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Purchase Order Series, Contracts

Purchase Orders and Avoiding Procurement Hell – Part 4

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Here are the top 7 P.O terms to look out for and  negotiate/change if at all possible:
  1. “All amounts are shown”. You won’t get payment for anything else. Does that amount reflect all your costs? What work and time period does the Purchase Order cover? Usually the terms and conditions prohibit you collecting for shipping, insurance and other costs. Your final number better include all the costs you can pass on.
  2. Buyer “can withhold payment for any reason whatsoever.” Whoa! Do you really want to agree to that?
  3. Penalties will be incurred for “failure to deliver at specified locations and times.” Of course, there are no specified times and locations. Get that sorted out before you sign—that impacts your profit.
  4. If the Purchase order is cancelled or terminated, you must “return advance payments with interest.” What about your startup costs? Interest? In other words, BigCo says “drop what you’re doing, gear up for our job and oh, by the way, we’ve cancelled—give us back our money with interest.”
  5. “Purchase order terms control over all other documents and agreements; no additional or different terms can be accepted.” (If you can't get the Master Agreement to control, try to confine this Purchase Order only to your present deal).
  6. Damages and indemnity provisions apply only to Seller, amounts recoverable against Seller are unlimited. Buyer only forks over what they paid under the contract in the event of damages. How one sided can a Buyer be?
  7. “All work furnished under this Purchase Order becomes the property of Buyer.” In this Age of Intellectual Property, you better give them nothing new that you hope to ever use again.

If you decide to take the plunge with a Purchase Order with such draconian terms, caveat emptor! Watch this account like a hawk!

Do the Big Companies back off terms like these? Surprisingly, yes. However, the closer your goods and services are to commodities, the tougher it is to negotiate. Use the mantra “we Just want this to be mutual, fair and reasonable.”
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