This is a presentation I drafted and delivered for NACM Northwest in Spokane, WA as part of their Credit Over Coffee Series.

1. Terms and Conditions
Caution: What to Look For
Presented by: Sam Smith, Regional Finance Manager
Crescent Electric Supply Co
Sam.Smith@cesco.com
Credit Over Coffee
NACM Northwest – March, 2017

2. A Little About Me!
• 15+ years of credit experience
• 8 years of manufacturing experience
• Contributor to NACM eNews and Business
Credit Magazine
• Presenter at NACM Credit Congress
• MS in Ag Economics from University of
Wisconsin-Platteville
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3. A Little More About Me!
• Married for 24 years (Karen)
• Two girls (Ali & Alayna)
• Two cats & one dog!
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4. A Little About Crescent
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5. A Little About You!
• Years of experience?
• Construction or other?
• Local/Regional/National?
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6. Which T’s & C’s Prevail???
Which T’s & C’s should prevail, OURS or THEIRS?
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7. Important to Note
• Many provided T’s & C’s are boilerplate
• One size does not fit all
• Frequently geared for manufacturers or
contractors, not supply companies
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8. Who to Review/Approve T’s & C’s?
Receipt of Modified T’s & C’s
District Manager Review
What’s the process in your company?
Who has the authority?
DCM RFM
Acct MgrProject Mgr
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9. What If … No Review?
• Disgruntled customer
• Delayed payment to CESCO
• Legal ramifications
– Fees & related additional time spent on …
• Research
• Affidavits
• Depositions
• Trial
– If we lose … damages?
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10. What If … No Review? Ctd
The ultimate costs include loss of customer & financial
exposure!
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11. Pitfalls/What to Look For
1. Tie into another contract
• “This PO incorporates by reference all terms of
subcontractor’s contract with the general contractor”
• Watch for owner to general contractor link
• This is the largest landmine to avoid!
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12. Pitfalls/What to Look For Ctd
2. Liquidated Damages
– “If materials are not delivered by X date, damages of
$X/day will be incurred”
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13. Pitfalls/What to Look For Ctd
3. Indemnification Clauses
– Protects a party to a contract from financial losses
related to the performance (or lack of) of another
party involved in the contract
– Shifts potential costs from one party to another
– Watch for “hold harmless,” “indemnify” or “defend”
– In rare cases, allowed but limited to value of the
purchase order
• i.e. This indemnification pertains only to the Crescent
Electric Supply materials supplied to ______ for the above
mentioned job and is limited to the value of this material
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14. Pitfalls/What to Look For Ctd
4. Uncapped Liability
– “I got your back”
– No limit to the financial loss incurred
– Can be direct or indirect
– Ties into warrantees, liquidated damages and charge
backs for delayed shipments, faulty product, etc.
– Limit exposure to the PO value
• Possible insert …
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15. Pitfalls/What to Look For Ctd
– Notwithstanding anything to the contrary, Vendor’s
liability with respect to any contract of sale or anything
done in connection therein, whether in contract, tort,
negligence, strict liability, breach of contract,
indemnity or under any legal theory, warranty or
otherwise, shall not exceed the purchase price of the
goods or services on which such liability is based.
This paragraph shall not, however, affect the limits
available from any such insurance policy carried by
Vendor, subject only to the limitations regarding
proportional fault.
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16. Pitfalls/What to Look For Ctd
– A simplified adder:
This indemnification pertains only to the Crescent Electric Supply
materials supplied to _________ for the above mentioned job and is
limited to the value of this material.
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17. Pitfalls/What to Look For Ctd
5. Extended Warranties
– “All warranties in the general conditions are
incorporate herein”
– “Seller warrants …”
– Unlike a manufacturer, a distributor passes along
the manufacturer’s warranty
– Can the vendor approve an extended warranty?
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18. Pitfalls/What to Look For Ctd
6. Firm Ship Dates
– “CESCO guarantees shipment by the following date
certain: __________”
– Lead times can be provided by the manufacturer
– If manufacturer guarantees a ship date, that can be
passed along
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19. Pitfalls/What to Look For Ctd
7. Retainage
– “Electrical subcontractor will hold 10% of the amount
of this purchase order until job is complete”
– You are not part of the original contract!
– Original intent was for subcontractors, not suppliers!
– Questions:
– Is this your margin?
– What if there is a dispute?
– What about lien/bond deadlines?
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20. Pitfalls/What to Look For Ctd
8. Unacceptable Payment Terms
– Pay when/if paid… what’s the difference?
– Maryland and Virginia
– Why deviate from your companies standard terms
without some type of negotiation/discussion?
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21. Pitfalls/What to Look For Ctd
9. Waiver of Rights
– All waivers must be in writing and signed with
someone with proper authority
– Waive rights at PO acceptance
– Know your state laws!
– Pertains to lien, bond, breach of contract or any other legal
rights
– Waive rights via waiver in advance of payment
– Adder?
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22. Pitfalls/What to Look For Ctd
– What to add if required to issue waivers in advance?
• This waiver is contingent upon receipt, deposit and clearance
of payment in the amount of $x.xx
– Another form of security?
– Business decision
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23. Pitfalls/What to Look For Ctd
Other lien waiver adders frequently used:
Crescent expressly reserves all rights on the Project for (a) materials
shipped but not yet billed; (b) future shipments; and (c) all other
amounts it is due on the job.
This is 1 of x original waivers requested, which in the aggregate are
being exchanged for one payment in the amount of $x.xx.
This waiver is for all invoices billed and paid through __________.
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24. Pitfalls/What to Look For Ctd
10.Arbitration/Mediation Clauses
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25. Pitfalls/What to Look For Ctd
11.Non-Disclosure Agreements
– Not utilized often
– Have a time frame
KEEP CONFIDENTIAL
THINGS CONFIDENTIAL!
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26. Pitfalls/What to Look For Ctd
12.Favored Customer Pricing
– Same or better pricing for equal quantity
– Gov’t contracts
– aka “Price Certification”
– Substitute … to put forth best effort
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27. Pitfalls/What to Look For Ctd
13.Termination Clauses
- Restocking Fees
- Cancellation Fees
- Penalties
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28. Pitfalls/What to Look For Ctd
14.1 of 2 pages
15.“See reverse side”
16.“Based on inspection” or “upon receipt”
17.“No change orders can be accepted without
written confirmation”
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29. Pitfalls/What to Look For Ctd
18.FOB Shipping Point vs FOB Destination
19.Per Plans and Specs
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30. Pitfalls/What to Look For Ctd
20.Minority Participation Requirement
– Frequent on public funded projects
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31. Minority Participation Requirement Ctd
Definitions
•MWDBE = Minority Women Disadvantaged
Business Enterprise
– MBE = Minority-Owned Business Enterprise
– WBE = Women-Owned Business Enterprise
– DBE = Disadvantaged Business Enterprise
•CUF = Commercially Useful Function
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32. Minority Participation Requirement Ctd
How it all started
– 1983 Ronald Reagan and Congress enacted first
MWDBE statute … Dept of Transportation
– Assist small businesses owned & operated by socially
& economically disadvantaged individuals including
women & minorities
– Intended for minority contractors but has shifted to
include minority suppliers
– Exposure lies with minority suppliers
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33. Minority Participation Requirement Ctd
Classifications
– Each city, state and federal agency has their own
certification process and agency
– All require 51% minority ownership
– Federal classification of “Disadvantaged “ is 51%
owned and controlled by women, minority, disabled or
veteran
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34. Minority Participation Requirement Ctd
Targets
– Connecticut  25% for small businesses, 25% of that
for WMBE’s
– IL  20%
– OH  15%
– NY  30% for MWDBE’s and 6% for veteran with
disabilities owned businesses
– Maryland  29%
– New Jersey  25%
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35. Minority Participation Requirement Ctd
Caps
– At what point does the MWDBE graduate?
– States as well as agencies vary
– NY:
• SCA
• Port Authority
• MTA
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36. Minority Participation Requirement Ctd
Why is this topic important?
– Potential heavy governmental scrutiny
– Significant civil fines
– Criminal prosecution
– Prison sentences
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37. Minority Participation Requirement Ctd
Importance Ctd
– Banned from future public projects
– Allegations of impropriety can damage a company’s
reputation regardless if it is true or false
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38. Minority Participation Requirement Ctd
Our concern …
– Public jobs with public funding
– Private jobs may have minority requirements but
governmental scrutiny, fines and prosecution are not
a concern … still need a watchful eye to remain in
compliance
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39. Minority Participation Requirement Ctd
Commercially Useful Function … aka CUF
– Responsible for a distinct element of the contract
– Actually performs, manages or supervises work
• i.e. Project design, installation, sourcing, logistics, etc.
– Performs work that is normal for it’s business
– Performs the work itself … not subcontracted
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40. Minority Participation Requirement Ctd
– Order & buy products with their own funds
– Negotiate the price for the products
– Receive, warehouse, deliver, invoice and collect for
products sold
– Workforce needs to be under the direct supervision
of the MWDBE
– Equipment should be owned/leased by MWDBE
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41. Minority Participation Requirement Ctd
– From a billing perspective, billing must follow the
proper flow … i.e. we bill our customer (MWDBE),
they bill their customer
– Key Point: The MWDBE needs to add value to the
project
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42. Minority Participation Requirement Ctd
A MWDBE can’t be …
– Merely a pass through or shell
• i.e. just a % markup
– Performing no value added functions/services
– Just a certification
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43. Minority Participation Requirement Ctd
What is easier to provide a CUF, a minority
contractor or minority supplier?
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44. Minority Participation Requirement Ctd
What has Crescent done to ensure compliance?
– Initial company wide certification (everyone) with an
annual signoff
– New employee training
– CUF affidavit/sign off
– Look for red flags as to a CUF not being performed
– Created Corporate Compliance Officers
– System documentation
– Disciplinary policy
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45. Minority Participation Requirement Ctd
What are some red flags to watch for?
– Customer request for credit and rebill via MWDBE
– GC/EC has a financial agreement with the MWDBE
… joint bank account
– Equipment/employee sharing
– MWDBE rarely present at the job site
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46. Minority Participation Requirement Ctd
– Inquiries to MWDBE are answered by GC/EC
– Merely performing administrative duties
– MWDBE is a spinoff of another company
(wife/daughter, etc.)
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47. Minority Participation Requirement Ctd
– What about joint checks?
• Industry norm
• Consider written approval from the public agency in charge
of the project
• The contract with the MWDBE most likely will not ban joint
check agreements
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48. Minority Participation Requirement Ctd
What if a customer asks for a WMBE listing?
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49. Pitfalls/What to Look For Ctd
This is not an all inclusive list!
– Read carefully! “Gotcha’s” can be anywhere!
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50. Time Spent
• Does the $ value of the purchase order
determine how much time we spend reviewing
T’s & C’s?
• $500 purchase order vs. $1,000,000
• Who are we speaking with? Clerk? Owner?
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51. Opportunity
• Sometimes you need to create the opportunity to
negotiate the terms and conditions
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52. Questions
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