A well-negotiated steel contract can stabilize pricing, secure mill allocation, and keep your service center’s inventory flowing through the most volatile of markets. But a poorly structured agreement can lock you into unfavorable terms, expose you to surcharge surprises, or limit your ability to react to customer shifts. For purchasing teams at steel service centers, asking the right questions before signing a contract is just as critical as securing the best base price.
Here’s a checklist every sourcing specialist should review before committing to a steel supply contract.
What Grades and Specifications Are Covered?
Not all contracts are created equal. Ensure the grades you’re sourcing—whether A36, A572, or high-strength low alloy (HSLA) steel—are explicitly listed in the agreement. Mills and master distributors may include catch-all language, but sourcing specialists should demand clarity on mechanical properties, chemistry requirements, and form tolerances. If you’re serving fabrication clients that require tight flatness specs or mill certs, include those stipulations.
What Is the Contract Volume—and What Happens if You Miss It?
Volume commitments drive everything from base pricing to mill allocation. Be clear on whether your contract is firm, forecast-based, or take-or-pay. Missing volume thresholds can trigger penalties, especially during peak demand periods when mills are balancing limited capacity. Likewise, ensure there is language that allows for a buffer—typically 10% variance—based on customer-driven demand fluctuations.
How Are Prices Calculated and Adjusted?
Is your contract based on an index (e.g., CRU, AMM, Platts)? Does it include surcharge mechanisms for scrap, zinc, or freight? Ask how frequently prices are reviewed and whether escalation clauses apply monthly or quarterly. Understand the math—how is base price built, how are add-ons applied, and what are the lead indicators for pricing adjustments? If you’re not clear on how the invoice will be calculated, you’re not ready to sign.
What Is the Lead Time Commitment?
Contracts without defined lead time terms put the buyer at risk. If a mill commits to six-week lead times on hot-rolled coil, that needs to be in writing—not just discussed during a kickoff call. Confirm whether lead time windows are fixed or flexible and how changes are communicated. Having formal escalation language helps when lead times extend beyond agreed terms.
What Happens During Force Majeure or Allocation Events?
COVID, strikes, port disruptions—these events have taught procurement teams the value of legal language. Ensure your contract has a clearly defined force majeure clause that specifies what happens when supply is constrained. Ask about allocation protocols: Who gets cut first when capacity shrinks? Some mills give priority to strategic accounts with evergreen contracts, while others operate on a first-in, first-served basis.
Can You Flex Between Product Forms or Facilities?
If your service center operates multiple locations or serves different end-markets, flexibility matters. Ask if coil tonnage can be shifted between sites or if you can substitute one gauge or width for another within your contract. The more flexibility you negotiate upfront, the easier it is to pivot during a supply or demand shift.
Are There Penalties or Rewards for Performance?
High-performing procurement teams are starting to build in incentive structures—rebates for volume, early payment discounts, or even shared logistics savings. Likewise, ask what penalties apply for missed pickups, late POs, or product rejections. Clear expectations—and consequences—help both sides plan better.
How Are Claims and Quality Disputes Handled?
No contract should be silent on quality issues. What’s the process for handling out-of-spec shipments? How quickly will the supplier respond, and who pays for freight and processing of reworked product? These are uncomfortable questions to ask upfront, but critical when production lines are at a standstill due to material issues.
What Technology or Communication Tools Are Supported?
Digital procurement tools—EDI, portals, order tracking dashboards—can reduce delays and improve visibility. Ask whether the supplier supports integrated ordering or shipment tracking. Even if your ERP is still catching up, knowing what tools are available allows for better long-term planning.
When and How Will the Contract Be Reviewed?
Finally, set the cadence for review. Quarterly business reviews (QBRs), scorecard evaluations, and pricing reconciliations help keep contracts dynamic and responsive. Include renewal windows and escalation paths for disputes.
Conclusion
The steel contract is more than just a pricing agreement—it’s a risk-sharing framework between service centers and suppliers. For purchasing teams, the ability to ask detailed, forward-looking questions before signing is what separates reactive buyers from strategic partners. Take the time to challenge assumptions, clarify language, and build in flexibility. Your bottom line will thank you when the next disruption hits.
