Procurement legal issues & contract law, terms and conditions

Procurement: Legal issues & contract law - Terms and conditions

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Legal Issues

Contract Law - not just for lawyers:

Arising from statute but also very significantly from case law (the decisions made by judges in their courts) contract law is one of those fluid areas of law which often seems to be full of shifting and surprising subtleties understood only by the trained legal mind. Lawyers often have an understandable concern about the non-legally trained layman independently interpreting and applying the law of contract.

A little knowledge is a dangerous thing. However, total ignorance can and often is disastrous. It is the misapplication of a little knowledge which is dangerous and not the knowledge itself. After all, how will you ever know until it is too late that you are getting into trouble if you have no knowledge and consequently cannot recognise early danger signs. Anybody purchasing goods and services on an organisation's behalf should have sufficient knowledge of contract law to know what the pitfalls might be so that they can recognise them and seek appropriate expert advice from the lawyers in a timely manner.

So what are the basics which need to be understood? Well firstly, it is important to know what constitutes a contract, usually thought of as the three basic conditions of offer and acceptance, consideration and an intention to create a legal relationship. It is also important to understand some of the fundamental basics of contract. For example, many people are still under the mistaken belief that a contract must be in writing, or that it can be changed unilaterally by one party without the agreement of another, or that can be terminated whenever you like.

People do not understand that silence is not consent, the difference between express and implied terms, the uncertainty caused by the battle of the forms, the difficulties which sloppy representation can cause, how force majeur can affect things, the main principles of legislation and so on.

Of course, it does take considerable legal training to understand the shifting and surprising subtleties mentioned above but the basic principles are essential knowledge for anybody doing procurement work.

Checking Suppliers' Terms and Conditions:

Despite good intentions and the widespread availability of terms and conditions for purchasing organisations, an enormous amount of goods and services are bought on the terms and conditions of the vendor. The reason for this is the cost and time taken to impose a purchaser's terms and conditions, the inexperience of staff undertaking purchasing work especially low value purchasing and the relative lack of power/influence which the purchaser might have in many circumstances.

In practice, it is often not worth while trying to impose a purchaser's terms and conditions, however this should not mean that there should be no awareness of the risk of using another party's terms and conditions. The objective of all terms and conditions is to minimise risk and this is often done by passing the risk onto the other party. Sellers usually like to pass as much risk as possible on to the buyer.

If frequently purchasing on a given supplier's terms and conditions, it makes sense for the purchaser to know what are the risks of using these terms and conditions. Steps should be taken to reduce the impact of harsh terms and conditions and, if this is not possible, consideration should be given to not using this supplier in the future. Even when dealing only occasionally with a supplier or, indeed only on a one-off basis, it is as well to know what risks are being passed to the purchaser.

There are three key steps to dealing with the risks of buying using a supplier's terms and conditions:

The first step is, of course, to know what risks to look for. Many personnel engaged in purchasing, particularly those who do this sort of work as only a part of their responsibilities find this difficult. There are nine key areas which should be checked: delivery, passing of title, insurance, terms of payment, loss or damage, acceptance/failure, rejection, fitness for purpose, quality.

The next step is to have a clear idea of what is acceptable and what is not.

The final step is to take action to deal with unacceptable risks.

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~ Stephen Cannon ~

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