Page 1
JacquesFolonwww.folon.com
PartnerEdgeConsulting
MaîtredeconférencesUniversitédeLiègeProfesseurICHECBrusselsManagementSchoolProfesseurinvitéUniversitédeLorraine(Metz)ESCRennes
LAW
Law and contract negotiation
The Legal Aspects of Purchasing
Based on Purchasing and Supply Chain Management by W.C. Benton
Page 2
2
LearningObjectives
1. Tounderstandthelegalaspectsofthepurchasingfunction.
2. Tounderstandwhatfactorsareinvolvedintheselectionofthepurchasingmanager
3. Tounderstandtheextentofthepurchasingprofessional’slegalauthority.
4. Tounderstandhowcontractsandpurchaseordersarelegallyexecuted.
5. Tounderstandtheessentialsofabindingpurchasingcontract.
Page 3
3
LearningObjectives
6. Tobeabletodistinguishbetweenanofferandanonoffer.
7. Tolearnaboutthepossibleoutcomesofanoffer.
8. Tounderstandthetermsofanenforceablecontract.
9. Tounderstandthelegalimplicationsofleasing.
10. Tounderstandthelegalimplicationsoftheinformationage
11. Tolearnabouttheimportanceofethicsinpurchasing.
12. Tolearnaboutelectroniccontractsandsignature.
Page 4
4
ThePurchasingAgent
• Thepurchasingmanagerisanagentforthefirm.Thetermspurchasingmanager,buyer,andpurchasingagentwillbeusedinterchangeably.
• Thepurchasingmanageradministersthepurchasingfunction.
• Thepurchasingfunctionconsistsofmanytaskswithinthebusinessentity,includingsupportingthecompanywiththerequired• (1)materials,• (2)supplies,• (3)services.
Page 5
5
TheTitleandDutiesPurchasingAgent
Themostimportanttaskthatthepurchasingofficerisinvolvedinisrepresentingthecompanyinthedevelopmentandnegotiationofcontractswiththirdparties.
• Thetitlepurchasingagentisagenericlegaltermdefiningtheindividualwhodealswithathirdpartyforacompany
• Othertitlesdoexist,like
• Purchasingmanager
• VPMaterial
• SupplyManager
• …
Page 6
6
LegalStatusofPurchasingManager
• Fromalegalpointofview,thefollowingfactorsareassociatedwiththeappointment:
1. Thepurchasingmanagermustbegrantedtheauthoritytomakepurchasecontracts.
2. Thepurchasingmanageracceptsthiscontractingauthority.
3. Theemployeracceptsthecommitmentsthatweremadebythepurchasingmanager.
Page 7
7
AuthorityofthePurchasingManager
• Thethreetypesofpurchasingauthorityare1.Expressauthority2.Impliedauthority3.Emergencyauthority
• Itisstronglyrecommendedthattheauthorityofthepurchasingmanagerbeclearlywrittenandcommunicated.
Page 8
8
ExecutionOfContractsandPurchaseOrders
• Purchasingpersonnelroutinelysignpurchaseordersandcontractscommittingthecompanytothespecifictermsandconditionsofpurchaseordersandcontracts.
• Thepurchasingofficialhasnopersonalliabilityprovidingthatthefollowingrequirementsaremet:
✦ Thenameoftheprincipalorcompanyisshownonthedocument.
✦ Allpartiesinvolvedknowthatthepurchasingagentisactingonbehalfofthecompanyorprincipal.
✦ Theagencyrelationisshownonthedocument.✦ Thepurchasingagentisactingwithinthescopeofhisorher
authorityforthetransaction.
Page 9
9
EssentialsofaPurchaseContract
1.Thepartiesmustbecapable
2.Thesubjectofthemattermustbelegalandvalid3.Theremustbemutualagreement
4.Thepartiesmustreachanagreementbyofferandacceptance.
Page 10
10
InvitationToDoBusiness
• Inmostinstances,thepurchasingofficialinitiatesaninvitationtodobusiness.
• Thepurchasingofficialissuesarequestforquotation(RFQ)
• TheRFQisanexcellentwayforthebuyingfirmtotestthemarketwithoutmakingalegalcommitmenttopurchase.
• TheRFQlackstheintentcomponent.• Whentheintentcomponentismissing,thedocumentismerelyaninvitationtobid.
Page 11
11
Offers
• Purchasingagentsreceivenumerousoffersonadailybasisandmustbeabletoidentifycompletelegitimateoffers.Thethreenecessarycomponentsofanofferare:
1.Intenttomakeanoffer2.Communicationoftheofferintent3.Identificationofthespecificsubjectmatter
Page 12
12
Counteroffers
• Thenegotiationsprocessbetweenthebuyerandthesellerusuallyleadstomanyoffersandcounteroffers.
• Acounterofferislegallybindingifitcontainsthecomponentsthatinstituteanoffer.
Page 13
13
TheTimeLimitsofanOffer
Anofferdoesisnolongervalidif
1.Theofferbecomesoutdated
2.Theofferisofficiallyrejected
3.Theofferisrevokedbythesellerbeforetheacceptance
4.Theofferisacceptedbythebuyer
Page 14
14
FirmOffers
• Thefirmofferquestionshouldberaisedwhenquotationsarerequested.
• QuotationsasaresultofthisRFQareenforceable.
• Itmustbemadecleartothesupplierthatanysupplierthatsubmitsanofferwithoutthisguaranteewillnotbeconsidered.
Page 15
15
OptionContracts
• Incasethesupplierisunwillingtogivethebuyingfirmafirmoffer,thepurchasingprofessionalshouldattempttooffertheselleranoptioncontract.
Thesellerwillmakeanagreementtoallowthebuyeraspecifictimelimittomakethepurchase.
• Thisoptioncontractisenforceable
Page 16
16
BidBonds• Abidbondenlistsathirdpartyintothetransaction.
• Thesuppliersecuresabondingcompanytoguaranteethatthesupplierwillenterintoacontractiftheyareawardedthecontract.
• Abidbondconditionisusuallymotivatedbyafederalorstateregulation.
• Bondingisusedtoprotectgovernmentalagenciesfromunqualifiedbidders
• Anevaluationprocessisgenerallyputinplacetoselecttheawardedcompany
Page 17
17
Promissoryoffers
• Ithappensintheconstructionindustrythatthegeneralcontractoracceptsoffersfromsubcontractors
• inexpectationofbeingawardedaprojectfromathirdparty
Page 18
18
OralContracts
• Oralcontractsoccureveryday.
• Orderingapizzaisanoralcontract.
• However,oralcontractshavenoplaceintheprofessionalpurchasingarena.
• Ifasupplierrefusestoperform,thereisnorecourseforthebuyer.
Page 19
19
TERMS OF A CONTRACT
Page 20
20
1. Concreteisquotedincubicyards.
2. Textileinsquarefeet.
3. Barrelsofoil.
4. Gallonsoffuel.
• Thepurchasingprofessionalmustpaycloseattentiontothequalitytermofthecontract.
• Qualityshouldnotbeoverspecifiedorunderspecified
Quantity Quality
Page 21
21
Price
• Thepriceisdeterminedwhentheofferisaccepted.
• Insomecases,priceescalationclausesareusedinacontract.
• Apriceescalationclauseisanadjustmentthatthesellerutilizesinordertocompensateforvariancesatdelivery
Page 22
22
DeliveryTerms
• Deliverytermsarecloselyrelatedtopriceterms.
• Thetransportationbetweenthebuyingandsellingfirmisusuallyconsideredaspartoftheprice.
• Thedeliverytermsformalizetheresponsibilitiesofthebuyingandsellingfirmfordeliveryofthegoods.
• Asanexample,FOBshipment,meansfreeonboard(f.o.b)atanamedplace
Page 23
23
Leasing
• Leasingisbecomingmoreattractiveforbothconsumersandbusinesses.Consumersareleasingautomobilesinrecordnumbers.
• Onereasonfortheincreaseinconsumerleasingisthetaxeffectoftheleasedautomobileforsmallbusinesses.
• Iftheautomobileispartiallyusedforthebusiness,aportionofthemonthlyleasepaymentistaxdeductible.
Page 24
24
TheLegalImpactoftheInformationAge
• TheInternethasinfiltratedeveryaspectoftheworld.
• E-mailhasoutpacedthepostalsystemastheprimarycommunicationmodeinthedevelopedworld.
• Nine-year-oldkidsarebuyingandsellingthrougheBay.
• Insomeinstances,purchasingprofessionalsarerequiringthesuppliertomeetminimumlevelsofconnectivity
Page 25
25
TheImpactoftheInformationAge
• Moreandmoreconsumersandbusinessesarecontractinginternationally.
• ThelegaldifficultiesofInternettransactionsareapparent.
• Duringthenextdecadethecaselawwillbevoluminous.
• Considertherequirementsforanofferandlegallybindingcontractdiscussedearlieranditshouldbeapparentthatverylittleofthecurrentlawapplies.
Page 26
26
ElectronicContractsandSignatures
• In1996theUnitedNationsCommissiononInternationalTradeLaw(UNCITRAL)adoptedtheModelLawonElectronicCommerce,whichoffersmemberstatesoftheUnitedNationsmethodstoaddressbarrierstotheuseofelectroniccommunicationsintheircommerciallaw.
Page 27
27
ElectronicContracts&signatures
• Asecuresignatureshouldbesuchthatitcanbeusedtoidentifythesigner.
• Thisdoesnotmeanthatthesignatureitselfmustconsistoforincludethesigner'sname.Identificationbyreferencetoothersourcesofinformationwouldbesufficient.
• Thus,forexample,adigitalsignaturemayidentifythesignerbyreferencetoacertificateissuedbyacertificationauthority.
Page 28
28
ElectronicContracts&signatures• Asecuresignaturemustbelinkedtothedatamessage
beingsigned,insuchamannerthatifthemessageischangedthesignatureisinvalidated.
• Suchalinkagemayberegardedasacrucialrequirementforasecuresignature,sinceotherwisethesignaturecouldbesimplyexcisedfromonedatamessageandpastedontoanother.
Page 29
29
CryptographicSignatures(PKI)
• Cryptographyisthescienceofsecuringinformation.Thetechnologyisbasedonscramblinginformationandthenunscramblingit.
• ManybusinessesconsiderthecryptographicsignaturemethodknownasPublicKeyInfrastructure(PKI)asthemostsecureandreliablemethodofsigningcontractsonline.
Page 30
30
PurchasingandEthics
• Insociety,somepeoplearerespectedbasedontheamountofmoneytheyhave,regardlessofthemoney’ssourcesandmethodsofobtainingit.
• However,inbusinessenvironments,ethicalbehavioristhe
foundationoftrust.
• Purchasingagentsmaybegovernedby• thecompany’sethicalpolicies,• thelocalCommercialCode• theequivalentoftheSecuritiesandExchangeCommissionand• manyotherstateandlocallaws.
• Purchasingagentswhoviolateethicalcodescouldeasilygotojail