To the uninitiated, a purchase order might appear to be a simple order form—a document requesting goods and services at a certain price, in reasonable time, and of a certain quality and quantity. But procurement professionals know certain protections, such as terms and conditions for purchase orders, are an essential component when you’re creating a legally binding agreement between a company and a vendor.
Understanding the importance of terms and conditions, and the key components they include, means your company can protect itself from exploitation and malfeasance while still obtaining the raw materials, products, and services it needs to do business.
Terms and Conditions for Purchase Orders Protect You
Every purchase order represents a legal contract between your company and the vendors you rely on for goods and services. And as such, they can only protect your interests if they leverage the law’s power.
Consider the ways in which formalising terms and conditions protects your interests:
- They explain and confirm essential information to create a framework. Unlike oral contracts, a purchase order with baked-in terms and conditions that have been drawn up and reviewed by lawyers clearly establish immutable (or at least unlikely to change) information you want included in every transaction you conduct.
This is especially important if your procurement team has little or no legal training. Their expertise will be sure to cover matters of price, delivery of goods, and other information relating to vendor performance but may not make allowances for proprietary information, local laws, liability insurance, or non-transactional implications such as workers’ compensation, the role of independent contractors working for either party, affirmative action, or even attorney’s fees.
- They reduce the chance of litigation. Clearly written terms and conditions make obvious the expectations and obligations of all parties. The more detail and specificity involved, the less appealing it will be for anyone to claim ignorance—and the less likely it will be they can claim a violation—and take the matter to court.
Enforcing claims generated by violations will also be much easier, since everything will be spelled out.
- They encourage compliance with all applicable laws. Beyond the company’s risk exposure and financial interests, formal terms and conditions make complying with labour, eCommerce, and other laws and regulations much easier for both buyers and vendors alike.
Once they’ve been formalised, the terms and conditions you’ve established for your purchase orders will be automatically included for every vendor if you use a comprehensive procurement software solution. Automation will ensure all general terms and conditions protecting intellectual property rights, trade secrets, and other proprietary information are included by default. This same automation ensures specific information relating to payment terms, delivery of goods, purchase price, and order number is also included for each transaction, and connected to other related documents, correspondence, and financial audit trails.
“Your terms and conditions may not be the same as those of your competition, or even most companies in your market—what matters is aiming for maximum detail and specificity when laying out expectations, obligations, penalties and incentives.”
Sample Terms and Conditions
The first step in drafting terms and conditions of your own is to work with your lawyer or legal team to identify the critical details you want to formalise in print so as to ensure they’re included in every transaction. The second is identifying the key parts of an effective set of terms and conditions, and creating text for each section that fulfils their respective purposes.
Your terms and conditions may not be the same as those of your competition, or even most companies in your market—what matters is aiming for maximum detail and specificity when laying out expectations, obligations, penalties and incentives.
Let’s take a look at a set of sample terms and conditions for Company X, located in London.
NOTE: All examples presented are for discussion purposes only, and should not be used or modified except under the guidance of your legal professionals. PurchaseControl does not provide legal advice or legal documentation. When composing, modifying, or approving any contract or other legally binding document, we strongly advise you to seek independent legal advice.
1.1 Except where condition 8 applies, these terms and conditions apply to every order placed by COMPANY X (“CPX”) with any individual, firm, organisation, or company (“Vendor” or “the Vendor”). Any terms and conditions contained within or attached to any document of any kind which are inconsistent with the terms and conditions outlined in this document, or which attempt to add to or modify these terms and conditions in any way shall not be deemed acceptable or legally binding unless expressly and clearly accepted by CPX in writing.
Should the Vendor be unable to supply such written agreement, the Vendor agrees to waive or withdraw the supplemental or modifying terms and conditions and contract with CPX exclusively on the basis of these terms and conditions. Acceptance of goods and/or services by CPX shall not constitute or be deemed to constitute acceptance of Vendor-supplied or otherwise non-standard terms and conditions by CPX.
All parties affirm that the contract shall commence and the Vendor will be bound contractually to fulfill the obligations outlined within these terms and conditions upon the issuance of a purchase order (“the contract”) to the Vendor by CPX.
2. PURCHASE ORDER
2.1 The Vendor agrees to ensure the goods and/or services provided shall:
(a) correspond with the quantity, type, sort, quality and description defined in the purchase order;
(b) meet performance standards, benchmarks, and delivery schedule specified on the purchase order or as specified to the Vendor by CPX;
(c) be of satisfactory quality (as defined by the Sale of Goods Act 1979) and fit for any purpose specified by the Vendor or specified to the Vendor by CPX;
(d) where applicable, be free from defects in design, materials and workmanship and remain so for a period of 12 (twelve) months from the delivery date;
(e) comply with all applicable statutory, legal, and regulatory requirements relevant to the manufacturing, production, labelling, packaging, storage, handling, and delivery of the specified goods.
2.2 Should the goods and/or services provided fail to comply with the CPX purchase order and/or submitted instructions, CPX may, at its option, either return the goods to the Vendor at the Vendor’s own expense and risk of loss; reject the goods and/or services at the seller’s risk; require the Vendor to replace the goods or re-perform the services; accept in whole or part such goods and/or services supplied by the Vendor without prejudice to or limitation of any rights held by CPX to claim damages or other compensation for loss, damage, or material failure suffered as a result of the Vendor’s failure to comply with these terms and conditions.
2.3 In the event the seller fails to deliver the goods, or perform the services, specified by the date specified in the purchase order, CPX may, at its option, terminate the contract without notice.
3. PRICING, PAYMENTS, AND OFFSET
3.1 Prices paid for goods and/or services shall be the prices established in the purchase order, including, but not limited to, packaging costs, insurance fees, and shipment of goods (and/or provision of services). No extra charges, if any, will be incurred unless agreed upon in writing by CPX.
3.2 With regard to goods, the Vendor agrees to invoice CPX upon delivery or at any time after delivery of the goods. Regarding services, the Vendor agrees to invoice CPX in full, monthly, or quarterly as specified in the purchase order. VAT invoices must contain the purchase order number and include complete supporting information required by CPX in order to be considered valid.
3.3 CPX will pay all invoiced amounts to the bank account specified in writing by the Vendor within 30 days of receiving a valid and correct invoice.
3.4 CPX may, without limiting its other rights or remedies, offset (i.e., set off) any amount owed to it by the Vendor against any amount owed by CPX to the Vendor.
4. INSURANCE AND INDEMNITY
The Vendor agrees to hold harmless and indemnify CPX in full against all costs, expenses, damages and losses (incurred directly or indirectly). This includes any interest, fines, legal and other professional fees, and expenses awarded against, incurred by, or paid by CPX arising from contract performance or any breach of these terms and conditions by the Vendor, as well as any term or obligation implied by law or any statutory provision that may be in force from time to time. The Vendor agrees to maintain at all times all required insurance coverage and provide written evidence of such coverage to CPX upon request.
5. CONTRACT CONFIDENTIALITY
The Vendor agrees to treat all confidential information belonging to CPX as confidential subject matter and protect it accordingly. The Vendor agrees not to disclose any such information without the prior written consent of CPX.
6. CONTRACT TERMINATION
In addition to clause 2.3 and 7.1, if at any time after the contract commences the Vendor:
a) Commits a material or persistent breach of contract and (provided said breach may be remedied) fails to make good faith remedy of said breach within 7 (seven) days after receiving notice of the breach;
b) Commits a material breach which cannot be rectified;
CPX may opt to terminate the contract with immediate effect.
7.1 Force majeure: Neither party shall be liable to the other due to any delay or failure to perform its obligations under the Contract if and to the extent that such delay or failure is caused by circumstances beyond the reasonable control of that party which, by their nature, could not have been foreseen by such a party or was unavoidable if foreseeable.
Should such circumstances prevent the Vendor from supplying the specified goods and/or services for more than 4 (four) weeks, CPX may, without limiting its other rights or remedies, may provide written notice to the Vendor to terminate this contract with immediate effect.
7.2 Assignment and subcontracting: The Vendor agrees not to assign, transfer, subcontract or deal in any other manner with all or any of its rights and obligations under the contract without prior written consent from CPX.
7.3 Notices: Any communication required to be given under or in connection with this contract shall be in writing and delivered to the other party via prepaid, first-class post.
7.4 Waiver: No delay, neglect, or forbearance on the part of either party in enforcing against the other party any of the terms or conditions specified by the contract will be, or deemed to be, a waiver or prejudice in any way against any right of that party under this contract.
7.5 No partnership: No partnership of any kind between any parties is intended by, or constituted through, this agreement.
7.6 Contracts (Rights of Third Parties) Act 1999: Persons not a party to this agreement shall have no rights under or in connection with it.
7.7 Variation: Any variation, including any additional terms and conditions, to the contract will only be binding and enforceable when agreed to in writing and signed by CPX.
7.8 Severance: Should any provision of this contract, in whole or in part, be held to any extent to be unlawful or unenforceable under any enactment or rule of law, the remaining provisions shall stand in full force and effect.
7.9 Statutory Requirements: The Supplier shall comply with all statutes, orders, regulations or bylaws related to the execution and fulfilment of this contract, and agrees to indemnify CPX against all losses, claims or liabilities, expenses, proceedings or otherwise resulting from the Vendor’s noncompliance with the same.
7.10 Governing law and jurisdiction: The entire agreement shall be governed by, and construed in accordance with, English law, and the parties irrevocably submit to the exclusive jurisdiction of the courts of England and Wales.
8. TERMS AND CONDITIONS
These terms and conditions will apply unless CPX specifies different terms and conditions in its tender or quotation documentation, or via other contracts entered into by the parties. Should CPX specify such changes and apply different terms and conditions in writing, those terms and conditions will override the purchase order terms and conditions and will apply instead of these.
Don’t Settle for Boilerplate
Sure, they might take a few cups of coffee and the occasional glance at the legal dictionary to get through, but terms and conditions for purchase orders make up in risk reduction and legal protection what they lack in glitz and glamour. Make sure yours are thorough, legally vetted, and crystal clear, and you can rest easy knowing every purchase order is a powerful and productive part of your company’s success.
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