It’s easy to bring risks into your organisation. One thing to watch out for is bad contract management – and contract law in particular.
Let me give you an example.
You issue a purchase order for a significant purchase, over £3.5 million. The supplier doesn’t accept the purchase order because they’ve issued their own acknowledgement stating their own terms of business. You don’t know this. While you’re using the purchased equipment in the field, it fails and you and your client suffers significant losses.
Let me give you an example.
You issue a purchase order for a significant purchase, over £3.5 million. The supplier doesn’t accept the purchase order because they’ve issued their own acknowledgement stating their own terms of business. You don’t know this. While you’re using the purchased equipment in the field, it fails and you and your client suffers significant losses.
An investigation finds that the supplier’s acknowledgement was sent to a technical department and not the buyer who placed the order. The buyer didn’t know about the acknowledgement because the engineer who received it put it in their own desk. Because the buyer didn’t reply to the acknowledgement as it was in someone else’s desk, the buying organisationaccepted the equipment on the supplier’s terms.
When the equipment failed, liability laid firmly with the buyer (or rather the buying organisation as a whole). The supplier’s terms prevailed and weighed heavily in their favour. If the buyer had seen the acknowledgement they could have negotiated more favourable terms prior to delivery. Of course, this is assuming the buyer could identify the risks contained within the acknowledgement in the first case.
There are many reasons why a buyer, and key stakeholders, should have some level of working knowledge of contracts and commercial law:
Buyers, and the buying organisation as a whole, should know the risks of not having a legally binding contract.
Without one there will be no:
All of the above can affect many functions within the buying organisation outside of procurement, including:
Contract management is a very important area of professional procurement and often involves negotiation with the supplier to finally agree the terms of supply or service. Organisations often have guidelines that determine what procurement can or can’t agree to before potentially escalating up the tree to legal. However, a knowledgeable procurement department will understand the risks involved from wider stakeholders. They will avoid bottlenecks in decision-making and agree a quicker turnaround for the purchase order or contract to be placed.
When the equipment failed, liability laid firmly with the buyer (or rather the buying organisation as a whole). The supplier’s terms prevailed and weighed heavily in their favour. If the buyer had seen the acknowledgement they could have negotiated more favourable terms prior to delivery. Of course, this is assuming the buyer could identify the risks contained within the acknowledgement in the first case.
There are many reasons why a buyer, and key stakeholders, should have some level of working knowledge of contracts and commercial law:
- The law isn’t optional or a choice – organisations can’t just ‘opt out’, they’re in it for good.
- Law changes all the time and buyers need to keep up to date to reduce risk to their business.
- Buyers need to know what it is they’re agreeing to and certainly not automatically accept suppliers’ terms.
- Saying ‘I didn’t know this!’ is not an excuse for non-compliance – ignorance is certainly not bliss.
- Buyers aren’t lawyers and shouldn’t pretend to know complex areas of the legal system, but they can act as a useful interface between the supplier and the legal team.
Buyers, and the buying organisation as a whole, should know the risks of not having a legally binding contract.
Without one there will be no:
- real clarity of what is actually being agreed: specification, delivery, quantity, price etc
- limitations of liability and clear proportion of other risks between buyer and supplier
- remedies for breach of contract including damages
- provision for termination
- performance indicators
- insurance provisions.
All of the above can affect many functions within the buying organisation outside of procurement, including:
- senior management
- legal department
- operations
- finance.
Contract management is a very important area of professional procurement and often involves negotiation with the supplier to finally agree the terms of supply or service. Organisations often have guidelines that determine what procurement can or can’t agree to before potentially escalating up the tree to legal. However, a knowledgeable procurement department will understand the risks involved from wider stakeholders. They will avoid bottlenecks in decision-making and agree a quicker turnaround for the purchase order or contract to be placed.
