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SCRC Article Library: Understanding Legistlation Related to Procurement: Procurement : A Tutorial

Understanding Legistlation Related to Procurement: Procurement : A Tutorial

Published on: Jan, 28, 2011

by: Robert Handfield, Ph.D.

Understanding Legistlation Related to Procurement

p. Contracts
Laws of Agency
Personal Liability
International Laws Affecting Global Purchasing
Contracts vs Agreements
Betsy and Mimi’s Contrac – An EXAMPLE

Contracts

Contract

“A promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.”

Contractual Relationship

A contractual relationship between two or more commercial entities allows the shifting of risk between the entities in order to obtain the stated purpose of the contract

A contract is a tool by which individuals establish a private set of rules to govern a particular business relationship.

Laws of Agency

Laws of Agency

  • Concerned with governing the relationship of principals and agents
  • Agent -person or entity who has been authorized to act on the behalf of some other person or entity
  • Principal is the corresponding person or entity for whom agents carry out their authority

Purchase agent

  • Person who acts as intermediary in dealing with a third party
  • Apparent authority – what the seller perceives
  • Actual authority – what the agent is authorized to buy

h2. Personal Liability

You may be personally liable if you engage in:

  • Deception for personal gain while behaving as an agent for the principle firm (includes taking bribes)
  • Violating the lawful protection of items owned by others, such as patent infringement
  • The [mis]use of proprietary information by the unauthorized providing to others
  • Violation of antitrust laws
  • Unlawful transportation of hazardous materials and toxic waste

International Laws Affecting Global Purchasing

Many laws—local, national, and international—affect global commerce. The following briefly summarizes some of the laws that can affect a purchaser’s international business dealings.

Martin J. Cabarra, J.D., and Ernest Gabbard, J.D., “What’s on the Books: Other Laws Affecting Purchasing and Supply,” The Purchasing and Supply Yearbook, ed. John A. Woods (New York: McGraw-Hill, 2000), 332–39.

Foreign Corrupt Practices Act – This law prohibits payments (such as bribes) that might benefit a foreign official personally. While usually pertaining to sellers, purchasers should understand this law’s provisions so they can recognize situations addressed by the act.

Anti–Boycott Legislation – Various laws address doing business with countries that support the boycott of one nation against another. Examples include the boycott of Israel by Arab countries and the boycott of Taiwan by mainland China. These laws require reporting of any request to participate in a boycott, which purchasers often fail to do.

Export Administration Act – Various laws and regulations govern, and sometimes even restrict, the export of goods, information, and services. Purchasers may not perceive that they are engaged in exporting. However, the law views certain types of drawings, specifications, and prototypes forwarded to a foreign entity as restricted exports of technology. Purchasers are urged to seek the advice of an expert when questions arise in this area.

Customs Laws – This body of law addresses the importation of goods into a country. Customs brokers who are familiar with customs laws can be quite valuable in understanding the rules and regulations governing importation.

Foreign Laws – In addition to the laws that apply to foreign transactions, the laws and regulations of other countries involved in a business transaction may also apply. These laws will likely address contract law, export control, currency control, and criminal law. Some transactions could be illegal if structured in a certain manner.

International Laws – Other laws may apply to a business transaction that are not part of any specific country’s laws and regulations. Maritime laws are a good example of international laws that affect international commerce. Several international documents are also pertinent to international transactions. These include The United Nations Convention on Contracts for International Sale of Goods (CISG) and International Contracting Terms (INCOTERMS).

The laws governing purchasing are complex and varied. Other laws address environmental and labor issues. This overview simply points out that today’s purchaser must be aware of the laws and regulations governing domestic and international purchasing.

A purchaser is urged to discuss with legal counsel any questions that arise during the performance of job responsibilities. Ignorance of the law is not a valid defense.

h2. Contracts vs. Agreements

Contract is a type of agreement.

Let’s go to the store and buy some potato chips.

Contract is an agreement between two or more people to do specified things in exchange for other specified things.

Shirley wants to go to the store to buy some potato chips but she doesn’t have a car. So Shirley says to Rich, “I will pay you a pound to take me to the store to buy some potato chips.” Rich agrees and takes Shirley to the store.

Elements of a Contract

  • Offer
  • Acceptance
  • Consideration

Betsy and Mimi’s Contract – An EXAMPLE

Offer

An offer is a proposal or expression by one person that he or she is willing to do something for certain terms.

Betsy goes into Mimi’s wholesale video store and says to Mimi, “I want to buy 1,000 videotapes of the movie ‘Terminator’ from you. I will pay you £10 for each videotape.”

Conditional Offers

Betsy goes into Mimi’s wholesale video store and says to Mimi, “I want to buy 1,000 videotapes of the movie “Terminator” from you. I will pay you £10 for each videotape IF you deliver them to my place of business on February 1.”

h3. Acceptance

Acceptance is consenting or agreeing to a contract.

Verbal or written forms:

Betsy goes into Mimi’s wholesale video store and says to Mimi, “I want to buy 1,000 videotapes of the movie “Terminator” from you. I will pay you $10 for each videotape.
This is an offer to form a contract. Mimi says, “Yes. You have a deal.”

Agreement resulting from offer and acceptance:

Acceptance

  • Agreement doesn’t exist until supplier accepts the offer.
  • “Meeting of the minds”
  • Offer can be held open for three months.

Differences must be incorporated into the contract, unless

  • The buyer alters the intent of the offer.
  • The offerer objects in writing.
  • The offerer states that no other terms will be accepted.


h3. Consideration

Consideration recognizes a “mutual obligation.”

  • Each party is bound to perform at certain levels, and agrees to carry out their responsibilities.
  • Something of value in the formation of the contract that gives it legal validity.

Is there consideration in Betsy’s and Mimi’s contract?

Meeting of the Minds

Betsy goes into Mimi’s wholesale video store and says to Mimi, “I want to buy 1,000 videotapes of the action movie “Terminator” from you. I will pay you $15 for each videotape.
This is an offer to form a contract. Mimi says, “I will sell you 1,000 videotapes at $10 a videotape, but all I have is a horror movie called “Texas Chainsaw Massacre.” Mimi’s acceptance does not match Betsy’s offer, so there is no meeting of the minds.

What if Betsy says, “Yes, that’s fine.”?

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