Why procurement is so important
In such a competitive economic environment, never has it been more important to secure maximum benefit and best value for money on all your supplier contracts. Robust contracts that add value to your business do not happen by chance – they are the result of planning, due diligence and skilled negotiation. It is vital that you are on the front foot when it comes to such matters.
As the busy owner of an SME, it can be easy to overlook the importance of procurement, and you may think that you do not have the buying power of a much larger business or that you have little influence over your suppliers. You may be surprised how beneficial an effective procurement process can be.
Clarity of requirements
Whether you are seeking a new electrician for minor works, a new accounting or IT support service, a supplier of raw materials or production capacity, or a company to carry out a major construction project, it is worth spending time to clarify exactly what it is that you are wishing to purchase. In particular, it is important to differentiate between different types of costs.
For example, you may want the electrician to carry out a particular job as soon as possible, as well as an ongoing arrangement for regular testing and an on-call service. Providing a written brief for the work required will help the supplier to quote accurately and will enable you to compare quotes from different suppliers more easily.
Contract negotiation and alignment
In addition, your approach to the type and form of the contract should be nuanced and adaptable. In broad terms, there are three common types of contracts that you will routinely come across in business, as follows:
- Supplier standard terms and conditions – these tend to be issued by large companies and, as a general rule, tend to be non-negotiable. For example, your utilities, business insurance, and business broadband contracts etc. There is little to be gained in trying to negotiate these contracts, but wherever possible you should still read them before signing so at least you are aware of the terms.
- Buyer standard terms and conditions of purchase – these are the purchases in which you can mandate your own terms by utilising a standard form contract. Typically, as an SME, this will be when you purchase from smaller suppliers and so the bargaining position is better. The use of your own standard conditions of purchase has the benefit of providing a uniform contract approach across multiple suppliers, which can prove highly effective when resolving issues. It also provides an efficient framework for purchasing, since you are not having to start from a blank page each time. This is particularly helpful when making regular purchases from the same supplier.
- Negotiating bespoke contracts – you should be ready, willing and able to negotiate bespoke terms when the contract justifies or requires it – perhaps as a result of deal complexity, outright value or business importance. It is about fitness for purpose and ensuring that your time and efforts are allocated to the most important matters.
As always, it is critical that you involve your lawyer in contract negotiation, particularly with regard to higher value, complex or non-standard contracts.
Paying attention to detail
Be aware that a written contract between two businesses is binding when signed. Courts like to uphold B2B commercial deals, more or less irrespective of their terms.
Accordingly, it is important that you and your lawyer review the details. There is often a reason why certain terms are buried in the small print. This is particularly the case when you are dealing with new suppliers where you have not yet built up a layer of trust.
There are certain types of contract clause that routinely go overlooked. Just looking out for these clauses can give you a greater degree of protection when dealing with new contracts. Some examples include:
- Auto-renewal clauses – these can be a trap for the uninitiated, leaving you burdened by a fresh contract term that you did not intend.
- Price increase clauses – these clauses can take various forms from stepped price increases, to index-linked (RPI or CPI) increases to supplier own cost base inflationary increases. As always, the devil is in the detail. However, it is vital that you spot such clauses before signing, so that you can try to budget for them in advance.
- Termination on convenience clauses – these clauses are a double-edged sword – if they are in your favour they can be very convenient in getting out of a bad deal quickly. However, where they are in your supplier’s favour they can distort the power balance, particularly whereby you have a critical supplier who is not easily replaceable. They can also be used by suppliers to force through hefty price increases by bringing the contract to an end and offering new terms via a new contract.
We will look out for these types of problem clauses (and others) on your behalf, to ensure your interests are protected.
How we can help
Our commercial solicitors can help you with all procurement matters from contract negotiation, preparation of heads of terms, review and drafting of both bespoke and standardised contracts, together with all related advice. By instructing the right team of lawyers, you can ensure that your interests are protected from day one.
For an informal conversation on any matter related to procurement, please contact John Scott in the corporate commercial team on 01733 882 800 or email [email protected].
John Scott BA (Hons), Partner
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