Tuesday, December 27, 2011

Developing Checklists for Purchase Orders

On LinkedIN people were looking for a standard purchase order checklist. The problem with that is no two companies standard purchase order templates are going to be exactly the same. This means that to create a checklist what you need to do is work you’re your lawyer or contract specialist to compare your P.O. template against what needs to be addressed in the P.O. to ensure the combination of the two meets your needs and creates
a checklist that you can use.

Here’s an example of a contract checklist that I have used that lists all the things I traditionally look for in a contract that you could use as a starting point for that review.
The process would then be to identify”
1) What items that are already covered by the template so you don’t need to check for them.
2) What, if anything, do you need to add or can delete?
3) What do you need to manage?

Identity of the parties (correct legal name(s))
Addresses (mailing and notice addresses. (note: you can’t send certified mail to a Post Office Box)
Purpose of the agreement (why the agreement is being made)
Have all underlying assumptions and representations made been documented and included in the agreement?
Have definitions been created and are those defined terms used throughout the agreement?
Date of execution, effective date, (impact on any orders in process)
Duties of supplier – what must they do
Duties of buyer – what obligations do you have other than payment, if any?
What are the remedies for non-performance of other party? Are they likely to drive the desired behavior?
Term of the agreement.
Dates of performance, Lead times, other restrictions on when work can be done.
Prices, agreed adjustments to pricing
Amounts, quantities
Payment terms, what triggers payment obligations?
Control and approval over changes,
Cost formula for future changes
Delivery terms and delivery point
Packing and packaging requirements
Other deliverables, quantities, timing
Required reviews and approvals
Responsibilities for taxes & duties,
Rights of acceptance.
Warranties, warranty term, repair warranties, limitations or exclusions.
Limitations of liability, damages, cap on buyer’s liability.
General indemnification against personal injury or property damage.
Insurance requirements.
Intellectual property indemnification.
Definitions of circumstances that constitute a breach.
Cure period to correct breaches.
Rights and responsibilities for termination for cause.
Rights and responsibilities for termination without cause (or cancel the order).
Governing law, venue of any law suits.
Treatment and or use of information disclosed / confidentiality.
Merger provision stating it represents the entire agreement between the parties.
Provisions that survive the termination or expiration of the agreement (order).
Force majeure provisions.
Order flexibility (cancellation, reschedule).
Other provisions for support, training, maintenance, repair.
Did you incorporate specifications, statement of work, acceptance test, quality, workmanship or other applicable requirements?

Other issues and things to check:
Continuity of supply commitments (guaranteed availability, end of life notices with last time buy options)
Additional terms if outsourcing will be used where 3rd party will purchase e.g. Third Party Beneficiary or rights of enforcement of terms
Signature of Authorized Parties
Define key performance terms such as day, hours, so it’s clear exactly what it means (e.g. calendar versus business, clock hours versus work hours).
If words have multiple meanings which could create a different interpretation, make it a Defined term with the meaning clear.
Check to avoid commonly misused terms – e.g. Assure, Ensure, Insure or Bi- versus Semi such as Bi-monthly = every other month, semimonthly equals twice a month
Carefully check the use of conjunctions (and/ or) to ensure it meets your desired intent.
When providing a list of examples, if other things may apply make sure you aren’t limited to the list by including something like “shall include, but not be limited to…” so its clear that the list isn’t all inclusive.
Check punctuation for proper use and to verify it means what you want to say. Punctuation can change the entire meaning of a sentence or clause.
Use exhibits when necessary to explain things
If words don’t clearly describe it, provide examples of what is meant
Spell out dates instead of date numbering conventions (08/06/2005) so it’s clear to all parties exactly what is meant. In the example depending on where you are from it can mean either August 6, 2005 or June 8, 2005.
When including numbers, spell them out in both words and numbers
When dealing internationally be clear on the currency used. For example, dollars can be U.S., Canadian, Taiwan, Singapore, Hong Kong etc.
Check to make sure that separate documents are properly incorporated by reference. Check the referenced title, date, revision level, number of pages against the actual document so everything matches.
Check for inconsistencies between individual terms and between the agreement and documents incorporated by reference
Have every section numbered, every page numbered and include identifying information on each page just in case pages become separated.
Don’t rely on spell check software. It may be the incorrect word, but as long as it’s a real word the software won’t highlight it
Proof read it!

If you learned from this post, think about how much more you could learn from my book. "Negotiating Procurement Contracts - The Knowledge to Negotiate"
The book is only US$24.95 plus shipping. The hot-link to amazon.com is above the date.

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