THE IMPORTANCE OF REVIEWING THE ORDER FORM
Ahsan Mujeeb
Sourcing and Vendor Management Consultant
The strategic sourcing process is an ongoing endeavor and should not be deemed complete merely because contracts have been signed. Continuous vigilance is essential throughout the vendor relationship lifecycle. Vendors often introduce additional or special terms during the renewal phase. Typically, these include clauses stating that the renewal terms and conditions will be governed by the vendor's online terms and conditions, effectively superseding any prior agreements between you and the vendor. This seemingly minor change can have far-reaching consequences. It displaces the original MSA that was carefully negotiated, replacing the hard-won terms from the initial project. Consequently, critical protections—such as limitations of liability, indemnification, governing law, and price protection—can be swept away.
Recently, we encountered this exact scenario with one of our Clients. They had negotiated a favorable MSA that included a 5% price protection clause. However, two renewal cycles later, they received an Order Form containing language stipulating that the new terms and conditions would override the previously negotiated MSA. The new terms permitted a 10% price increase. Unfortunately, the Client's review process did not include a thorough examination of the Order Form, resulting in the document being signed and the new terms taking effect.
To prevent such situations from recurring, there are strategic approaches you can implement:
Firstly, utilize the concept of Order of Precedence in your contractual agreements. The Order of Precedence is a clause that establishes a hierarchy among multiple contractual documents, determining which document takes priority when terms conflict. By explicitly stating that the MSA takes precedence over any subsequent Order Forms or ancillary documents, you safeguard the original terms and conditions that were negotiated.
For example, in the case of our Client, had they included an Order of Precedence clause favoring the MSA, the conflicting terms in the new Order Form—such as the allowance for a 10% price increase—would have been nullified. This ensures that critical protections like price caps, liability limitations, and indemnification clauses remain in force, preserving the integrity of the original agreement. It's a proactive measure that can prevent vendors from unilaterally introducing unfavorable terms during renewals.
Secondly, implement a formalized and rigorous process for reviewing all contractual documents, especially Order Forms. This review should be conducted by your Sourcing and Legal teams, or at least one of them, to ensure that no unfavorable terms slip through unnoticed. This process involves:
Detailed Examination: Carefully read all clauses, terms, and conditions in the Order Form to identify any deviations from the original agreement.
Cross-Referencing: Compare the new terms with the existing MSA to spot any conflicts or additional clauses that could undermine your position.
Approval Workflow: Establish an internal approval system where key stakeholders must sign off on any contractual documents before they are finalized.
Vendor Communication: Engage in open dialogue with the vendor to negotiate or clarify any concerning terms before signing.
By instituting this thorough review process, you can catch any new clauses that might undermine previously negotiated advantages. This step is straightforward but vital; it acts as a safety net to prevent inadvertent concessions and ensures that you're not relinquishing any of the benefits secured in the initial agreement.
Maintaining vigilance throughout the vendor relationship lifecycle, especially during renewals, is essential to protect your organization's interests. By employing strategies like establishing a clear Order of Precedence and instituting a comprehensive review process for all contractual documents, you can safeguard against unfavorable terms and ensure that your negotiated advantages remain intact.
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