Every buyer has them, as does every seller. No one likes them, but they are tolerated. Doing business without them can be very risky, and dealing with them on a daily basis can be tedious, time consuming, and frustrating. They are Terms and Conditions, also known as “boilerplate,” and are most often printed in very small font on the backs of quotations, sales orders, and purchase orders.
Often there are many sections of Terms and Conditions (T&C) documents. Examples include contract acceptance, shipping, billing, delivery, warranty, force majeure, indemnification, insolvency, insurance, and intellectual property. Every company’s T&Cs are unique and will be written specifically for that business, by attorneys in most cases.
Depending on the type of business and the type of transaction involved, T&Cs can be ignored by both buyer and seller, or every section can be the subject of negotiations. Examples of transactions where T&Cs can be ignored or do not come into play unless a problem arises include purchases/sales of “catalogue items” or “off the shelf items.” These are items that would be sold on a repetitive basis and are not custom built to someone’s requirements. However, even in the case of the purchase/sale of a catalogue item there can be issues that involve T&Cs; warranties can be a problem, for example, if the catalogue item malfunctions or fails within the stated warranty period.
Examples of contracts where T&C issues can be difficult to resolve and require lengthy negotiations include construction, professional services, custom-built machines, and the purchase and shipment of machinery to another country. Also, transportation of goods can be fraught with T&C issues such as damaged goods, lost goods, late shipments, documentation issues, and customs issues.
How to deal with T&Cs and potential issues that arise can be the subject of much debate. Some organizations take the approach to actually ignore them unless a problem develops. This approach for buying/selling catalogue items can work. Each side, buyer and seller, takes a risk by choosing to ignore T&Cs. If a product shows up damaged, malfunctions, or has some other problem the resolution can often be handled via phone or e-mail.
Other organizations attempt to resolve T&C issues before an order is issued or accepted. Oftentimes this is a prudent approach to minimizing risks before an order is issued or accepted. One drawback of this approach is schedule slippage; in other words, delivery dates can be extended, installation and final acceptance of equipment can be delayed, and the start and completion of projects can also be delayed.
Who should handle T&C issues is very important, too. In some sales organizations the vice president of sales, or a senior member of the sales management team, will often negotiate with customers. In purchasing organizations the VP of purchasing or a purchasing manager will often negotiate with suppliers. However, in many companies the CFO rather than someone from sales or purchasing often negotiates T&Cs. In very small organizations, the challenge of developing them will be that of the owner and possibly an outside attorney.
How to handle T&C issues will vary according to the situation. In some instances the problems can be handled over the phone or with a few e-mails. In others copies of documents, e-mails, drawings, sketches, purchase orders, sales orders, notes, and even T&C documents themselves may be required. Time lines, copies of shipping documents, receiving documents, invoices, and statements may be necessary to resolve delivery, payment, and warranty issues.
In the instance of lost production schedules, times, inventories, and workers, may be needed to determine the actual cost of lost production, inventory losses, or spoilage. After all of this data and documentation is compiled, negotiations may begin, and those involved from both the buyer’s and seller’s organizations start to work to resolve the issues. In a situation such this, attorneys may be required by all parties.