One common issue with negotiating supply contracts is when a buyer and supplier on the execution of a sale, are both insisting that the contract should be based on their unique terms and conditions.
Put simply: A supplier offers to supply products or services to a buyer on her terms and the buyer in question agrees but states that he accepts the offer on his terms.
This is what is often called the "battle of the forms."
Take this illustration:
◊ Buyer issues a Purchase Order (PO) to a supplier for a material supply. Included on the back of the PO are the buyer’s terms and conditions.
◊ Supplier receives the PO and sends an acknowledgment for the order, with its conditions of sale detailed therein.
◊ Some conditions stated on the buyer’s PO and supplier’s order acknowledgment conflict.
◊ Buyer wants his PO terms and conditions to apply. Likewise, the supplier wants the supply to be subject to his conditions of sale.
At this point, there's a tussle over whose terms should be adopted as the terms of a contract between the supplier and buyer.
There are cases when a party tries to implement a "prevail clause" which means only their standard terms should apply and not that of the other party. But even at that, the moment the other party responds with a counteroffer, the first party’s standard terms including the prevail clause will be considered rejected, and won’t be included as part of the contract since it has been countered. This means implementing a "prevail clause" is not a foolproof way of dealing with the "battle of the forms."
👉How's the battle of the forms resolved?
In a case where a supplier has made an offer and the buyer is accepting that offer on his standard terms, which also means that the buyer has made a counteroffer, the rule that applies is to try to determine a point where the buyer can be said to have accepted the counteroffer either in conduct or by words.
In other words, when a counteroffer is being made by both parties, the final contract is determined at a point when a party sends its terms and this proposal is no longer countered or rejected by the other party. This is often referred to as the "last shot rule."
In short, the battle of the forms is usually considered resolved with the terms of the latest contract exchanged between both parties which weren't countered by the receiving party.
It is worth noting that there are instances where the last shot rule was not applied by the court of law because the party claiming the last shot had indicated acceptance of the other party’s terms by signing the contract, before going on to issue counter terms.
Here are some tips to keep in mind that will help you enforce your standard terms;
📍As a supplier, when delivering goods and services, you could employ a standard order that spells out your organization's terms and conditions. As a buyer, you can achieve the same by ensuring your purchase forms include your standard terms and conditions.
📍Take time to iron out all differences during contract negotiations. Be clear on your expectations and ensure that you follow all negotiations with documented minutes of meetings which are shared between all parties and signed.
📍Sometimes parties may discuss and agree on certain amendments to the terms. Do not rely on oral agreements. Ensure that all discussions are followed by an ‘...as discussed and agreed…’ email.
📍Take note that contracts are considered concluded by performance. As much as possible, don't proceed to perform a contract without a documented agreement.
📍 If for any reason, you are unable to resolve differences before the contract commences, ensure that your documented communications with the other party specify outstanding terms and state your position clearly.
Procurement just got easier. To learn more about procurement processes, visit academy.efemini.com
Kommentare