- 30 Aug 2024
- •
- 3 min read
Contract Focus On: Terms and Conditions of Purchase
Who this article is intended for?
This article series is aimed at new or junior lawyers and can also be shared by in-house legal teams with their commercial colleagues who deal with contracts. The aim of the series is to provide a foundational understanding of common contracts businesses will enter into, offering insights into why they are important and what key legal aspects need to be considered. Whether you are just starting in the legal field or need to ensure that your business colleagues are well-informed about contract essentials, this guide will help with navigating the complexities of commercial agreements effectively.
What are Terms and Conditions of Purchase and why are they important?
Most businesses are familiar with terms and conditions of sale, but it is equally crucial to have terms and conditions of purchase (or simply, terms of purchase). These terms govern the purchase of goods and services, whether for resale or internal use. Establishing clear terms of purchase ensure that your business is protected, by defining the contractual obligations that apply.
The advantages of having well-defined terms of purchase include:
- Standardising purchase agreements: Consistently using your own terms when buying goods or services for resale helps ensure that the protections your business offers to customers are mirrored in your agreements with suppliers.
- Streamlining the contracting process: Well-crafted terms of purchase can simplify the contracting process, making it faster and more cost-effective.
- Enhanced business protection: When you use your ownterms of purchase they can be specifically tailored to address your business’ unique needs, offering more protection than standard supplier terms of sale.
Issues and Risks involved with Terms and Conditions of Purchase
When implementing terms of purchase, businesses often encounter the following challenges:
- Inadequate contract terms: A common mistake is adopting a ‘one size fits all’ approach. While this might seem convenient, it can lead to issues if the terms are not suitably adaptable to cover different types of goods, services and purchasing processes. This is particularly risky when dealing with specialist products like software or complex legal issues such as data protection or TUPE.
- Failure to incorporate terms: For terms of purchase to be effective, they must be clearly communicated and agreed upon before the transaction is agreed. If the supplier is unaware of your terms or if there is a back-and-forth where the supplier insists on their terms applying, and your business does not explicitly reject them, the supplier’s terms may end up governing the contract. This scenario often leaves your business less protected. It’s essential that everyone involved in procurement is vigilant about ensuring that your terms of purchase are properly incorporated into contracts.
- Unreasonable terms: While it is important that your terms of purchase favour your business, they should not be so one-sided that they could be deemed unreasonable by a court. In addition, overly stringent terms can lead to suppliers rejecting the terms or pushing for extensive negotiations, which can be costly and time-consuming. A balanced and reasonable approach often leads to smoother contracting processes.
A Litigator’s Perspective
Clear terms and conditions at the time of purchase provide certainty and clarity for both parties, which is crucial in the event of a dispute. If a disagreement arises, these terms serve as a reference point outlining each party’s responsibilities and available remedies. However, issues can occur if the terms are not appropriately tailored to the specific goods or services being purchased. For example, trying to argue that software is not fit for purpose under terms meant for hardware purchases can lead to complications.
Many disputes also arise from misunderstandings or disagreements over whether terms were effectively incorporated into the contract. Claims that one party was unaware of the terms, or that the terms were altered through verbal agreements or informal communications like emails or text messages, are common. To avoid these pitfalls, it is essential that the terms of purchase are clearly communicated and accepted by the other party. Additionally, your original terms should be robust enough to address potential variations, ensuring that the contract remains clear and enforceable.
