purchasing and supply – terms of contract

Following the selection process, the buyer and the supplier(s) must enter into a formal contract to allow for the buyer-supplier relationship. The contract usually outlines the obligations of the supplier and the buyer to each other. For the supplier, the obligations relate to ensuring that the buyer receives the products contracted for, while the buyer’s obligations relate to modalities of payments for products delivered by the supplier (Biel, 2009). Typically, such contracts stipulate the intervals of payments and cases that would result to non-payment. Some of the terms often included in the contract are reviewed subsequently.

Payment terms.

Payment terms relate to the type of contract agreed upon by the buyer and the supplier. In the fixed-price contracts, the price agreed upon does not change even where the cost of performance for the supplier changes (Biel, 2009). In a cost-plus contract, a formula that factors the cost incurred in performance of the contract is used to determine the eventual price of the contract (Biel, 2009). For instance, the formula could comprise a specified percentage above the total cost incurred or a consideration for the time and materials used in delivery of the contract. Payment terms could also have stipulations for the supplier to receive a specified amount after meeting specified actions. Further, payment terms could delineate the consideration payable by either party for breaching the terms of the contract (Biel, 2009).

Non-payment terms.

Non-payments present the conditions, which the supplier needs to meet to receive payment. Such terms consist of stipulations on when the supplier transfers the ownership rights and obligations of the products or services to the buyer (Biel, 2009). For instance, cases of non-payment could result where the supplier fails to meet the quality specifications, service level, delivery quantities and delivery locations agreed upon with the buyer. Failure to meet such conditions may lead to contract termination or payment of the amount agreed upon for breaching the contract.

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