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Your company is in business to make an acceptable profit. After bidding on numerous quotes in the marketplace, you will be awarded new contracts. Before you celebrate, review all the details of those new orders before spending money towards fulfilling their requirements. Why? Your quote offered one thing. The contract in your hand may offer another. It is your responsibility to find out the discrepancies and whether they are miniscule or large enough to reject the order and submit a counteroffer.
Foolish companies take new contracts and start to run with them without reviewing what details they may or may not contain. This can be eliminated upfront with your review and verification that key price and cost variables are met and do satisfy the original desired net profit. Do this critical homework and discover relevant problems with the new contract before proceeding forward. Here are a few suggestions for performing that evaluation.
Check these details on new incoming customer contracts before accepting them and proceeding spending money:
- Verify the price for each product and service that is listed to ensure it matches your company’s original bid or quote. Many companies will change the purchase order and offer lower pricing relying on a vendor half asleep.
- Verify which party pays freight, toll-road fees and other delivery charges.
- Verify acceptance and payment for maximum overages (i.e. customer orders 100, accepts 110%, vendor ships 115, customer only obligated to pay for 110 per contract, customer can decide whether to accept and pay for the extra 5 items or not).
- Determine the freight cost to the customer in the event that the terms are “Shipping Point” but your firm supplies transportation to the customer’s facility.
- Verify which party pays for installation or other costs to get the product or service operating and working as described in your company purchase order?
- Verify who pays sales taxes and the percentage based upon the delivery location (point of sale)?
- Verify where the goods or services will be received and whether they are for resale or sold to the end user. This will determine taxability and tax rates.
- Verify the amounts of partial billings and the triggers or actions from either side that will start them. (i.e. 50% of work deliverables finished or complete, successful observed and approved trial runs, specific work tasks complete and approved by an independent party or contractor).
- Verify if the price is a fixed price or one that may vary with a number of variables. Ask questions about how and who measures those variables. How are they defined, located, measured or used in the calculation of the price.
- On time and material jobs, define the amount of overhead allowed and any GA burden that might be defined if applicable.
- On time and material, determine if there is a maximum limit before change orders are required.
- Verify on which due dates the contract will be paid and in what percentage of installments. Check to ensure that due dates are not linked to performance of tasks by either party (i.e. customer owned material is to be used and delivered by the 15th of the month, but is late two weeks).
- Verify where the goods are to be received (physical address).
- Verify method of payment (i.e. cashier’s check, wire transfer, ACH, international wire payment.
- Verify payment terms, (i.e. Net 10, 25% down with order, 1/3 of order upfront, 1/3 when machine complete at vendor, 1/3 due 30 days after successful installation).
- Verify what official vendor name is to be paid and that it matches the same firm to which your company issued a RFQ (request for quote). See … GPI 463
