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Setting the right terms and conditions is crucial for any business cooperation, whether it is procurement and supply or a short-term agreement for a single operation. The success of any activity highly depends on the preciseness of the terms and conditions upon which the partners agree. In case the relevant terms are wisely worked out both parts are likely to benefit. It is particularly important that the offered terms and conditions fix all the key points of an operation, such as time limits, quality standards, fixed pricing, and ethical policy.
In the meanwhile, it is vital to work out the reasonable set of terms and conditions that can be equally accepted by both parts. Moreover, while working out the following set, one is particularly interested in ensuring the prevalence of the set conditions and terms over those of the other part. Therefore, one suggests analyzing a set of terms and conditions in the context of their capacity to prevent potential risks and difficulties.
The Risks of Poor Quality
One of the primary points that any terms and conditions should include is managing the quality risks. Any client is primarily interested in the goods he or she orders, while other factors are additional. The quality of a product largely determines the customer’s willingness to continue the collaboration. Therefore, a set of terms should be initially aimed at stating the standard of quality that will satisfy both the supplier and the customer.
As long as the phrase “poor quality” is initially ambiguous, one is to lay a particular emphasis on the quality aspect while working out a set of terms and conditions. Thus, it seems to be reasonable to include the term “defect” in the contract so that the vague formulation “poor quality” is eliminated. One can describe in details the expected quality and all the discrepancies with the stated standard will be, consequently, regarded as defects.
Moreover, it is important to note that the terms and conditions should essentially exclude the possibility of changing one’s requirements regarding the quality. In other words, the client cannot demand to receive a product of a higher quality than the standard that he or she initially accepted. As to suppliers, they likewise cannot change the standard quality of their products even if the transformations are claimed to be positive.
Moreover, the supplier might provide a standard warrant for the customer that will guarantee that the latter will receive compensation in case he or she manages to prove the existence of the defect. It is also important to set a reasonable deadline for the following warrant the length of which depends on the character of the goods supplied. Otherwise, suppliers might have to pay for the defects that they are not responsible for – various damages that appear due to the customer’s indelicate handling or the expired service life. Thus, such companies as Menlo Systems provide their clients with a 14-day warrant along with their electronics (“Standard Terms and Conditions” par.36).
Another vital aspect that the terms and conditions essentially elucidate is the indication of the part that is responsible for the “poor” quality. In other words, the supplier should not be obliged to pay for the defects that are caused due to the fault of the customer, so this point is to be included in the terms and conditions as well. As long as it is highly problematic to find the part that is responsible for the defect, one suggests that the state of the good’s quality is monitored at every stage of the procurement and supply chains.
Specialists note that the quality issue has three main aspects that should be necessarily enlightened in any terms and conditions: defining, ensuring and managing (Sollish and Semanik 189). On the whole, most of the standard terms and conditions cover all the three points. Hence, the primary aim of this document is to describe the quality of the provided good as detailed as possible. Such an explicit description will help to avoid the client’s claim relating to the poor quality.
As to the ensuring aspect, the supplier is to take the responsibility for providing the described quality of the goods, which means that one is equally in charge of the production of the item and its delivery. The managing aspect can be handled with the help of monitoring the item’s quality at every stage of the supply chain. According to the relevant terms and conditions, the potential defects are to be fixed by the part that is responsible for the particular stage of supply.
Meanwhile, the defect issue should have a thorough and precise formulation in the terms and conditions. Otherwise, the customer might want to return the product due to its wrong size or color that cannot be regarded as a defect. Thus, for example, Menlo Systems states that their warranty does not cover the minor order discrepancies such as the size and the color of the purchased product. As a consequence, their clients cannot claim for a refund, although the company can agree to perform the necessary replacement (“Standard Terms and Conditions” par.41).
The Risks of Extension of Time
Apart from receiving a high-quality product the customer is equally interested in the timely delivery. The aspects of quality and time are closely connected; therefore, the extension of time is one of the most important issues on the terms and conditions list. The terms and conditions should, one the one side, protect the client from unwanted delays and take into account all the urgent incidents that the supplier might face, on the other side. Specialists point out that time risks play an important role in the procurement and supply process and can cause significant financial loss in case one does not pay due regard to them (Harland and Walker 57).
As a consequence, one suggests that the issue of the extension of time is formulated in the terms and conditions as precisely as possible. First of all, the terms and conditions should introduce the notions of “permissible delay” and “crucial delay” in order to differentiate the extent of the supplier’s responsibility in both cases. Thus, for example, the supplier might initially state the permissible extension of time that will take into consideration the possible unexpected incidents. The permissible extension is to be identified in accordance with the character of the supplied goods.
Some specialists claim that considerable part of contracts does not include the aspects of time extension in the terms and conditions at all. In this case, any discrepancy with the initially set deadline can lead to setting a penalty (Van der Puil and van Weele 216). One suggests that the terms and conditions enlighten all the types of potential extensions of time. Therefore, whereas the permissible delay is admitted by both the parts, in the case of crucial delays the supplier is obliged to return the money paid for the goods.
Hence, for example, Menlo Systems’ terms and conditions do not include the separate point that would describe the possibility of the extension of time. It means that both the client and the supplier are obliged to act within the set deadline; the abuse of the accepted conditions will be regarded as the nonfulfillment of the contract (“Standard Terms and Conditions” par.21).
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The Risks of Increased Costs
Whereas the terms defining the time and quality issues are equally accepted by both parts, the question of cost often becomes the sticking points. The supplier’s and the customer’s interests are naturally different when dealing with the pricing aspect. A supplier is likely to insist on the pricing policy that will be most beneficial for him or her while a customer is mainly concerned about possible increased costs. One should necessarily note that the issue of increased costs is one of the most ambiguous aspects that should be included on the terms and conditions list, and the neglect of this point can lead to crucial disagreement between the supplier and the client.
On the one hand, the terms and conditions are aimed at protecting a client from unregulated cost increases. On the other hand, a supplier frequently has to increase the initial cost due to the unfavorable conditions such as the growing prices of the raw materials or the delivery service. Therefore, on suggests that the terms and conditions include the point of permissible rise that will equally fit the interests of both parts. Moreover, one can also state the precise time period during which the possibility of the growing prices is excluded.
Specialists tend to believe that the best way to manage the following issue is to exclude the increased costs within the period of the contract validity. Thus, the terms and conditions of a short-term contract can be put more precisely and work more efficiently in comparison with the long-term agreements the terms and conditions of which can hardly be altered (Ochonma 20).
Meanwhile, a supplier receives more benefits if the point of increased costs is not included on the terms and conditions list at all. In such a manner, a supplier receives the right to raise the cost of the offered products or services in accordance with the current conditions. Thus, for example, the standard terms and conditions of Menlo Systems do not have a point that would explain the increased costs issue (“Standard Terms and Conditions” par.20).
As a consequence, one suggests that the best way to handle the increased costs issue is to work out a short-term contract the terms and conditions of which will exclude the possibility of increased costs. Such a decision is likely to be equally beneficial for both a supplier and a customer. Thus, the latter will be thoroughly protected from extra fees during the contracts, and the supplier will receive a chance to monitor the applied pricing policy and make the necessary allowances as soon as it expires.
The Risks of Unethical Practice
The problem of ethical behavior in business activity is very complex and complicated. One is likely to face a series of difficulties while trying to fix the terms and conditions in a way that they are able to regulate the cases of unethical practice and actions efficiently. The major problem is that it is almost impossible to predict what the potential unethical action will be like. Marianne Jennings notes that the worst aspect of the unethical practice is that it is often legal and, thus, can hardly be restricted (42). The legality of unethical behavior makes it difficult to include the relevant points on the terms and conditions list so that they fit both the parts.
One should necessarily point out that the most challenging aspect of including such points in the contract is formulating them as precisely as possible because every minor ambiguity can turn out to do significant harm to the business relations.
Nevertheless, one suggests that it is still possible to avoid the most typical unethical actions in case they are reasonably included on the terms and conditions list. Therefore, while working out the terms and conditions, one can include the point that obliges the supplier to warn the client of the existing drawbacks that the offered product has.
The practice shows that most companies still tend to neglect the ethical points; therefore, one can hardly find the relative points in the majority of the standard terms and conditions. Thus, for example, Menlo Systems’ terms and conditions do not enlighten the issue of unethical behavior either the supplier’s or the customer’s one (“Standard Terms and Conditions” par.38).
Meanwhile, some specialists note that the question of unethical practice is of more significance that one might assume. The wide-spread device that implies “hidden costs” can likewise be considered as an unethical practice (Jennings 2010). Therefore, one presumes that the best way to avoid potential unethical activity one has to be highly precise while formulating all the price and time conditions. The more detailed the relevant terms are, the fewer opportunities one has for unethical practices.
The Battle of Forms
As long as the terms and conditions are worked out, it is equally important that they are accepted by both parts. The “battle of the forms” concept is one of the most typical problems that appear in business practice. Whereas, theoretically, the offer and the acceptance are to coincide, the practice shows that things are often different, and the parts have to spend a lot of time on negotiations trying to come to an agreement. Thus, the single discrepancy in the two contracts might result in a client’s switching to another supplier (“Battle of the Forms” par.1).
Whereas the necessity to come to an agreement seems to be beyond any doubts, each part is still interested in promoting its own terms and conditions. In order to ensure that any agreement is carried out under one’s own terms and conditions, one should necessarily include the relevant point on the terms and conditions list. Hence, the initially set proviso that the relevant conditions should prevail over the terms of any other contract is likely to eliminate potential problems and disagreements.
However, one should necessarily point out that the relevant point on the terms and conditions list of a supplier might contradict significantly with the interests of potential clients. Therefore, it is reasonable to include the following point only on condition that the company has a large client base and is sure of the customers’ loyalty.
According to the analysis of the examples of standard conditions and terms lists of different companies, one might note that most of them include the point determining the prevalence of their terms over those of their clients. Thus, for example, Menlo Systems indicate the essential condition that the supplier’s terms should be regarded as uncontestable in the case of any discrepancies with the clients’ interests and conditions (“Standard Terms and Conditions” par.47).
Monitoring and Management
As long as the terms and conditions are accepted by the parts, it is crucial that both the supplier and the client follow them. The best way to monitor the relevant performance is to include the special point on the terms and conditions list that would determine the proper measures in case of offending the conditions of a contract. Some specialists note that the introduction of large fines is the most efficient tool for preventing the terms and conditions’ nonfulfillment (Atkin and Adrian 123).
Furthermore, the terms and conditions should also enlighten the question of ending the business partnership and describe all the actions that one needs to perform in order to do that. Thus, one suggests that the terms and conditions do not allow any part to end the cooperation unless one of the partners was informed in advance and all the extra fees were duly paid.
Meanwhile, one should necessarily note that efficient monitoring is most probable in those cases when one deals with a short-term contract. In other words, one should have an opportunity to alter the terms and conditions and adjust them to the current environment. As long as the monitoring shows that some of the contract’s points work improperly, one cannot exclude them from the terms and conditions list until the contract expires. Therefore, one suggests that apart from introducing various measures of control, one should also work out the point that allows changing the initial terms and conditions upon the agreement of both the supplier and the client.
The study of various companies and their terms and conditions shows that the majority of standard lists mention the measures that should be taken unless all the points of the contract are followed. Thus, Menlo Systems suggests that any violation is to be compensated by a relevant fine regardless of the part that has carried it out (“Standard Terms and Conditions” par.50).
Therefore, setting out good terms and conditions can become a determining factor of the performance’s efficiency. The more detailed the accepted terms are, the more positive and confident both parts will feel. It is presumed that the relevant procedure should be regarded as the priority for any entrepreneur (“Setting out Good Terms and Conditions for Your Small Business” par.2). One should necessarily point out that the set of terms and condition is likely to help a supplier avoid a series of potential challenges and difficulties in case it is thoroughly worked out.
Thus, for example, the analysis has shown that the most significant points that should be particularly considered are the issues of time and cost. The delays and the unexpected cost growing can lead to a crucial problem in any business relationships. Moreover, it is equally important to make sure that one’s terms and conditions will have a prevailing power over those of the other part. The majority of specialists agree upon the point that the set of terms and conditions is of primary importance for any business relationships (Wincel 21).
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Harland, Christine, Richard Brenchley and Helen Walker. ” Risk in Supply Networks.” Journal of Purchasing & Supply Management 9.1 (2003): 51-62. Print.
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Setting out Good Terms and Conditions for Your Small Business 2013. Web. <https://www.theguardian.com/small-business-network/2013/feb/06/terms-and-conditions-small-business>.
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Standard Terms and Conditions 2015. Web. <https://www.menlosystems.com/legals/standard-terms-and-conditions/>.
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