Supply Chain Management BA 244

Reminders •  Next Article: Group 3 - The impact of supply chain management

practices on competitive advantage and organizational performance

•  PPP Talk: Friday, 3 Feb

•  Nivea Talk: Wednesday, 8 Feb

•  LinkedIn Group: Presentation Grades for Mattel and Article 2

Denver International Airport •  Delay Damages

Contracts

Contracts •  An Agreement between two or more parties which is intended to be

enforceable by law

•  Agreement means that there must be both offer and acceptance

Contracts •  Is a Purchase Order a contract?

•  Is a Verbal Agreement a contract?

•  Is a contract that is NOT Notarized invalid?

Residence with Thatched Roof

Workers knocked over a blow torch

Terms and Conditions from contractors state that they have no liability for fire

This is what happens when you do not read the contract

A Contract is a statement of: •  Exactly what 2 or more parties have agreed to do •  Conditions and contingencies which may alter the

arrangement •  The rights of each party if the other fails to do what is

agreed •  How responsibility or ‘liability’ will be apportioned in

the event of problems •  How any disputes will be resolved

Contract Terms •  Express Terms

o Cleary stated in the contract

•  Implied Terms o Assumed to exist by virtue of common law

• e.g. Consumer Act of the Philippines (Republic Act No. 7394) – Enforcement of warranty or guarantee

Some Key Terms

Time of performance •  e.g. ‘The time of delivery of goods, and/or completion of the work to

be performed under the contract, shall be of the essence of the contract’

•  If there is a delay in performance, the buyer may treat it as breach of condition and pay nothing

Breach of Contract? •  When a party fails to perform an obligation under the contract

•  What happens when there is a Breach of Contract?

Damages •  Financial compensation for losses suffered as a result of the breach

•  Normal remedy to a breach and by far the most common

•  A compensatory, NOT a punitive (punishing) remedy, to put the injured party into the

position it would have been in, if the contract had been properly performed

Liquidated Damages Clause •  Indicates the sum to be paid in the event of breach of contract

•  Where the contract expressly provides for the payment of a fixed sum on breach,

and if the clause is a genuine attempt at estimating the loss in advance of the breach

•  What are Unliquidated Damages?

Force Majeure clauses e.g. ‘Neither party shall be regarded as being in breach of its obligations if it can show that it was prevented from performance by any circumstances of force majeure which arose after the date of the contract. Such circumstance may include, but not limited to, war and other hostilities, terrorist activity, revolution, riot, earthquake, flood or other natural disaster, and industrial disputes (not limited to the employees of the parties or their subcontractors).’

The general rule is that, unless otherwise agreed, a party who fails to perform his contractual obligations is in breach of contract and liable to damages – whatever the excuse for non-performance

Guarantee

e.g. ‘The supplier guarantees that if the goods fail because of defective

workmanship or materials, within 12 months of the date of purchase, the supplier

will repair the goods, or (if repair is not possible within a reasonable time) the

supplier will replace the goods.’

Indemnity To secure an undertaking of accepting liability

e.g. ‘The supplier indemnifies the buyer against all costs and claims

incurred by the buyer as a result, direct or indirect, of the supplier’s

breach of any obligation contained in this contract.’

Insurances To confirm that the supplier has the ability to pay compensation in the event of any indemnities or legal claims

General Contract Structure The$agreement Names$and$signatures$of$the$parties Definitions Definition$of$names$and$terms,$to$avoid$repetition$of$

long$sentences$in$the$body Commercial$provisions Rights$of$and$obligations$of$the$supplier$and$purchaser

Time$of$performance Insurance Payment$Terms

Secondary$Commercial$Provisions

Indemnity

Guarantee Termination:$when$and$how$the$contract$will$be$discharged

Standard$clauses Force$Majeure Law$and$jurisdiction:$which$nationGs$laws$govern$the$contract

End