1. ٠ Ethics in Purchasing ٠ Purchasing Law
Chapter 11
٠ Ethics in Purchasing
٠ Purchasing Law
Chapter 4

2. Definition of ethics
A set of moral principles that mature and decent people feel should guide behavior.
Business ethics is centered on
Honesty
Fairness
Respect

3. Ethics in Purchasing
Firms have reputations, just like individuals. Buyers can have significant influence on corporate reputations.
Buyers have great authority in granting contracts. Sometimes suppliers attempt to secure this business with unethical practices. Unfortunately, temptation is always present when large amounts of money are involved

4. Ethics is a big issue in purchasing
Buyers, more than any other group within the firm experience enormous pressures to act in unethical ways
Firm’s reputation is involved
Firm’s competitive position is at risk

5. U.S. Air Force’s Darlene Druyun and Boeing
30-year career federal procurement executive
Lease 100 tanker aircraft from Boeing
Higher price than Air Force cost analysts recommended. “A parting gift to my future employer.”
Shared Boeing proprietary information with a competitor
Accepted a $50,000 signing bonus to join Boeing
Boeing executive bought her Virginia house
Other shenanigans on behalf of her son-in-law

6. Darlene Druyun and Boeing
“Druyun admitted in court that she favored Boeing in negotiating a $412 million settlement concerning a clause in the C-17 contract. She said she was influenced by her son-in-law's ongoing job negotiations with Boeing when she agreed to the settlement.”
--Federal Executive Magazine
123
Sixteen months in a federal penitentiary. Now the “poster child” of unethical behavior in purchasing.

7. Four general standards for buyers to keep in mind
A buyer’s loyalty must be to his organization’s goals, to the exclusion of personal gain.
A buyer must avoid every real or perceived conflict of interest or personal obligation to a supplier.
A buyer must act professionally and ethically toward suppliers and potential suppliers.
A buyer must consider any potential actions in light of “How would this look if reported in the company newsletter?”

8. Types of Unethical Behavior
Gratuities (receiving something of value from a supplier with intent to influence)
- The issue of meals
- Foreign cultural practices • The issue of gifts • The FCPA
Conflicts of interest
Sharp business practices
ISM Policy (Page 481 of text)
Misleading
Taking Advantage
Quibbling
“Small print”

9. Types of Unethical Behavior
Gratuities (receiving something of value from a supplier with intent to influence) 
- The issue of meals
- Foreign cultural practices • The issue of gifts • The FCPA
Conflicts of interest 
Sharp business practices 
Poor treatment of confidential information
Poor treatment of supplier representatives
[Personal purchases for employees]

10. Types of Unethical Behavior
Acceptance of samples from supplier representatives for evaluation without proper follow-up
Inappropriate conduct in competitive bidding by not . .
Inviting only those firms to whom you would consider awarding the contract to bid
Honoring the bid-close date
Treating all bidders alike with regard to information
Keeping proprietary information confidential
Notifying suppliers of errors in the bid (and thereafter taking advantage)
Awarding to the lowest responsive bidder or being prepared to explain why you did not
Closing the loop with unsuccessful bidders

11. Ways to promote professional standards and ethics in a purchasing organization
Support of top management is critical. Expectations and standards of conduct should be formalized in the PPM.
Policies on standards of conduct should be formally reviewed periodically in training programs or otherwise.
Whistle-blowing policy
Encourage suppliers to report sub-standard practices
Rotate buyers
Do post-purchase audits occasionally
Informally observe buyer lifestyles

12. Strategic Sourcing
Has the trend toward strategic sourcing had any implications on the issue of ethics in purchasing?
Using the team approach to select suppliers limits the opportunity for unethical behavior.

13. Safeguards in ethical behavior for buyers to remember:
When in doubt consult the PPM
When in doubt discuss the issue with your boss
When in doubt document your actions

14. The Laxtec Case
What should Larry do?

15. Introductory thoughts relating to Purchasing Law
A buyer’s basic responsibility is to conduct procurement wisely and expeditiously
A highly legalistic approach is unnecessary and unprofitable
Disputes with suppliers can normally be resolved amicably and effectively with negotiation
Litigation is costly, slow, alienates parties, and has uncertain outcomes
Nonetheless, buyers need to be familiar with the legal dimensions of their job.

16. Legal Issues Laws of Agency Issue of Personal Liability
Buyer exceeds his actual authority but not his apparent authority
Buyer exceeds both actual and apparent authority
Misuse of proprietary information
Taking actions for personal gain
Taking illegal actions

17. Legal Issues Contract Law An enforceable contract requires
Competent parties
Legal subject matter
Offer
Acceptance
Consideration (bargained-for exchange)
Issue of acceptance

18. Legal Issues Contract Law Cancellation of orders
Supplier defaults
For convenience of buyer firm
Breach of contract remedies
Negotiate
Alternative Dispute Resolution (ADR)
Mediation
Arbitration
privatejudge.com
National Arbitration Forum
Onlineresolution.com

19. Legal Issues Contract Law Cancellation of orders
Supplier defaults
For convenience of supplier firm
Breach of contract remedies
Negotiate
Alternative Dispute Resolution (ADR)
Mediation
Arbitration
Litigation
Liquidated Damages Clause

20. “Liquidated Damages” clause
A liquidated damages provision represents prior agreement by both parties on the ground rules to be followed in determining costs and damages in case the contract is breached.

21. Legal Issues Contract Law
Uniform Commercial Code (UCC) is a gap filler in contracts

22. Foreign Corrupt Practices Act (FCPA)—Anti-bribery Law
It is a crime for a U.S. firm to offer payments or gifts of substantial value to foreign officials
It is permissible to make payments to clerical officials (transactions bribes)

23. Under what circumstances might a buyer earn free room and board?

24. Violating Environmental Law
Accepting Bribes
Buyer
Books on
Ethics
Violating Environmental Law

25. Let’s move on