be considered when drafting an SCM Agreement?
Commonly relevant domestic instruments include the Customs Act 1969, the Import Policy Order 2021-2024 and Export Policy 2024-2027, the Foreign Exchange Regulation Act 1947, the Secured Transactions (Movable Property) Act 2023, the Bank Company Act 1991 and procedural rules under CPC 1908. How each applies depends on the transaction’s facts—parties should confirm specific requirements and seek current official guidance for up-to-date obligations.3. Can I rely on INCOTERMS and international banking rules in my contract?
Yes. Parties commonly incorporate INCOTERMS 2020 to define delivery and risk transfer, and reference UCP 600 or URDG 758 where letters of credit or demand guarantees are used. These international standards provide an agreed framework, but parties should ensure consistency between the chosen international rules and any domestic regulatory obligations that affect performance.4. How should payment risk be managed under an SCM Agreement in Bangladesh?
Payment risk may be managed through documentary payment mechanisms (e.g., letters of credit), demand guarantees and by structuring contractual conditions that tie payment to verifiable documents. The use of registered security interests under the Secured Transactions (Movable Property) Act 2023 is another tool where financing is provided. Which measures are appropriate depends on the parties’ commercial positions and the specific transaction; consider obtaining professional advice to align payment security with regulatory requirements.5. What dispute resolution approach is suitable for supply chain contracts?
A multi-tiered approach that begins with negotiation and mediation and provides for arbitration or court litigation as a final step is often used to balance speed and enforceability. If parties agree on litigation, procedural rules under CPC 1908 will apply in Bangladesh courts. If arbitration is chosen, define the seat, rules and enforcement approach. The best choice depends on enforceability considerations, cost, timing and the parties’ commercial priorities.6. How do changes in import/export policy affect existing SCM Agreements?
Changes to import/export policy may affect licensing, permitted goods and compliance steps. Agreements commonly include change-of-law clauses and re-opener mechanisms to allocate risks caused by regulatory changes. The exact contractual remedy or adjustment will depend on the agreement wording and the nature of the regulatory change; parties should document notice and cooperation obligations for regulatory developments.7. Where can I get authoritative, up-to-date information on relevant policies and laws?
Authoritative information comes from the official texts of statutes and the government-issued import/export policy orders and notifications. Because policies and administrative procedures may be updated, consult the current official publications and consider seeking bespoke legal advice to interpret how recent changes affect a specific contract or transaction.Closing remarks
Drafting an SCM Agreement for use in or with Bangladesh requires careful attention to contractual allocation of delivery and payment risks, compliance with domestic statutes and policy instruments, and the practicalities of financing and enforcement. This guide highlights areas to address and the common instruments parties use when structuring their contractual arrangements. For a specific contract, tailored legal advice and up-to-date review of the applicable policy instruments are advisable. To begin that process, visit our firm and our practices, review relevant services, or make initial contact through contact, Book consultation or info@trw.org.CONTINUE EXPLORINGConnected
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