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