An issue that is frequently addressed by many of us in the printed circuit industry, and by others in the world of contract fabrication and assembly, is dealing with the “Terms and Conditions” in a purchase agreement or contract. These terms and conditions include language about delivery, payment, quality requirements, and warranties. Disclaimer…I’m not a lawyer. In fact, I am so far removed from the profession I don’t even know any good lawyer jokes! But on this subject matter, I have gathered some relevant information provided by individuals from the legal profession that is worth sharing.
I recall a business law professor defining a contract as a “promise for a promise,” which describes what happens when a quotation is offered by a fabricator and it is accepted by a customer. The terms “offer” and “acceptance” are also part of the contract vocabulary. The supplier agrees to build the parts, and the customer agrees to pay. I have found this simplified definition to be helpful in understanding the general concept of a contract. The seller incurs costs to fulfill the “promised” obligation, and the buyer “promises” to pay for the parts per the agreement.
But not surprisingly, the “devil is in the details.” Or as a lawyer might say, “in the Terms and Conditions.” The Uniform Commercial Code helps define these details. The UCC is a collection of legal rules to make business practices predictable through creation of a consistent set of business rules among the 50 states. In the words of the UCC, it is intended “to simplify, clarify, and modernize commercial law, to permit the continued expansion of commercial practices…, and to make uniform the law among the various jurisdictions.”
In most situations, the terms and conditions (Ts and Cs) of a contract are included by the supplier when a quote is offered. When a purchase order is awarded, another set of Ts and Cs are introduced. These are never the same! The differences in these documents creates what has been called the “Battle of the Forms,” where the terms between a bid and/or acknowledgement letter and a purchase order do not agree. In most cases the parties perform anyway (by building and shipping the goods, then accepting the goods when received). I have been told (this is not my legal opinion) the law generally provides that a valid contract exists to the extent the terms and conditions forms of the parties agree. But what about the multiple sections of disagreement? In these areas, the Uniform Commercial Code applies. The UCC provides default terms and conditions considered “gap-fillers.” It is worth noting these defaults are considered buyer friendly.
In situations with divergent buyer and seller terms, when parts are delivered per a purchase order and are accepted by the buyer, a valid contract has been executed. But in those sections with terms not in agreement, the UCC default terms and conditions apply. So this likely means if issues arise requiring legal decisions (i.e., in a court of law), these default terms would carry considerable weight.
Some Ts and Cs are so burdensome they demand resolution before performing under contract. Ts and Cs specifying “additional damages” for lack of delivery and/or quality issues fall into this category. In the automotive world, recall costs might also be mentioned. Incidental damages for these kinds of claims could turn a two-dollar component into a thousand-dollar-plus liability. Terms this onerous demand resolution before accepting an order. Most customer terms are not this formidable but not reading the fine print can be reckless.
In reality, when a serious dispute occurs, the buying and selling parties generally resolve discrepancies through negotiation rather than incur the cost of litigation. I have been in this industry for almost 40 years and have not experienced a situation with purchase order disputes resolved in court. If T’s and C’s are argued to resolve a dispute, get ready for negotiation. Each party’s terms and conditions will set the stage for discussions to achieve a settlement. The terms and conditions that were part of the original offer and acceptance help provide a foundation for negotiation.
Large contracts might avoid the battle of the forms with a master purchase agreement. This will involve negotiation to define less burdensome terms and conditions. The parties agree to specific language that will be incorporated into future purchase orders. This involves signatures on the agreement and takes time and perhaps legal counsel. It can be a slow process and is seldom adopted unless a very large contract is under discussion. Unfortunately, there are times where slow and steady is the best approach…even in this world of time based competition.
Dave Becker is vice president of sales and marketing at All Flex Flexible Circuits LLC.