Five Things to Think About When Dealing with Purchasing Contracts

March 30th, 2017

  1. Determine what factors are most important to you and your business. Whether it’s price, quality, terms of payment, or otherwise, it’s important to remain introspective into your own company and discover what is truly the most important factor in your own circumstance.  Undoubtedly, price will oftentimes be the most common determinative factor, but it’s often helpful to list out all factors in order to determine the best supplier fit.  If, for instance, prices are relatively the same across suppliers, but the delivery schedule of one is much more favorable to your business over another, it’s important to note and prioritize that.  Likewise, if a price is suspiciously low, you may want to look at other important factors to you to make sure that such a supplier is not taking shortcuts elsewhere.  Creating a list of business go-to items will help the legal analysis for the contract.
  1. Take a look at indemnification provisions. If something goes wrong with the purchased product, you may want to make sure you are protected by the supplier company.  Indemnity clauses obliging one party to pay for any damage or loss incurred, are oftentimes commonplace in purchasing contracts, but it is important to make sure that they are correctly incorporated into such a contract and that you, the buyer, are adequately protected.
  1. Consider what warranties and representation provisions are in play. When a seller contracts with a buyer for something, representations and warranties are implicit within the sale.  For example, the seller is representing him or herself as the owner of such product, with the legal right to do so, while the warranty may be that it is free of defects and if a defect does occur, the seller may fix it up to a certain future time.  Delve into the specifics of these things to make sure they are preferable and realistic in your own situation.
  1. Don’t limit yourself to one supplier. It is easy to fall for the apparent ease of dealing with a singular supplier, but don’t let that discourage you from playing the field.  Competitive pricing for differing products exists, so make sure to talk to multiple suppliers before settling down on just one, and perhaps even let them know you are quoting different sources.  If suppliers know you are doing your homework and not simply settling for convenience, they are more likely to grant you a better deal.  Conversely, however, it’s also possible that a single vendor may give better deals to those who do lots of business with them or who sign on to long-term contracts, so make sure to take those discounts into consideration as well.
  1. Choose a type of supplier agreement. When considering different suppliers and looking into future timelines, one may want to reflect on whether perpetual or finite period of time contracts are best.  While contracts that run in perpetuity may further streamline negotiations, they can sometimes create problems when a party’s circumstances, whether financial or otherwise, change over time or if one party feels their terms are unfavorable.  By contrast, finite contracts may require a great deal more work when it comes time to renew a business relationship. They may result in having to find a new supplier however, this also means that each party ends up with more freedom and flexibility as well as the ability to legally get out of unfavorable contracts under more reasonable timelines.

This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.