Purchasing & Sales Negotiation and the Law
Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant
An gaping deficiency in commercial law is among the greatest faults of purchasing pros. This deficiency affects our negotiation efforts in the areas of UCC, federal law, and contract law. Negotiators schooled in basics of commercial law are an asset to legal consultants and a boost to the negotiation process.
Ethics and good faith are requirements imposed by law by the UCC. The law also exacts different standards of buyer and seller conduct. Moreover, statutes and interpretations of them create a negotiation landscape. The importance of being the Offeror is that our terms and conditions apply.
Federal laws affect negotiations. If we trade overseas, we have probably come across the Foreign Corrupt Trade Practices Act and the Convention for the International Sale of Goods. Coupled with customs regulations, import and export laws and a plethora of other issues, this is an area in which you want to seek liberal amounts competent legal help.
Much of the Clayton Act has been amended by the Robinson-Patman Act except for the provision concerning limiting of trade. For instance, be wary of negotiating a deal with a supplier that limits your or their ability to deal with competitors. The Sherman Antitrust Act encompasses the reciprocity concerns. Seek legal assistance with these matters.
Federal laws forbid inducing or receiving discriminatory prices. Driving a supplier below costs has its own practical, ethical, and legal considerations. Instead, we are far better ff to deploy communication skills and negotiation techniques in tandem with Price Analysis and Cost Analysis.
The law of single greatest consequence to buyers and sellers in negotiation is the Robinson-Patman law. This is the one with which we will have the greatest daily contact and be exposed to most danger. It concerns discrimination in pricing. One of its consequences is that it makes it illegal for buyers to knowingly induce or receive discriminatory prices. Buyers violate the law when the place orders at prices that they know (and is in some cases, should have know) are exceptionally low and/or below the suppliers costs. Exceptions are made for private label products, loss leaders, meeting competitor’s prices in good faith, and other reasons. Lawyers who are expert in purchasing matters counsel buyers to obtain cost justification for the prices and proof that other buyers are offered thee prices on proportionally equal terms. We care most about the cost justification provision as the issue of price comes up in virtually every negotiation.
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The words we use complement our Win-Win strategy. The constant deflection of price to cost reinforces the TCO significance to which the supplier may not be fully attuned. As a professional in procurement, you will never go wrong with costs. Seize every opportunity to bring the negotiation around to cost matters. The suppliers will come to realize that your goal of lowest TCO drives the negotiation process, not ego, price, or other hidden agendas that alienate the parties.
Finally, we return to the reason that it is wise to know when to consult an attorney. In general the right time is before anything bad happens. Think of this principle as preventive medicine, except this is prevention of outrageous legal costs after the fact. Keep your lawyer in the loop early on and save yourself a lot of money later.
Consider these two examples of how the need to consult a lawyer might not be as easy as it seems. For the purposes of the law, what are goods? A trick question you say. No, a legal question, but the two may be the same thing. Goods are defined in the UCC as things and differentiated from real property (land and buildings). Interpretations of the law create precedents and case law which are no matters for pretenders. One of the interpretations of the UCC is that goods must be moveable at the time of sale. Minerals that are to be removed from the land are considered goods if they are to be severed from the land by the seller. The reasoning is that if the minerals were removed by the buyer, any contract involving the minerals would fall be governed by real estate laws and not the UCC.
In another case involving warranties, a fertile ground for legal disputes, a case involving cardiac surgery came under the auspices of the UCC. While heart surgery would seem to be a service and not goods, the estate of the decedent sued the medical team, hospital and others under the warranty protections afforded by the UCC. The decedent’s estate contended that by removing the heart and blood from the body and cooling them down to facilitate the introduction of anti rejection drugs, oxygen, and other pharmaceuticals, the medical team had effectively transformed the blood into ‘goods’. As goods, they were entitled to the UCC warranty protection of fitness for its particular purpose.
The moral of the story: resolve any doubts in favor of consulting the attorney. Even when you feel on solid ground, periodic review of your business processes by competent counsel is always a wise plan.