Chapter 3 - The legal aspects of purchasing. The legal aspects are presented in chapter 3. The purchasing professional in an organization must be able to understand the legal aspects of the purchasing function. The relationship between ethics and the law is complex.
Chapter3: TheLegalAspects ofPurchasing PurchasingandSupplyChainManagement 3rdedition PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. PurchasingandSupplyChainManagement,Copyright2013.W.C.Benton Purchasingmanager The purchasing manager is an agent for the firm • The agency concept: • An agency relationship requires at least three parties: • the principal • the agent • theonewithwhichtheagentconductsbusinessonbehalfofthe principal PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. AuthorityofthePurchasingManager Thethreetypesofpurchasingauthority: 1.Expressauthority • • • 2. Implied authority By the principal Occurs automatically when appointed Stated in company bylaws By law Occurs at the time the principal expressivelygrantsauthority Protectingtheprincipalsrights whenaconsultationwiththe principalisimpossibleatthe time PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. 3.Emergencyauthority LegalRequirementsofaPurchaseContract • According to laws, a legal transaction requires all four components: The parties must be capable. The subject of the matter must be legal and valid There must be mutual consideration Thepartiesmustreachanagreementbyofferandacceptance PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. ComponentsofanOffer Threecomponents: Intenttomakeanoffer Communicationoftheofferintent Identificationofthespecificsubjectmatter PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. TheFourOutcomestoanOffer Theoffermaylapse TimeLimitsofanOffer: Specified • • E.g., immediate acceptance Unspecified • • Reasonable period according to law The offer may be rejected • Eitherverbalorwritten Iftheofferisamended,itbecomesacounterưoffer PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. TheFourOutcomestoanOffer(cont.) Theoffermayberevoked Accordingtothelaw,anoffercanberevokedanytimebeforeit isaccepted. However,thisshouldbeavoidedifpossible Theoffermaybeaccepted Acontractismade PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. TermsofContracts • Quantity • An offer must express a fixed quantity of a sale. • • The unit of measure of quantity is unique to the industry • • A contract that does not specifically express quantity is unenforceable. E.g.,Concreteisquotedincubicyards Quality PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. TermsofContracts(cont.) PriceandCreditTerms Priceisthethirdmajorterm. Mustbeincludedinanenforceablecontract Priceisdeterminedwhentheofferisaccepted Priceescalationclauses Negotiatethecredittermswiththesupplier PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. TermsofContracts(cont.) • Delivery Terms • Formalize the responsibilities of the buying and selling firm for delivery of the goods • • E.g., Free on board (FOB) Leasing • Becomingmoreattractive Taxandequityeffects 10 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. Ethics Definedasthestandardsofrightconduct Thelawcanonlycodifyandenforcethemostegregious violations • • • E.g., fraud and exploitation Thus, Ethics play a large role regarding fairness in negotiations Purchasing agents are governed by: • Company’s ethical policies • Uniform ommercial Code • Securities and Exchange Commission 11 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. • Many state and local laws Women and Minority Compliance • • A restriction put on government contractors to promote the government’s policies To be eligible to participate in some federal programs, a company must be certified as at least one of the following: • Womanowned business • Minorityowned business 12 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. Questions? 13 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. ... Minorityowned business 12 Purchasing and Supply Chain Management, 3rd edition, Copyright © 20 13, W. C. Benton Jr., All rights reserved. Questions? 13 Purchasing and Supply Chain Management, 3rd edition, Copyright © 20 13, W. C. Benton Jr., All rights reserved. ... Taxandequityeffects 10 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ20 13, W.C.BentonJr.,Allrightsreserved. Ethics Defined as the standards of right conduct The law can only codify and enforce the most egregious ... theonewithwhichtheagentconductsbusinessonbehalfofthe principal PurchasingandSupplyChainManagement,3rdedition,Copyrightâ20 13, W.C.BentonJr.,Allrightsreserved. AuthorityofthePurchasingManager Thethreetypesofpurchasingauthority: 1.Expressauthority