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Staying on top of legal hazards
Lisa Wichmann
Twenty years ago, purchasing was often conducted with trust and a handshake, reflects Sandy Chalkoun, a lawyer with Montreal-based Altura Legal Strategies Inc., who teaches legal courses for purchasers. But these days, just about everything has to be put in writing. That requirement is amplified by the alarming increase in challenges by unsuccessful bidders.
The result is purchasers are now responsible for de-risking requests for proposals (RFPs) and other documents, by inserting the correct legal clauses and conditions. For many buyers, that's no easy task.
"In the courses that I teach, maybe a third of [the students] will have access to legal counsel. And even of that third, many of them don't have constant access," Chalkoun says.
Brushing up on legal knowledge couldn't hurt, Chalkoun says. But she cautions against trying to turn purchasers into lawyers. Instead, buyers should learn enough about procurement law to recognize the red flags. That way, they'll instinctively know when to seek legal advice, instead of waiting until it's too late.
Not every purchaser has legal counsel down the hall, however. So to fill the void, Chalkoun and partners at Miller Thompson LLP designed RFP Creator, a searchable CD collection of 1,000 sample legal clauses. It's proven useful to buyers such as Guy Ginter, manager of materiel resources with PUC Services Inc. in Sioux Saint-Marie, Ont.
"I write contracts (RFPs) and regularly review them to keep them current. The [CD] is a tool to make sure I have the right clauses, and that the wording is appropriate to the nature of the contract," says Ginter.
Like many buyers, Ginter is faced with the challenge of "making sure the clauses protect the organization, but that at the same time, they're not too onerous that it scares potential suppliers away."
Endorsed by the Purchasing Management Association of Canada (PMAC), RFP Creator has been getting a lot of attention over the past year. At the end of the month, Chalkoun says a follow-up CD will be launched, called PO Creator. It will use the same searchable format, and focus on the terms and conditions for either a purchase order or a longer supply agreement.
"So you might enter into a two-year supply agreement with a supplier and you would find the terms and conditions in there. There are about 800 different variety of clauses and the type of clauses…about invoicing and currency and liability, indemnification, intellectual property…"
Reading the fine print
Of course, having an iron-tight contract is one thing. But if suppliers can't read the terms, there's really no point, adds John Bekto, spokesperson for Mississauga, Ont.-based Qstrat Inc., which recently developed an electronic RFP system called QLM Sourcing .
"Picture, let's say, a purchase order. You flip the thing on the back and it's got 1,000 lines of three-point text on it. Now how do you decipher that across a fax machine? So [suppliers] can go in front of a court of law and say, ‘this isn't legal text. This is just black dots. I have no idea what this says, so how can I possibly agree to it?'"
Qstrat's software is based on Adobe technology that allows a PDF file to be e-mailed out to suppliers. Traditionally, PDF files can't be altered, but Qstrat has modified the system to allow suppliers to enter data into required fields.
"Because it's essentially an electronic form-based system, you can include in that any legalese you want, along with the standard, ‘do you accept our terms and conditions? Click here.' If the person doesn't click there, it will come back and say sorry, I can't submit this…you haven't [agreed to] the terms and conditions'"
Purchasers may put all the legal conditions in a small scrollable window, to make the size of the document more manageable. But some prefer to fully list all the terms. Regardless of the format, the main advantage—aside from electronic efficiency—is it guarantees suppliers can read and accept the legal conditions. It also calculates currency conversions and other equations in real-time, Bekto explains
"From the supplier standpoint, the beauty is there is no training [and] no cost," Bekto says. "They get an e-mail and attached to that e-mail is a PDF…Wherever I need your answers, type it in and push submit."
These new systems might not make procurement any less risky where the law is concerned, but—combined with some legal training—they give buyers more confidence in drafting RFPs, and a better sense of where the sleeping dragons lie.
Lisa Wichmann, editor of Purchasing b2b, can be reached at lisa.wichmann@pb2b.rogers.com
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