ISQA 439/539 Legal Issues Ethics

Legal Issues in Purchasing  Agency: Definition  One who is legally empowered to act for another.  An agent has the legal authority to bind his or her principal to a contract.  Duties  Loyalty  Obedience  Reasonable Care  Accounting  Information  Actual and Apparent Authority

Legal Issues in Purchasing  Uniform Commercial Code  49 0f 50 States  Section 2: Law of Sales  Section 2A: Law of Leases  Key Provisions  Definitions  Remedies

Contract Formation  Offer  Acceptance  Consideration  Competent Parties  For Legal Purpose  Sales Authority  Battle of the Forms and UCC  Oral and Written Contracts  UCC Now $5,000

Contract Formation  Contracts Formed By Any Means That Shows Agreement  Firm Offers  Irrevocable to stated term or max 3 months  Acceptance of Offer  In form required  If no requirement, any reasonable manner  By performance  Silence CAN NOT CONSTITUTE ACCEPTANCE

Contract Issues  Mistakes  Bilateral  Unilateral  Modification  Force-Majeure

Electronic Transactions  By Themselves,  NOT Satisfactory for “In Writing” Provision  EDI Also Not Satisfactory  Verifiable Signature Documents  BUT… Buyer and Supplier Can Form Separate Agreement  Recognize Each Other’s   EDI Transmittals  Other Computer Order Releases (Automated)  Trading Partner Agreements

Acceptance of Goods  Right of Inspection  Acceptance of Goods  Notification to seller that goods are conforming, or willing to accept in spite of non-conformity  Buyer fails to inspect in reasonable time  Revocation of Acceptance  Supplier fails to cure defects  Discovery of latent defects  Must occur within reasonable time after discovery

Rejection of Goods  Improper Delivery  Reject the whole, Accept the whole  Accept part, reject rest  Rejection 2-602, 3, 4  Reasonable time  Notify seller in reasonable time  Hold rejected goods with reasonable care for seller’s disposition

Rejection of Goods  CAN NOT just rework and backcharge without seller’s concurrence  Must follow reasonable instructions from seller for disposition  After reasonable time, may sell and recover expensed, returning balance to seller

Battle of the Forms  UCC  Conflicting terms  Different, non-conflicting terms  Materially altering terms  Terms limiting to just those included

Buyer’s Remedies for Breach of Contract  Contract Assignment  Incidental and Consequential Damages  Cost to “cover”  Liquidated Damages  Anticipatory Repudiation  Deduction of Damages From Price  Notify Supplier of Intention to Do So  Must be Deduction From Same Contract

Seller’s Remedies for Breach of Contract  If Buyer:  Wrongfully Rejects  Wrongfully Revokes Acceptance  Fails To Pay  Repudiates Agreement  In General  Withhold Delivery  Stop Delivery  Resell and Recover Damages  Recover Damages for Non-Acceptance  Cancel

Seller’s Remedies for Breach of Contract  Seller’s Incidental Damages  Reasonable Charges, Expenses  Transportation  Care and Custody  Return Costs

Warranties  Aside From Manufacturer Warranties  Express Warranties  Implied Warranties  Title  Merchantability  Fitness for Particular Purpose  Exclusion or Modification  Conspicuous Writing  As Is, Where Is, With All Faults  If Inspection Should Disclose Defects OR If Inspection Is Declined, NO IMPLIED WARRANTY

Warranties  Warranties Can Be Modified By Course of Dealing  Remedies Can Be Limited By Contract

FOB and INCO Terms  Older Version of UCC  FOB  FAS  CIF  C&F  Latest Edition: All Removed  INCO Terms to Apply

UN Convention on Contracts for International Sale of Goods  Similar Objectives to Uniform Commercial Code  Similar to UCC in Function  Five Significant Differences

UN Convention on Contracts for International Sale of Goods  Five Significant Differences  Acceptance of Offer: Mirror Image or No Contract  Contract Price: No Contract Without Firm Price  Revocation of Offer: May Be Revoked At Any Time Prior to Acceptance  Formation of Contract: At Time of Acceptance  Oral Contracts: Valid and Enforceable  CISG May be Preferable to Another Country’s Laws

Foreign Corrupt Practices Act  Illegal to Make Payments Influencing Purchase Decisions  From Lockheed Scandal  Applies to ALL Publicly Traded Firms  Even if No International Business  Accounting for Disposal of All Assets  Exempts “Processing Payments”

Sarbanes Oxley Compliance  "adequate internal control structures and procedures for financial reporting."  Document Everything  Bids, Awards  Purchase Approvals  Assure Compliance  With Policies and Procedures  Contracts and Corporate Agreements  Assess and Mitigate Risk  In Supply Chains  In Business Processes

Conclusions  Intent is to STAY OUT OF TROUBLE  Clear, Concise Communication  Frequent Communication  Careful Record-keeping  Understand Rights and Obligations Under the Law

Ethics  More than Gifts and Gratuities  Cialdini’s Influence  Appearances

Unethical Sales Practices  Commercial Bribery  False Shortages  False Price Breaks  Market Allocation  False Delivery Promises  Quotation vs. Invoice  False Representation  Counterfeit

Unethical Purchasing Practices  Shopping Bids  Shopping Ideas  Samples  Favoritism  Payment Terms  Contract Quantities  Conflict of Interest International Ethics Issues  Cultural Issues  Reciprocity

Purchasing and Back Door Selling  Definition  Why it Happens  Remedies

Ethical Guidelines  ISM Ethical Standards  Policies and Procedures  T’s and C’s  Annual Supplier Letter  Business vs. Social Relationships  Defining “Some”