Legal aspects of Purchasing Management: An introduction
A key management decision with significant legal ramifications is the level of delegated authority or discretion granted to purchasing staff – i.e. are they responsible for routine purchases only or do they control the acquisition of all the company’s requirements? This will generally depend on the nature of the goods purchased, levels of available expertise and the degree of autonomy and centralisation of the purchasing function. Other factors to consider include the following:
It may also be advisable to establish the types of commitment and pre-set financial limits that individual staff are permitted to enter into, with or without a counter-signature or approval from their manager.
Awareness of Contract Law
Purchasing staff should be made aware of the legal issues likely to arise routinely as part of their jobs, especially contract law, and in particular how and when the company may be legally bound and how contracts may be varied or terminated. Training in such areas should be considered.
Quality and Safety
As part of your risk management procedures, you should ensure that only reputable suppliers are selected; that such suppliers comply with their obligations to you under health and safety laws to provide and update safety information for substances and industrial products; and that they co-operate with you generally in your risk management and quality initiatives with respect to customers, employees and others. Such co-operation can be reinforced by including contractual obligations in your purchasing documentation.
Monitoring Supply Contracts
If you have numerous suppliers, it will be necessary to allocate responsibility for ensuring that purchase or performance levels; ordering requirements and deadlines; thresholds; contract dates; renewal, notice and termination dates and other contract parameters are monitored and complied with.
Letters of Intent/Memoranda of Understanding
It is common for goods or services to be supplied before formal contractual arrangements have been concluded to cover their supply. In such circumstances, one party may request a letter of intent to document the understanding reached about the supply of goods/services taking place before the formal contract is signed. Practically, such pre-contract supply may be unavoidable but such arrangements can be treacherous – advice should be taken as to the precise wording of letters of intent so that you do not become contractually committed before you mean to. For further guidance on use of Letters of Intent/Memoranda of Understanding, see our Memorandum of Understanding (Commercial Transactions) and Letter of Intent with Provision for Pre-Contract Services/Works template documents.
If a substantial project is involved, you may consider seeking a competitive tender. An important consideration here is the legal status of a tender especially as to whether you are bound to accept the lowest tender. Going to tender may also mean that expert advice is necessary to assist in terms of drafting the tender specification and the comparison of the bids received which may well have been put together on differing bases.