It is hard to overestimate the criticality of crafting effective Purchasing General Terms and Conditions (GTCs). These terms form the backbone of your procurement contracts, safeguarding your company’s interests and laying a clear groundwork for supplier relationships. Crafting company-specific GTCs can be a complex task, but with the right approach, it becomes manageable and effective. Let’s dive into the steps needed to create effective GTCs.

Steps when crafting effective Purchasing General Terms and Conditions

Step 1: Assess Your Business Requirements

Before drafting your GTCs, thoroughly understand your business needs. Consider the nature of the goods or services you procure, the specific risks associated with your industry, and the standard practices within your sector. This assessment forms the foundation upon which your GTCs are built.

Step 2: Outline Key Contractual Elements

The core of your GTCs should cover crucial contractual elements, including payment terms, delivery schedules, quality standards, warranty, liability, and dispute resolution. Each element should align with your business model and risk management strategy. Always start by deciding applicable law (country).

“Choice of law” in procurement contracts refers to the agreement on which jurisdiction’s laws will govern the contract. This is crucial in international and multi-jurisdictional agreements to ensure clarity and predictability. Specifying the choice of law helps avoid disputes about which legal framework applies, thereby reducing legal uncertainty and potential litigation costs. It ensures that both parties are aware of their rights and obligations under a known legal system. To safeguard interests, procurement professionals should carefully negotiate and explicitly state the chosen law in the contract, aligning it with their organization’s legal and strategic considerations.

When designing General Terms and Conditions there are some key clauses and sections:

• Scope and Application: This section defines the extent and situations in which the GTCs apply.
• Definitions: Key terms used throughout the document are defined here for clarity.
• Contract Formation: How contracts are formed, including offer, acceptance, and any formalities required.
• Pricing and Payment Terms: Details regarding pricing structures, payment schedules, and methods.
• Delivery Terms: Conditions related to the delivery of goods or services, including timelines and logistics.
• Quality and Compliance: Expectations regarding the quality of goods or services and adherence to relevant regulations.
• Warranty and Liability: Information about warranties provided and the liability of each party.
• Force Majeure: Provisions for unforeseen events that prevent parties from fulfilling their obligations.
• Intellectual Property: Terms regarding the ownership and use of intellectual property.
• Confidentiality and Data Protection: Commitments to protect sensitive information and comply with data protection laws.
• Dispute Resolution: Processes to resolve disagreements arising from the contract.
• Termination: Conditions under which the contract can be terminated.
• Modification and Waiver: How the terms can be modified or waived.
• Severability: Ensuring the remainder of the GTC remains valid if a part is found unenforceable.
• Applicable Law and Jurisdiction: The governing law and jurisdiction for legal disputes.

In procurement, the “Battle of the Forms” refers to a situation where two parties, typically a buyer and a seller, exchange documents with differing terms and conditions during the contract formation process. This often occurs when a buyer issues a purchase order with its own terms, and the seller responds with an acknowledgment or invoice that includes its own, conflicting terms. 

Please note, above list is an excellent starting point but have to be adapted to each company’s business conditions.

Step 3: Ensure Legal Compliance

Your GTCs must comply with relevant laws and regulations. This includes international trade laws, if applicable. It’s advisable to collaborate with legal experts to ensure that your terms are not only enforceable but also compliant with the legal frameworks within which your company operates.

Step 4: Incorporate Flexibility and Clarity

While GTCs must be comprehensive, they should also allow for some degree of flexibility to accommodate unique supplier situations. Clarity is key – terms should be explicit to avoid misinterpretation. Clear language helps prevent disputes and confusion, making the procurement process smoother for both parties.

Step 5: Consider Supplier Relationships

Remember, GTCs are not just legal documents; they also reflect your company’s approach to supplier relationships. Strive for fairness and balance. Overly stringent terms may deter potential suppliers, whereas overly lenient terms can expose your company to unnecessary risk.

Crafting Effective Purchasing General Terms and Conditions – Remember, GTCs are not just legal documents; they also reflect your company’s approach to supplier relationships. Strive for fairness and balance. 

Step 6: Regular Reviews and Updates

The business environment is dynamic, and so should be your GTCs. Regularly review and update them to reflect changes in your business strategy, market conditions, legal requirements, and lessons learned from past procurement experiences.

Step 7: Internal Alignment and Training

Ensure that your procurement team understands the Purchasing General Terms and Conditions. Conduct training sessions to explain key terms and their implications. This internal alignment is crucial for the consistent application of your GTCs across all procurement activities.

Summary: Crafting Effective Purchasing General Terms and Conditions

Creating company-specific Purchasing General Terms and Conditions is a meticulous process that demands attention to detail, legal knowledge, and an understanding of your business and its supply chain. These terms are not just contractual obligations but tools that can significantly enhance the efficiency and security of your procurement processes. With the right approach, your GTCs will become a cornerstone of your procurement strategy, fostering strong, sustainable supplier relationships and safeguarding your business interests.

This blog post aims to guide procurement professionals through the intricate process of developing effective GTCs, ensuring that these documents are not only legally sound but also aligned with their business strategies and market realities.

Get a first introduction to a real life General Terms and Conditions by attending the course: General Terms and Conditions, a basic course designed for new buyers in the field of procurement. Understanding and effectively utilizing General Terms and Conditions (GTC) as part of your Purchase Orders is a fundamental skill for managing supply chain risk. This course provides a foundational understanding of GTC, tailored specifically for those new to procurement.

Are you a procurement professional looking to expand your knowledge and skills in international sales law? Look no further than Jon Kihlman’s online course, “International Sales Law for Procurement Professionals.” This comprehensive course covers all aspects of international sales law, from the basics of contract formation to the intricacies of cross-border disputes. Jon Kihlman, an expert in international commercial law with over 20 years of experience, will guide you through the course material, providing practical examples and real-world scenarios to help you apply what you learn.

If you require assistans when designing your T&C we recommend contacting Jon Kihlman.

Note: Illustration to the blogpost “Crafting Effective Purchasing General Terms and Conditions” was created by Chat-GPT on December 28, 2023. Inspired by Salvador Dali.

Information about our Online Procurement courses in Swedish.