Purchasing and Negotiation Training

Editor’s note:  For those who want to test their knowledge of purchasing law, click here to take the Purchasing Law Quiz. 

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Agreement of the parties is a far more important matter to the negotiating parties.  It might seem that which party makes an offer and which accepts is of no great consequence.  That would be a mistake in the case of the purchase and sale of goods.  The Uniform Commercial Code (UCC)  says that the Offeror is the master of the offer.  In general, the terms and conditions of the Offeror are those that govern the transaction.  

A common controversy between buyer and seller is whose terms and conditions apply.  This tug of war is referred to as the ‘Battle of the Forms.  As a practical business matter, you always want to be the Offeror.  This settles the battle.  Many firms go as far as to print on their Request for Quotation (RFQ) forms the words, “This is not an Offer to Buy” so that their RFQ will not be confused with their Purchase Order (PO) forms.  Their PO forms will also contain the words, “This is an Offer to Buy” so that the identity of the Offeror is abundantly clear.  By the way, in the oral contract case above, where the conduct of the parties created the path of contract, the need to establish Offeror and Offeree is ignored, thereby making any dispute messier.  It pays to know and follow the law in negotiations.  In this case, the negotiation technique to apply is to be the party that makes the offer in the negotiation.  A logical consequence is that you should be the party to write the contract as well.  

The UCC has a variety of provisions with which many of us are familiar.  Some familiar concepts are liquidated damages, breaches and remedies, delivery, transportation terms and hundreds of others.  One provision is less familiar and a tad surprising.  It is the legal obligation of good faith and honesty of the merchants (buyer and seller) in all dealings.  Put another stunning way, honesty in the buy/sell relationship is the law!  “Who’da thunk it,” as Yogi Berra was often heard to say?  

Honesty and ethics are a source of many jokes in the business world.   Its reputation for honesty and integrity is in such a state of disrepair that the laws may not be enforced and as a result, frequently ignored.  The moral argument is that we should be doing the right thing whether someone (the law) is watching or not.  We do not need to moralize.  The truth is that honesty in negotiation is just good business.

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The UCC states in Section 1-203 that “Every contract or duty within this Act imposes the duty of good faith in its performance or enforcement.”  The UCC states elsewhere that this obligation for food faith cannot be disclaimed.  Other provisions of the UCC include ‘Honesty in Fact’ and ‘Fair Dealing’.  Thus, two parties cannot agree to lie, cheat and steal because it violates the dictates of the sovereign.  

One of the effects of the Act as a whole is to mitigate the old doctrine of ‘caveat emptor’ or ‘let the buyer beware’.  In its place, it imposes the duty of parties to interact honestly.  It also installs some affirmative duties of the parties.  A buyer, for instance, can not take refuge in the claim of ignorance.  The law assumes that the buyer is an expert at the bargaining table and imposes upon the buyer the duty to use its professional abilities to the fullest extent.  This means that a buyer is presumed to know what any buyer of similar station would know if he made reasonable investigation that any professional buyer would make under the circumstances.  

So far, we have covered the legal requirement for honesty, although we noted that ethical behavior is also required.  Well, what is the difference?  One definition is that honesty is the lowest form of ethics.  Ethics, therefore, is a cut above what is minimally legal and conforms to higher standards of behavior.  It follows logically that one cannot possibly act ethically if one does not know what is legal.  This confusion is due to our pop culture.  When some politician is being led off in cuffs, still mugging for the camera, the standard sound bite is, “I did nothing wrong!”  Well, by ‘wrong’, that politico probably means illegal, which is in some doubt.  Almost certainly, they are not concerned with what is ethical.  We can consider something to be wrong if it falls below our ethical limits, even though it is legal.  Divulging a competitor’s price is an example.  It is probably not illegal to do so, but almost as certainly unethical.  Moreover, what is to be gained that could not be reached by ethical means? 

Click here to see more on applicable federal laws.