Prepared By:

Robert Auerbach
Email: robert@auerbach.co.nz
Website: www.marketnewzealand.com/auerbach

Procurement Conditions
checklist
Disclaimer:
These checklists are provided for information purposes only and are no
substitute for professional advice, which should be sought prior to
entering into any transaction. New Zealand Trade and Enterprise
(NZTE) has not verified these checklists and makes no representations
as to the completeness, correctness, currency, accuracy or fitness for
purpose of the information, or the person that prepared the information.
Accordingly, NZTE will not be responsible for any damage or loss
suffered by any person arising from the information whether that damage
or loss arises from negligence or otherwise.

This document is one of a series of free information tools for exporters to assist businesses
through every stage of the export process.

For the protection of Robert Auerbach's clients, all names in this document are fictitious. Any
Procurement
resemblance to actual people or companies is purely coincidental.
Conditions
Checklist For information or advice, visit www.marketnewzealand.com, ring NZTE on 0800 555 888 or
contact your Client Manager.
May 2006

1
 contents
general.................................................................................. 3
documentation..................................................................... 3
conformance with requirements........................................ 4
delivery................................................................................. 4
cancellation.......................................................................... 5
damages/liability ................................................................. 6
partial shipments, split deliveries quantities ................... 7
price ...................................................................................... 7
rejection/return of goods.................................................... 8
confidentiality ...................................................................... 8
insolvency............................................................................ 9
governing law .................................................................... 10
passage of title .................................................................. 11
risk of loss/insurance ....................................................... 11
intellectual property/proprietary rights........................... 12
shipping terms................................................................... 13
warranty ............................................................................. 14
variations to order requested by buyer .......................... 14
scope of supply ................................................................. 15
payment terms................................................................... 15
testing and inspection of goods...................................... 15
assignment and sub-contracting..................................... 16
force majeure..................................................................... 16
mediation/arbitration......................................................... 17
verbal instructions ............................................................ 17
retentions/offsets .............................................................. 17
compliance with law.......................................................... 18
ethical dealing ................................................................... 18
privacy act.......................................................................... 19
rescheduling delivery dates............................................. 19
other clauses ..................................................................... 20

Procurement
Conditions
Checklist

May 2006

2
 general

Procurement conditions normally begin with an introductory clause. Such a clause establishes
when a contract arises. It also determines which set of conditions shall prevail in the event of a
conflict between the Buyer’s procurement conditions and the Seller’s Conditions of Sale.

Finally, an introductory clause may require all shipments to be subject to a Purchase Order. For
example, the Seller must ask the Buyer for a Purchase Order number before shipping on the
strength of a verbal order.

Sample Clauses:

Company A will not accept responsibility for any goods and services rendered unless it be issued
on a Company A official Purchase Order and duly signed, or recognise any variation of the order
unless such variations have been approved in writing.

All purchases by us from you shall be subject to the conditions in this Purchase Order. These
Purchase Order conditions supersede any other terms and conditions in conflict therewith,
including your conditions of sale. Your shipment of the products shall constitute your acceptance
of these conditions. To modify these conditions, both parties must sign an agreement to that
effect. Our agents and representatives have no authority to make any representations,
statements, conditions or agreements that conflict with these conditions. Any such unauthorised
representations, statements, conditions or agreements shall not bind us nor shall they be taken
to form part of any contract between us.

All purchases by us from you are subject to these Purchase Order conditions. These conditions
override any other conditions in conflict therewith, including your own conditions of sale.
However, they do not override any specific conditions that we have agreed with you in writing. A
firm and binding contract shall arise between us when you confirm in writing your acceptance of
our order. However, in the absence of your written confirmation, your shipment of the goods
shall constitute your acceptance of our offer subject to these conditions.

A firm and binding contract shall arise when Buyer receives Seller’s written acceptance of this
Purchase Order. The Buyer shall have the absolute right to cancel or modify this Purchase
Order prior to Seller’s acceptance thereof.

documentation

The Buyer may have specific documentation requirements in order to process a shipment. For
example, the Buyer may demand a detailed packing slip. The Buyer may require specific
Procurement
information to appear on all invoices, delivery advices and other communications.
Conditions
Checklist

May 2006

3
 Sample Clauses:

All goods and services supplied must be accompanied by a packing slip.

The Purchase Order, Line No. and our I.P.N. must be stated on all Delivery Advices, Packing
Slips, Invoices and all Correspondence.

All deliveries must be accompanied by a detailed packing schedule.

conformance with requirements

A Buyer may stipulate that the goods conform with the Buyer’s drawings and specifications. The
Buyer may stipulate that the goods conform with a sample. The Buyer may specify other
requirements that the goods must meet. The Buyer may reject non-conforming goods

Sample Clauses:

All goods and services supplied must be in accordance with Company A specifications and
drawings.

Company A reserves the right to reject any article found to be defective or inferior in quality either
on receipt or during any process in its works. In the absence of specifications or samples all
goods or material supplied must be of the best of their respective kinds and subject to Company
A approval. Any deviation from the specification or accepted sample will give Company A the
right to cancel the whole order.

Any goods received which do not comply with our specification, drawing or sample will be
returned to the Vendor and any charges incurred will be to the Vendor’s account.

delivery

In this clause, the Buyer may emphasise the importance of meeting specific delivery dates and
the consequences of failing to meet them. The Buyer may specify that time is of the essence.
The Buyer may reserve the right to cancel an order because of late delivery. The Buyer may
also specify damages recoverable on account of late delivery.

Procurement Sample Clauses:

Conditions
Checklist
Company A requested delivery date must be adhered to. Failure to deliver this order by the date
May 2006 specified will render this order liable to cancellation.

4
 Deliveries: Because Buyer must meet tight delivery schedules imposed by its customer, and will
sustain damages for late delivery, time is deemed to be of the essence of this Purchase Order.
Accordingly, in the event of late delivery, Seller shall pay Buyer, or Buyer may credit against the
Purchase Price, a late delivery charge of 1% of the Purchase Price per week. Buyer shall have
the right to cancel this Purchase Order on account of late delivery. In such event, Buyer shall be
entitled to recover from Seller all sums paid to Seller, late delivery charges accruing to the date
of cancellation, and actual damages suffered by Buyer as a result of Seller's failure to perform in
a timely manner, to the extent actual damages exceed the accrued late delivery charges.

cancellation

This clause specifies the circumstances under which the Buyer may cancel an order. Such
circumstances might include:

„ Failure to make timely delivery.

„ Defective goods.

„ Non-conforming goods.

In addition, this clause may specify that all orders are revocable. That is to say, the Buyer may
cancel the order without cause.

Sample Clauses:

With Cause:

Company A requested delivery date must b e adhered to. Failure to deliver this order by the date
specified will render this order liable to cancellation.

Company A reserves the right to reject any article found to be defective or inferior in quality either
on receipt or during any process in its works. In the absence of specifications or samples all
goods or material supplied must be of the best of their respective kinds and subject to Company
A’s approval. Any deviation from the specification or accepted sample will give Company A the
right to cancel the whole order.

Deliveries: Because Buyer must meet tight delivery schedules imposed by its customer, and will
sustain damages for late delivery, time is deemed to be of the essence of this Purchase Order.
Accordingly, in the event of late delivery, Seller shall pay Buyer, or Buyer may credit against the
Purchase Price, a late delivery charge of 1% of the Purchase Price per week. Buyer shall have
the right to cancel this Purchase Order on account of late delivery. In such event, Buyer shall be
entitled to recover from Seller all sums paid to Seller, late delivery charges accruing to the date
of cancellation, and actual damages suffered by Buyer as a result of Seller's failure to perform in
Procurement a timely manner, to the extent actual damages exceed the accrued late delivery charges.
Conditions
Checklist
Cancellation With Cause. Buyer has the right to cancel this Purchase Order at any time, for
May 2006 cause, if Seller is in default of any provision thereof, and fails to remedy such default within 10

5
 days of notice thereof. In such event, Seller shall reimburse Buyer for Buyer’s damages resulting
from Seller's default, including Buyer’s reasonable legal fees and expenses.

Without cause:

Buyer has the right to cancel this Purchase Order, without cause, at any time before the date of
delivery. In such event, Seller shall recover the following amounts from Buyer:

„ Seller shall recover the value of all work performed, including both labour and materials, up
to the date of cancellation.

„ Seller shall recover the value of outstanding commitments for labour and materials that it
cannot break.

Buyer shall thereupon have no additional liability to Seller.

damages/liability

This clause addresses the subject of damages that the Buyer may recover from the Seller. It
also addresses the issue of Seller’s liability and the Buyer’s remedies.

Sample Clauses:

Deliveries. Because Buyer must meet tight delivery schedules imposed by its customer, and will
sustain damages for late delivery, time is of the essence of this Purchase Order. Accordingly, in
the event of late delivery, Seller shall pay Buyer, or Buyer may credit against the Purchase Price,
a late delivery charge of 1% of the Purchase Price per week.

Buyer shall have the right to cancel this Purchase Order because of late delivery. In such event,
Buyer shall recover the following sums from Seller:

a. Buyer shall recover all sums paid to Seller.

b. Buyer shall recover late delivery charges accruing to the date of cancellation.

c. Buyer shall recover actual damages suffered by Buyer as a result of Seller's failure to
perform on time, to the extent actual damages exceed the accrued late delivery
charges.

Procurement
Conditions
Checklist

May 2006

6
 Insurance and Liability. Seller indemnifies and holds Buyer harmless against all claims, whether
for personal injury, property damage or otherwise, arising out of the items supplied by Seller
under this Purchase Order. Seller shall carry public and products liability insurance with a $2
million limit. Where work on-site is included within this Purchase Order, Seller shall also carry
Contractors All Risk Insurance with a $1 million limit. Evidence of insurance coverage shall be
furnished to Buyer upon request.

Cancellation with Cause. Buyer has the right to cancel this Purchase Order at any time, for
cause, if Seller is in default of any provision thereof, and fails to remedy such default within 10
days of notice thereof. In such event, Seller shall reimburse Buyer for Buyer's damages resulting
from Seller's default, including Buyer's reasonable legal fees and expenses.

Reclamation of Buyer’s Property. If this contract is terminated by Buyer on account of any

default or breach by Seller which is not cured within ten days after notice thereof by Buyer, in
addition to any other rights Buyer may have under this contract or by law, Buyer shall be entitled
to immediately reclaim any of Buyer’s property, both personal and intellectual, then in Seller’s
possession and, if necessary, enter upon Seller’s premises for that purpose.

partial shipments, split deliveries quantities

Some Buyers insist upon accepting goods on an “all or nothing” basis. Such Buyers expressly
prohibit partial shipments and split deliveries.

Sample Clauses:

Quantities specified must be adhered to unless otherwise agreed prior.

Seller shall first obtain Buyer's written approval before making a partial delivery. Buyer's
approval of a partial delivery shall not constitute a waiver of late delivery charges. Buyer shall
recover any such late delivery charges in the event that complete delivery does not occur by the
date of delivery specified on the front of this Purchase Order.

price

This clause may indicate what the price includes (i.e. freight, insurance, taxes, duties, etc.). It
may also stipulate what the price does not include.

This clause may prohibit any price changes following confirmation of the order. It may also state
that the Seller must give the Buyer “most favoured customer” pricing at all times.
Procurement
Conditions
Checklist

May 2006

7
 Sample Clauses:

No Deliveries or Services shall be made at a higher price than stated on the Purchase Order,
without first obtaining the consent of the purchaser.

rejection/return of goods

This clause specifies the circumstances under which the Buyer may reject and return goods to
the Seller. It may also specify the consequences of such rejection.

The clause may allow the Seller to repair and replace such goods or it may allow the Buyer to
cancel the order and recover damages.

Sample Clauses:

Company A reserves the right to reject any article found to be defective or inferior in quality either
on receipt or during any process in its works. In the absence of specifications or samples all
goods or material supplied must be of the best of their respective kinds and subject to Company
A’s approval. Any deviation from the specification or accepted sample will give Company A the
right to cancel the whole order.

Any goods received which do not comply with our specification, drawing or sample will be
returned to the Vendor and any charges incurred will be to the Vendor’s account.

Buyer may reject any items ordered that fail to operate within their specifications under actual
operating conditions. Buyer may demand that Seller repair or replace such rejected items at
Seller's cost and expense. Otherwise, Buyer may return such rejected items to Seller at Seller's
risk and expense, and recover from Seller any damages suffered thereby, including Buyer's
reasonable legal fees and expenses

confidentiality

If the purchase entails the disclosure of confidential information by the Buyer to the Seller, the
Buyer may wish to add a confidentiality clause to its procurement conditions.

Sample Clauses:

Procurement
Conditions All orders placed by Company A are strictly confidential. The Vendor or Manufacturer must not
Checklist or cause to be published by any means whatsoever any specifications, drawings or any detail
concerning the goods, the subject of this Purchase Order, without written consent from Company
May 2006
A.

8
 “Confidential Information” refers to all non-public information in whatever form belonging to
Company A. “Confidential Information” includes the Proprietary Rights, financial information,
trade secrets, technical information, know-how, marketing information, ideas, inventions, models,
patent information, product information, prototypes, research and development and
specifications.

The Supplier shall use the Confidential Information solely for the purpose of supplying products
to Company A. The Supplier shall not use the Confidential Information to supply products to
anyone but Company A. Without limiting the generality of the foregoing, and for the avoidance of
doubt, the Supplier shall not use the Confidential Information to supply products to any customer
or former customer of Company A.

Under no circumstance shall the Supplier use the Confidential Information in a manner that
would be detrimental to Company A’s business.

The Supplier shall not use the Confidential Information to compete with Company A or to confer
a competitive advantage upon a third party.

The Supplier shall not disclose the Confidential Information to customers or competitors of
Company A.

The Supplier shall only disclose the Confidential Information to those of its trusted employees
and agents who require it for purposes of supplying products to Company A. The Supplier shall
fully inform its employees and agents of their obligations to Company A concerning the
Confidential Information. The Supplier shall be responsible for making sure that its employees
and agents understand and comply with such obligations.

The Supplier shall not disclose the Confidential Information to any third party unless it first
obtains Company A's written consent. Company A may condition its consent upon such third
party entering into confidentiality undertakings for Company A’s protection similar to those
contained herein.

The Supplier shall not copy or otherwise reproduce the Confidential Information unless it first
obtains Company A’s written consent. Notwithstanding the foregoing, the Supplier may retain
one archival copy of any materials comprising the Confidential Information for purposes of quality
assurance.

The Supplier shall return the Confidential Information to Company A, upon request. The Supplier
shall dispose of the Confidential Information in such manner as Company A may direct.

insolvency
Procurement
Conditions
Checklist This clause specifies the Buyer’s rights if the Seller becomes insolvent before shipping the
goods.
May 2006

9
 Sample Clauses:

If the vendor shall have a Receiver appointed of the whole or part of their assets or if an order is
made or a resolution is passed for winding up the Vendor’s business, then, unless such order or
resolution is part of a scheme of amalgamation or reconstruction, Company A shall be at liberty:

a. to cancel the order summarily by notice in writing without compensation to the vendor,
and/or;

b. to withdraw all the Company A owned materials, tools, jigs, fixtures, artworks and
drawings, and/or;

c. to give any such Receiver or Liquidator or other person the option of carrying out the
order.

Insolvency. Buyer may, at its option, cancel this Purchase Order immediately in the following
circumstance. Seller suffers or permits the appointment of a receiver or liquidator of its assets,
or otherwise seeks relief pursuant to any insolvency or bankruptcy law.

Upon such cancellation, Buyer shall recover the following amounts from Seller:

Buyer shall recover all advance payments on this Purchase Order.

Buyer shall recover compensation for damages it suffers resulting from its cancellation of this
Purchase Order.

Buyer shall recover its reasonable legal fees and expenses.

governing law

This clause may be relevant if the Seller is based overseas.

Sample Clauses:

New Zealand Law.

Procurement New Zealand law shall govern the construction, validity and performance of this Purchase Order.
Conditions
Checklist

May 2006

10
 passage of title

Usually, the Seller’s conditions of sale will contain a “Romalpa clause”. With a Romalpa clause,
title does not pass from Seller to Buyer until the Buyer pays for the goods in full. Such a clause
is acceptable to most Buyers. However, a Buyer may wish to negate, or at least limit, the
application of the Seller’s Romalpa clause. If so, the Buyer should specify when title to the
goods passes from the Seller to the Buyer.

Sample Clauses:

Title to the goods shall pass from Seller to Buyer upon delivery to the Buyer.

risk of loss/insurance

This clause specifies when risk of loss passes from Seller to Buyer. It also specifies which party
has the obligation to insure the goods, and for what risks. Finally, this clause may determine the
liability of the Buyer and the Seller in certain circumstances specified therein.

Sample Clauses:

Seller bears the risk of loss, and responsibility to insure against that risk, up until the time that the
items ordered arrive at the place of delivery specified on the front of this Purchase Order. In the
case of an "ex-works" contract, Seller bears the risk of loss, and the responsibility to insure
against that risk, up until the time that Seller loads such items for transportation. Buyer bears the
risk of loss, and responsibility to insure against that risk, after the arrival of such items at the
place of delivery specified on the front of this Purchase Order. In the case of an "ex-works"
contract, Buyer bears the risk of loss, and responsibility to insure against that risk, after Seller
loads such items for transportation.

Seller indemnifies and holds Buyer harmless against all claims, whether for personal injury,
property damage or otherwise, arising out of the items supplied by Seller under this Purchase
Order. Seller shall carry public and products liability insurance with a $5,000,000 limit. Where
work on-site is included within this Purchase Order, Seller shall also carry Contractors All Risk
Insurance with a $1 million limit. Seller shall furnish evidence of insurance coverage to Buyer
upon request.

Risk of Loss During Shipment. Risk of loss, theft or damage to the goods shall pass from you to
us according to the relevant shipping term (such as CIF or FOB) specified in the Contract. The
parties incorporate herein Incoterms 1990 published by the International Chamber of Commerce.
Procurement
Conditions
Checklist

May 2006

11
 intellectual property/proprietary rights

If the purchase may entail the disclosure of the Buyer’s intellectual property to Seller, the Buyer
may wish to include a clause protecting such intellectual property from misuse or exploitation by
the Seller.

Sample Clauses:

“Proprietary Rights” refers to Company A’s materials, ideas and creations forming the basis of its
products and components. “Proprietary Rights” includes Company A’s samples, drawings
(mechanical and electrical), designs and lay-outs, product specifications (including all
measurements and dimensions), software (including the source code), all company literature and
its brands.

The Supplier shall use the Proprietary Rights solely for the purpose of supplying products to
Company A. The Supplier shall not use the Proprietary Rights to supply products to anyone but
Company A. Without limiting the generality of the foregoing, and for the avoidance of doubt, the
Supplier shall not use the Proprietary Rights to supply products to any customer or former
customer of Company A. Supplier shall promptly refer all inquiries from such customer or former
customer to Company A.

The Supplier expressly acknowledges Company A’s ownership of the Proprietary Rights. The
Supplier disclaims any right, title or interest in the Proprietary Rights other than the right to supply
products to Company A.

The Supplier shall at all times respect the Proprietary Rights. The Supplier shall use all
reasonable endeavours to safeguard the Proprietary Rights. The Supplier shall take no action in
derogation of the Proprietary Rights.

Under no circumstance shall the Supplier use the Proprietary Rights in a manner that would be
detrimental to Company A’s business.

The Supplier shall not use the Proprietary Rights to compete with Company A or to confer a
competitive advantage upon a third party.

The Supplier shall not disclose the Proprietary Rights to Company A’s competitors, customers or
former customers.

In all other respects, the Supplier shall not use the Proprietary Rights to Company A’s
competitive disadvantage.
Procurement
Conditions
Checklist
The Supplier shall not modify or adapt the Proprietary Rights to supply products to others. The
Supplier shall not use the Proprietary Rights to supply products to others under a different brand.
May 2006

12
 The Supplier shall not use the Proprietary Rights in any other manner that has the effect of
depriving Company A of the exclusive benefits thereof.

The Supplier shall not copy any information comprising the Proprietary Rights unless it first
obtains Company A's written consent. Notwithstanding the foregoing, the Supplier may retain
one archival copy of any materials comprising the Proprietary Rights for purposes of quality
assurance.

Drawings and Specifications. Buyer shall be deemed the copyright owner of all designs,
drawings and specifications (“Copyrighted material”) furnished to Seller pursuant to this contract.

Seller shall not use the Copyrighted Material except in connection with the performance of this
contract.

Seller shall keep all Copyrighted Material confidential and shall not disclose the same to anyone
else except as may be necessary in connection with Seller’s performance of this contract.

The Seller shall be responsible for protecting the confidentiality of any Copyrighted Material
disclosed to third parties.

Upon completion of this contract, or its termination, Seller return all Copyrighted Material to the
Buyer, if the Buyer so requests, and Seller shall not thereafter infringe upon the Copyrighted
Material.

Seller shall indemnify Buyer against copyright, trademark of patent infringement claims arising
from plant and equipment, or parts thereof, supplied by Seller to meet Buyer’s specifications but
which was not designed by Buyer.

shipping terms

This clause specifies the relevant shipping terms that will apply to the transaction.

Sample Clauses:

Unless otherwise noted, on a domestic purchase, the purchase price includes all shipping costs
free into store. You bear the risk of loss or damage to the products while in transit. We bear the
risk of loss or damage to the products after their delivery to us. Our shipping terms on a
purchase overseas shall be subject to prior written agreement. You are responsible for
inspecting the products before shipment. You will immediately notify us of any visible defects or
Procurement other deficiencies before shipment.
Conditions
Checklist

May 2006

13
 warranty

Normally, the Seller provides a warranty on the goods. However, there is nothing to prevent the
Buyer from specifying the warranty that it requires from the Seller and inserting that warranty in
the Buyer’s procurement conditions.

Sample Clauses:

Warranty. Seller warrants: 1) all items ordered shall be free of defect in materials and
workmanship; and 2) all such items shall be built to the specifications of Buyer, when furnished.
This warranty covers both parts and labour. The term of warranty shall be 12 months from
completion of commissioning by Buyer's customer or 18 months from the date of delivery,
whichever occurs first. All warranty repairs shall be made on the site of Buyer's customer.

Absent an express written warranty from Seller that Buyer has accepted, Seller shall supply the
goods described in this Purchase Order subject to the following warranty. Seller warrants: 1) all
items ordered shall be free of defect in materials and workmanship; and 2) such items conform to
the specifications of Buyer, when furnished. This warranty covers both parts and labour. The
term of warranty shall be 12 months from completion of commissioning by Buyer's customer or
18 months from the date of delivery, whichever occurs first. Seller shall make all warranty
repairs on the site of Buyer's customer provided such customer resides in New Zealand. If the
customer resides overseas, Buyer shall arrange the warranty repair as agent for Seller. Buyer
shall charge Seller the reasonable cost of such warranty repair.

variations to order requested by buyer

This clause allows the Buyer to vary its procurement conditions. For example, it may reschedule
the delivery date, add to, or subtract from, the procurement conditions. This clause discusses
the consequences of any such variation.

Finally, it may be important for the Buyer not to permit any variations from the Seller without the
Buyer’s consent.

Sample Clauses:

At any time before delivery, Buyer may request variations in this Purchase Order. Such request
shall be in writing and include a full and accurate description of the variations. Seller shall advise
Buyer: Whether it can make the variations; when it can make the variations; and whether (and if
so, by how much) the variations will increase or reduce the purchase price. If Buyer accepts
Procurement Seller's quotation, as outlined above, the variations shall thereupon become an integral part of
Conditions this Purchase Order. Buyer and Seller shall modify the scope of supply, purchase price, delivery
Checklist dates and other terms as appropriate. No variations shall be permitted unless both parties agree
to them in writing.
May 2006

14
 Seller shall not vary this Purchase Order unless it first obtains Buyer’s written approval.

scope of supply

In large transactions, a Buyer may seek to specify in greater detail the scope of supply as well as
any exclusions from the scope of supply. The scope of supply might include such criteria as
design specifications, performance specifications, packaging specifications and compliance with
standards. Obviously, there’s not room to specify these criteria within the confines of the small
print on the reverse side of a Purchase Order. However, the Buyer may wish to reference such
criteria and attach them to the Purchase Order. So referenced, the Buyer may require the Seller
to comply with them.

Sample Clauses:

This Purchase Order is subject to any design specifications, performance specifications,

packaging specifications and standards that the Buyer may attach hereto. All such attachments
shall be collectively referred to as the “Scope of Supply”.

All goods shall conform with the Scope of Supply.

The Seller shall expressly note any exclusions to the Scope of Supply before acceptance of this
Purchase Order is deemed to have occurred. Failure to note any such exclusions shall
constitute Seller’s acceptance of the Scope of Supply.

payment terms

The Buyer may specify its payment terms in this clause.

Sample Clauses:

Unless otherwise agreed in writing, our payment terms are the twentieth of the month following
the month in which delivery occurs.

testing and inspection of goods

Procurement The Buyer may wish to test and inspect the goods on the Seller’s premises before shipment. If
Conditions so, the clause should specify relevant details concerning the goods to be tested, the test protocol
Checklist to be followed and the date of the test.

May 2006

15
 Sample Clauses:

The Seller shall fully inspect and test the goods before shipment.

The Buyer also reserves the right to inspect, test and approve the goods before shipment. If the
Buyer wishes to exercise such right, the Buyer shall provide the Seller with reasonable notice
thereof. In such event, the Seller shall not ship the goods until the Buyer so inspects, tests and
approves them.

Subject to any express written agreement concerning the testing and inspection of the goods, the
Buyer may perform such tests and inspections on the goods, and apply such test criteria, as the
Buyer may determine in its sole and absolute discretion.

The Buyer’s approval of the goods before shipment shall not constitute a waiver of the Buyer’s
right to reject the goods pursuant to any relevant clause in this Purchase Order or to make
warranty claims in respect to the goods.

assignment and sub-contracting

The Buyer may only wish to buy goods manufactured by the Seller. In that case, the Buyer may
wish to restrict the Seller’s right to assign or sub-contract the manufacture of the goods.

Sample Clauses:

Seller shall not assign the whole or any part of this contract without Buyer’s prior written consent
and then only if the assignee assumes in writing Seller’s obligations under this contract.

force majeure

The Buyer may wish to delay a shipment due to circumstances beyond the Buyer’s control. A
force majeure clause would specify those circumstances. A force majeure clause is more
common in a Seller’s conditions of sale than it is in a Buyer’s procurement conditions.
Nonetheless, there is no reason why a Buyer should not have a force majeure clause too.

Procurement
Conditions
Checklist

May 2006

16
 Sample Clauses:

We shall not be liable for any failure or delay in accepting the products resulting from
circumstances beyond our reasonable control, including, without limitation: Unavoidable delays
in production; delays in the delivery of raw materials; default by sub-contractors; default by
component suppliers; strikes and labour unrest; shipping delays; shortages; war; government
intervention; fire; flood; accident; natural disaster; or any other event commonly referred to as an
"act of God".

mediation/arbitration

This clause really speaks for itself. It specifies a dispute resolution procedure for the parties to
follow. Absent such a clause, the parties would seek redress through the courts.

Sample Clauses:

We shall settle any controversies or disputes with you by arbitration according to the provisions
of the Arbitration Act 1908. The place of arbitration shall be <name of town/city>, New Zealand.

verbal instructions

Following placement of an order, the Buyer and Seller will, in all likelihood, engage in verbal
communications with each other. This clause determines the effect of such communications
upon the order.

Sample Clauses:

You shall immediately confirm, in writing, all verbal instructions and orders. We may wait until
you do so before executing your verbal instructions and orders. If we do not wait, we shall
execute your verbal instructions and orders entirely at your risk. In that case, we accept no
responsibility for errors and omissions.

retentions/offsets

Invariably, the Seller’s conditions of sale will prohibit the Buyer from claiming an offset against
the purchase price. This may be unfair when the Seller is in breach of the contract. Often, taking
Procurement an offset, or threatening to take one, is an effective means of getting the Seller to perform. This
Conditions
clause would allow the Buyer to exercise a right of offset, or retain money, in certain
Checklist
circumstances.
May 2006

17
 Sample Clauses:

If the Seller commits a default, the Buyer may retain any sums due the Seller until the Seller
cures such default.

The Buyer reserves the right to offset against sums due the Seller the value of any claims that
the Buyer may have against the Seller, or damages that the Buyer has incurred, or is likely to
incur, as a result of the Seller’s default.

compliance with law

The Buyer may wish to insert this clause if the goods must comply with certain legal
requirements. Such requirements might include certification from a regulatory authority,
standards and approvals.

Sample Clauses:

The Seller represents and warrants that the goods comply with all relevant laws, ordinances,
regulations and standards.

The Seller, at its cost, shall obtain any required permits, licences, certifications, authorisations or
other regulatory compliances for the goods.

ethical dealing

A Buyer may insert this clause if they wishes to discourage the Seller from engaging in un-ethical
or illegal conduct with the Buyer’s staff. Such conduct might consist of “back-handers”, rebates,
gifts and other inducements.

Sample Clauses:

Ethical Dealing. The Seller shall not engage in unethical acts or practices in respect to its
dealings with the Buyer.

The Buyer strictly enforces its policy against unethical business conduct, including without
limitation: Collusive activity; the giving of “kick-backs”, “back-hands”, gratuities, bribes or
Procurement unearned commissions. Any of the foregoing acts, if committed by the Seller, shall constitute a
Conditions material breach of this Purchase Order. In such event, the Seller may pursue its rights and
Checklist remedies to the full extent specified in this Purchase Order.

May 2006

18
 privacy act

Sometimes, the Seller will include a clause in its conditions of sale stating that the Buyer waives
its rights under the Privacy Act. This allows the Seller to disclose personal information about the
Buyer, including the Buyer’s credit history. The Buyer may wish to retain the protection of the
Privacy Act and thereby prevent the Seller from disclosing such personal information.

Sample Clauses:

The Buyer reserves all rights to privacy under the Privacy Act 1993. The Buyer shall not be
deemed to have waived any rights or remedies under the Privacy Act 1993 unless the Buyer
signs an express, written waiver to that effect.

The Seller shall not disclose any personal information about the Buyer to a third party in
contravention of the Privacy Act 1993. Without limiting the generality of the foregoing, the Seller
shall not disclose credit information concerning the Buyer to any third party, except with the
Buyer’s express written consent.

rescheduling delivery dates

Some Buyers need lots of flexibility when it comes to delivery dates. Such Buyers are likely to
include a clause expressly giving them the right to reschedule delivery dates. For other Buyers,
this is not particularly important.

Sample Clauses:

The Buyer may cancel this Purchase Order, in whole or in part, or reschedule shipment dates.
The Buyer may do so, without penalty, provided the Buyer gives the Seller at least 30 days
written notice before the shipment date to which such cancellation or rescheduling relates. The
Seller acknowledges that this would give the Seller sufficient time to unwind its commitments
without incurring any cancellation charges or expenses. If the Buyer gives the Seller less than
30 days written notice of cancellation, the Buyer shall reimburse the Seller for its direct material
and labour costs incurred up to the date of cancellation. If the Buyer gives the Seller less than
30 days written notice of rescheduling, the Buyer shall reimburse the Seller for its reasonable
costs and expenses incurred as a result of such rescheduling. The Seller may treat any
rescheduling, or successive rescheduling, that extends the original shipment date by more than
six months as equivalent to an order cancellation.

Procurement
Conditions
Checklist

May 2006

19
 other clauses

The clauses mentioned in this checklist certainly do not exhaust the universe of clauses that
might appear in a Buyer’s procurement conditions. This is your opportunity to add to the list.
Think in terms of what “mischief” the Seller might engage in and how you can prevent the Seller
from doing so. What recurring problems have you encountered with one or more Sellers? What
types of conduct by Sellers particularly irks you? Specify these issues in the contract.

Prepared by:
Robert Auerbach
P.O. Box 34-555
Birkenhead, Auckland 1330
New Zealand
Tel: +64-9-419-2214
Fax: +64-9-418-3651
E-mail: robert@auerbach.co.nz
Website: www.marketnewzealand.com/auerbach

Disclaimer:
These checklists are provided for information purposes only and are no
substitute for professional advice, which should be sought prior to
entering into any transaction. New Zealand Trade and Enterprise
(NZTE) has not verified these checklists and makes no representations
as to the completeness, correctness, currency, accuracy or fitness for
purpose of the information, or the person that prepared the information.
Accordingly, NZTE will not be responsible for any damage or loss
suffered by any person arising from the information whether that damage
or loss arises from negligence or otherwise.

Procurement
Conditions
Checklist

May 2006

20