I member recently asked me: “When including your standard terms and conditions in your RFP, how flexible should you be with considering supplier exceptions to those terms and conditions?”
Well, my answer to this question is similar to my answer to many procurement questions I am asked: “It depends.”
It depends on the market.
If there are a large number of qualified suppliers in the market, you can afford to strictly require agreement to your standard T’s & C’s without exception as a condition of doing business. In other words, you’d include your standard T’s & C’s in your RFP, require suppliers to acknowledge that they will agree to those terms if awarded your business, and disqualify any suppliers whose proposals do not include that acknowledgement or that agree to certain terms but take exception to others.
However, if there are a limited number of qualified suppliers, you probably want to be more flexible. You may end up with a substandard supplier just because of legal inflexibility. That’s not to say that you instead ask suppliers for their terms and you agree to those. But, it is to say that you should include your terms, ask for the acknowledgement that suppliers will agree to those terms if awarded your business, but not threaten disqualification.
Instead of disqualifying bidders who take exception to your terms – or ignoring the fact that a supplier has taken exception – you should treat supplier responses to the T’s & C’s acknowledgement as you would other variables such as price, warranty, lead time, payment terms, etc. You should include “agreement to standard terms and conditions” as one of your supplier selection criteria (ideally under the “Risk” category) and score each supplier’s on your supplier scorecard.
Let me describe this process in a little more detail.
As I teach in our online course, “7 Critical Steps of Effective Supplier Selection,” you would award a maximum raw score of 100 points for the “agreement to standard terms and conditions” criterion if a supplier agreed to all of your standard terms and conditions without exception. And you would have a method for awarding fewer points to suppliers who do take exception. Say, for example, you have 20 articles in your standard terms and conditions. You would deduct 5 points from the maximum raw score for each article that a supplier doesn’t agree to as-is. Now, if some terms – like indemnity, limit of liability, etc. – are more critical than others, perhaps you assign different point values to each term as long as the total of point values for all terms adds up to 100. That can get complicated and would require collaboration with your legal team. But it may be necessary. I’ll let you decide how to handle it. I just wanted to give you an example of how it could be done.
I absolutely feel that suppliers’ willingness to agree to your organization’s standard terms and conditions should be factored into your supplier selection decisions. Negotiating those terms can take time, involve expensive resources (like lawyers), and allocate more risk to your organization. All of those things have negative business impact and, therefore, should be considered when deciding which supplier is the most attractive out of a group of suppliers.
So, whether you take an instant disqualification approach or a scoring approach, considering suppliers’ willingness to agree to your organization’s standard terms and conditions is recommended for any critical proposal evaluation process.