CPSM Blog

Preparation and issuance of contracts/purchase orders

This section is rather long at 28 pages but has only 6 questions in Exam 1. Here are the major topics of this section:

1. What elements does a contract have?Check out some web references like nolo.com. Also login to the ISM Glossary for this and other definitions.
2. Written or oral contract? You are right written is always better but if you have an order above $500 you can confirm later in writing and also it is valid if both parties believe that a contract exists. See the earlier post on the doctrine of promissory estoppel on this section 1-A-4. Also think about how electronic contracts are working today right from the supplier website portal.
3. Is Purchase Order a Contract? No unless it is accepted by the supplier. It is the supply manager's chance to spell out exactly what supplies are expected including quality,delivery and price. On its own a Purchase Order could be an offer, an acceptance or a confirmation of a verbal contract.
4. When a Letter of Intent? Before the formal purchase order so that the suipplier can start planning supplies, talk to its own suppliers and banks etc. for funding. Issued when you are reasonably sure that you are going to go ahead and are just waiting for stuff like budget ( that you expect but are not entirely sure), quantities.Naturally a lot of caution is necessary lest the supplier starts buying inputs and you are not able to proceed with the Purchase Order and the Letter of Intent is construed as binding.
5. What are the different contract/agreement types? Check the ISM Glossary also see the Small Business Federal Government pages.
6. When Purchase order confirmations? Desirable when you need to prove that a contract exists. Also needed for payments after supply is completed. It's OK for supplier or supply manager to change clauses and mutually agree. Do check with your legal folks before changing any of the "fine print."
7. What other considerations in obligation document? You may need to outline confidentiality,intellectual property,copyrights. Important to consider clauses of the United Nations Convention on Contracts for the International Sale of Goods  (CISG) if both parties are in the countries who have signed the CISG.
8. What about Statement of Work(SOW)? As you need to buy more and more services its really important to understand key elements of a SOW. The work need to be clearly described so that those who will receive the work at your organization are able to deal with the output. For example if the service is an engineering drawing that needs re-work after being received, there is some gap about defining the work. Second define milestones and finally be clear about performance evaluation like service levels that are expected.

Although this section has a lot of content focus on understanding the logic and rationale of each topic and how it relates to the supply managers leadership role.

Promissory Estoppel, Fixed Prices and preparing contracts

I am always looking for interesting things in the CPSM notes and I thought Promissory Estoppel was pretty impressive. The concept follows from British contracting law and generally speaks to one of the many points to consider when preparing contracts. This section has 29 pages with 8 types of "Fixed Prices". Most of these are definitional but quite a lot of material to cover.Coming back to promissory estoppel the key message is that an implied agreement can also result in conflict and disagreement. It is therefore important to spell everything out in writing so that things are clear going forward to contract implementation. The suggestion to follow verbal orders with written documents brought back some of the classic practical learnings I had in my early days after my MBA which basically taught me the same thing  in the real world...