* The Manufacturing Law Blog provides timely commentary on issues of importance to manufacturers and distributors. Contributors from the law firm of Robinson & Cole LLP are corporate compliance and litigation attorney, Jeff White; environmental, health and safety attorney, Pam Elkow; and labor and employment attorney, Nicole Bernabo.
A key aspect of any business, including manufacturing, is the use of purchase orders to buy and sell products, including components, raw materials, and the like. Typically, lawyers are not involved in negotiating a formal contract. Rather, a purchase order will be sent and an invoice will be sent back with the product. In a number of cases, the actual terms of the deal (aside from quantity and price) will not be a expressly stated in the “PO,” but rather, the two commercial parties will rely on past practice.
In most situations, everything will run flawlessly and the product will be delivered on schedule. But, as with everything in business, there are times when things go haywire. For that reason, I am planning on writing several posts about the issues that arise with purchase orders, terms and conditions, and what is referred to as the “battle of the forms” (i.e., where two commercial parties have competing terms).
I was reminded of these issues this past week while coaching a team of junior attorneys at Robinson & Cole LLP who were participating in our mock trial training program. The goal of our mock trial training program is to provide trial experience for our younger attorneys so they are prepared when our clients need us. The hypothetical case that is being used this year is a commerical dispute between a manufacturer of computer chips and a technology company. The manufacturer shipped computer chips without shipping insurance and, as expected, the shipment was lost by the delivery company. A lawsuit ensued where the manufacturer asked to be paid for its shipment and the technology company counter-sued for its lost profits associated with not being able to sell its end product.
At the heart of the case was a line in a purchase order from the technology company to the manufacturer that said “as per our usual agreement.” The technology company believed that “as per our usual agreement” meant that the manufacturer would procure shipping insurance and bill for it. In contrast, the manufacturer believed that “as per our usual agreement” meant that the technology company had insurance for all shipments and there was no need to secure separate shipping insurance.
The trial is today and we will see what the jury decides in our mock exercise. Outside of this mock exercise, a real-life miscommunication can cost companies millions of dollars. For that reason, it may be prudent to conduct a systematic review of your ordering process, including a review of any past problems. In addition, retaining legal counsel to analyze your terms and conditions is generally a good idea so that you know whether your terms will carry the day in a dispute. This will be the subject of future posts. Please let me know if there are specific purchase order scenarios that you wish me to address in future posts.