Contracts by huangyinggok


What We Need To Know

David A. Carter, M.B.A., C.P.M., A.P.P.
n   David Carter
    u   President NAPM-NH
    u   Vendor Management
        F   Harbour Capital
    u   Contract Consultant
n   We will discuss what buyers need
    to know about reviewing, editing,
    and negotiating the language of

                    Opening Statement:
n   According to today’s regulators and bureaucrats, those of us who were kids in the 30’s, 40’s,
    50’s, 60’s, or even early 70’s, probably shouldn’t have survived.
n   Our baby cribs were covered with bright colored lead-based paint.
n   We had no childproof lids or locks on medicine bottles, doors, or cabinets, and when we rode
    our bikes, we had no helmets.
n   Not to mention the risks we took hitchhiking. . .
n   As children, we would ride in cars with no seatbelts or airbags.
n   Riding in the back of a pickup truck on a warm day was a treat.
n   We drank from the garden hose and not from a bottle. The horror of it all!
n   We ate cupcakes, bread and butter, and drank soda pop with real sugar in it, but we were
    never over weight because we were always outside playing.
n   We shared one soft drink with 4 friends, from one bottle, and no one actually died from this.
n   We would spend hours building go-carts out of scraps and then rode down steep hills, only to
    find that we did not put in brakes! After running into the bushes a few times, we learned to
    solve the problem.
n   We would leave the home in the morning and play all day, as long as we were back when the
    street lights came on. No one had to reach us all day. No cell phones? Unthinkable.
n   Many contracts were done with the shake of a hand, THIS IS NOT THE WAY IT IS NOW!!!
The Essentials of Contracts
  n   Types of Contracts
  n   Regulations that Influence Contracts
  n   Contracting Roadblocks
  n   Terms and Conditions of Purchase
  n   Whose T’s & C’s do We Want to Use
  n   Determine Red, White or Blue Clauses
  n   Negotiate Terms and Conditions of the
  n   Signatures
  n   War of the Documents
  n   Case Study
Types of Contracts:
    n   Oral vs. Written: Oral bids are generally used
        for low-cost purchases and usually the request
        is made by phone. According to the “Statute of
        Frauds” oral bids may not be enforceable. If
        the order is for goods, under the Uniform
        Commercial Code (UCC) such an oral
        agreement may not be enforceable if the
        goods are valued at $500 or more. If the quote
        is for services the oral agreement is not valid if
        the service is not performed in less than one
    n   Contracts vs. Agreements: A contract must
        have “quid pro quo” or something for something.
        This is where both the buyer and seller have an
        obligation to each other. In an agreement the
        seller may set a price for the buyer (usually for
        one year) but the buyer is not contractually
        required to purchase.
Regulations Influencing
     n   Uniform Commercial Code Article 2(UCC):
         This regulation was proposed and adopted in
         1954 and has had many revisions: The UCC
         is only enforceable in respect to goods:

     n   Sherman Antitrust Act: This Act prohibits
         contracts, combinations, and conspiracies that
         result in a restraint of trade. Whether a
         business arrangement of agreement can be
         construed as a conspiracy in restraint of trade
         depends on the facts and circumstances
         involved. Courts apply the “Rule of Reason in
         most cases.

Acts and Regulations
   n   Clayton Act: The act deals with trade
       practices like tying arrangements and
       exclusive dealing, which are unlawful, where
       the effect may be to substantially lessen
       competition or to create a monopoly. Tying
       occurs when a supplier requires the purchaser
       to buy one product in order to obtain another.

   n   Robinson-Patman Act: The act prohibits
       price discrimination for goods of like grade or
       quality where the end result may be to
       substantially lesson trade or create a

Robinson-Patman Act
   n   Prohibition of direct and indirect price
       discrimination where those price differences
       substantially lesson competition.

   n   Prohibition of a supplier from paying a
       commission to a purchaser and prohibiting a
       purchaser from accepting it

   n   Payment made by a supplier to a purchaser for
       any facilities or services furnished by the
       supplier be equally available to all of a
       supplier’s customers.
   n   Requiring that facilities or services furnished to
       a purchaser by the supplier be equally
       available to all customers.

   n   Prohibition of a purchaser from knowingly
       inducing or receiving price discrimination.

Contracting Roadblocks
      or Pitfalls:
   n   Avoid ambiguous or conflicting statements.

   n   Pay attention to the choice of language to avoid
   n   Avoid conflicts between standard terms and
       conditions and other clauses or attachments.

The Heart of the Contract

  n   Specifications
  n   Omissions from specifications
  n   Changes in scope
  n   Competitive bids

n   The term “specifications” shall mean the
    functional and operational performance
    requirements for the Goods and/or
    Services (defined in section __) as of the
    Award Date (defined in section__) which
    performance, both in terms of quality and
    capacity, is such that all of the Goods
    and/or Services functions and
    responsibilities are adequately and
    completely supported.

    Omissions from
n   Provider acknowledges that Buyer has expended great
    efforts in preparing these Specifications and in
    attempting to describe the scope and commitments to
    its customer.
n   However, it is possible that some components may
    have been involuntarily or inadvertently omitted from
    these Specification.

Changes in Scope:
n   Buyer shall have the right to make changes in scope.

n   The related cost changes shall be subject to the
    mutual agreements of the parties.

n   Appropriate written authorization shall be provided on
    a Contract Amendment prior to the performance of the
    delivery of the Good and or Service.

n   Buyer shall not be held liable for any cost increases
    not authorized in writing by the Buyer in advance.

Scope Checklist:
n   Schedules/Milestones
n   Deliverables
n   Documentation
n   Specifications
n   Personnel
n   Methodology
n   Ownership of work/ IP

Standard Terms and
n   One standard T’s and C’s should
    be written and approved by your
    General Council
n   Review and edit T’s and C’s every
    two years
n   Keep one set on file and attach a
    duplicate to each capital PO
n   Include the following language in
    the comments of each PO:

  Some Language Topics
that Should be Included in
       the Contract
    n   Delivery date
    n   Payment terms
         n 10% / 70% / 20% Net receipt
         n Net 45
    n   Shipping terms
    n   Standard Terms and Conditions:
        Warranties, Indemnification,
        Return clause, State of the art
        Clause, etc.

Examples T’s and C’s
  n Payment terms to your
    advantage:FOB Destination, Freight
   n The following are in order of
       n This Purchase order

      n (Company’s name) Standard
        Terms and Conditions as mutually
        agreed upon
      n (Attached amendments list in
        order appropriate)
      n (Supplier’s name) (quote number
        or Date)
   n The following are examples of
     important language found in T’s and
     C’s of purchase
Examples T’s and C’s
Language Continued:
n   The attachments to this PO are in
    the following order of precedence:
       n This Purchase order
       n (Company’s name) Standard Terms
         and Conditions as mutually agreed
       n (Attached amendments list in order
       n (Supplier’s name) (quote number or
       n The following are examples of
         important language found in T’s and
         C’s of capital purchase
            Examples T’s and C’s
            Language Continued:
n State of the Art Agreement:
    n If in any event that (their company name)produces and markets
      equipment in the first three years after purchase, that is the next
      generation or an upgrade that will put (your company name) at a
      competitive disadvantage, (their company name) will provide at no cost
      said new technology. After the first three years a 10 year straight-line
      depreciation schedule would be used for years four through seven.

n Rejection of Goods
    n If the Items are found to be defective in material or workmanship,
      or otherwise not in conformity with the requirements of the
      Agreement, (your company name) may, in addition to any other
      rights which it may have under warranties or otherwise, reject and
      return such Items at Supplier’s expense.

Force Majuere
n   Neither party shall be held responsible
    for delay or default caused by:
n   Fire, Riot, Act of Nature, Terrorist acts,
    Other acts of political sabotage, or War
    where such cause was beyond,
    retrospectively, Buyer’s or Seller’s
    reasonable control. Contractor shall;
    however, make all reasonable efforts to
    remove or eliminate such a cause. . .and
    upon cessation of the cause diligently
    pursue the performance of its obligations
    under this contract.

Third Party Beneficiaries
n   Buyer and Contractor are the only
    parties to this contract and are the
    only parties entitled to enforce its
    terms. . .
n   Nothing in this contract gives any
    benefit or right to third persons or
    parties, unless such persons or
    parties are individually identified.

Most Favored Nation:
n   Supplier agrees to treat Buyer as its most
    favored customer. Supplier represents that all of
    the prices, warranties, benefits and other terms
    being provided hereunder are equivalent to or
    better than the terms being offered by Supplier to
    its current customers. If during the term of this
    contract, Supplier enters into another contract or
    agreement with another buyer and provides that
    buyer with more favorable pricing or terms, Seller
    will notify this Buyer and this Buyer’s pricing
    and/or terms will be modified to at least meet that
    of the agreement with the new buyer.

Provisions That May Involve
Complex Negotiations and
Review by General Council:
n   Assignment, Sharing Risk/Reward,
    Liquidated Damages, Acceptance,
    Termination, Indemnity, Ownership
    of IP, No-Hire, Non-Compete,
    Limitations of Liability,
    Consequential Damages,
    Warranties, Audit Rights, Default
    and Remedies, Escrow /

Whose T’s and C’s
Should you Use?
n   When buying from a supplier on a
    regular basis use your terms and
n   When negotiating a one time
    purchase mark up their terms and
    conditions and replace their
    clauses with your clauses that you
    deem top priority.

Determine Your 1, 2 and 3
Clauses or Pink, Yellow,
and Green
n   Meet with your General Council or
    outside attorney and determine
    what clauses are the clauses that
    are non-negotiable, which clause
    you should not, but may negotiate,
    and which clauses are “fluff”
n   Set up a rating system (i.e. 1, 2, 3
    or pink, yellow, green).
n   Use tactics like:
n   Pretend that two “fluff” clauses are
    more important to you that they
    really are and then give them up
    for a real #1 or pink clause that
    your really want.
n   Agee to have a clause totally
    removed (i.e. Indemnity) only do
    this when it is more likely a judge
    will side with you.

n   A faxed signature is now binding.
n   Emails can also be considered as
    binding when so stated in mutually
    agreed to terms.

Battle of the Forms:
n   Battle of the Forms Disclaimer:
n   . . .All purchase orders shall be governed
    only by the terms and conditions of this
    agreement notwithstanding any
    preprinted terms and conditions on the
    Suppliers acknowledgement.
n   Any additional terms or different terms in
    the suppliers documents are to hereby
    deemed to be material alterations and
    notice of objection to and rejection of
    them is hereby given.

Case Study
n   Any questions?
n   Case Study if time permits.


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