Devoted to purchasing, purchasing agents, and all things related

Contract Discussion Disclaimer:  I'm not a lawyer, nor do I play one on TV.  (Note to Dick Wolf: I'd love to play a lawyer on TV, though, so please feel free to get in contact with me when creating your next Law & Order show.)  In this post, I will share with you my personal experiences in drafting and negotiating contract language.

Pricing - That's really what is all about isn't it?  This section of the contract should be very specific.  In fact, there is often a separate sheet called an Exhibit or an Addendum, which is used to spell out the pricing in more detail.  This is where those Excel spreadsheets come in handy.

Buyers usually try to get a guarantee of set pricing for as long as possible.  Some industries are stable at least for periods of time such as office supply vendors which may only change their prices once a year while other industries such as the paper market are volatile and Buyers responsible for buying paper for printing contracts or cardboard for packaging maybe in for a bumpy ride.  Their employers prefer stable budgets to fluctuating prices and unknown future invoices.

Payment - If Buyers are mainly concerned with price, then vendors are mainly concerned with payment.  How soon can I get my money?  Buyers will ask for the longest terms possible, as much as 60 days to pay the bill.  Vendors would like payment as soon as the invoice is received. 

A good compromise for both sides is to offer an early payment discount. A typical phrasing would 2% 10 / Net 30 which means that the Buyer will take a 2% discount if the bill is paid within 10 days and must pay the full amount if paid within 11-30 days.  After 30 days, the bill would be considered overdue and the vendor will probably attempt to collect a finance charge.  Special note:  Large corporations often flat out refuse to pay finance charges no matter how late they are in paying their bills.

Another point to watch out for here is that vendors often want the date of invoice to start the clock while the Buyer should push to start the clock "upon receipt of invoice."  In my opinion, the invoice should rarely be dated or sent before the goods have been shipped or the services performed. 

Shipping terms can be confusing to people not familiar with them.  Neither side should agree to them (or anything in a contract for that matter) unless they fully understand them.  See this page for a complete explanation.  Depending on the terms, the shipper may cease to be responsible for items as soon as they leave the shipping dock.  This is different than when you as a consumer purchase an item at home through mail order and the company is obligated to make sure you receive it. 

Of course, most things arrive eventually, but I've been involved in situations that went on for months with lost freight and haggling over the responsibility for it.  (Also, "eventually" may not cut it either if missing freight causes you to miss manufacturing deadlines or creates an out of stock situation during your retail company's annual sale.)

Coming in Part 3 - Termination, Disputes,  and Acts of God!