Contracts help build relationships between buyers and sellers by allocating risks and responsibilities. Contracts can take many forms, such as purchase orders, formal contracts, letters of intent, or memorandums of understanding. The key elements of a valid contract are competent parties, consideration, lawful purpose, certainty of terms, offer, and acceptance. Contentious contract clauses include pricing and payment terms, liquidated damages, liability, warranties, and arbitration.

1. Understanding Contracts “The Basics” – Loesche India Pvt Ltd.

2. Why Contracts formed ? Contracts help to build relationships between buyers and sellers Contracts attempt to allocate risks and responsibilities between the parties Contract : “ An agreement enforceable by law is Contract” The Commercial Manager/Project Coordinator must understand and balance the needs of the contracting parties

3. PO / Contract / Letter of Intent / Letter of Award / M O U ? Contracts could be in any form i.e. Purchase Order (PO) : (where Purchaser issues the PO and seller accept its terms & conditions) Contracts : - Owner & Contractor accept mutually all terms & conditions & enter into Contract LOI / LOA / MOU : It could be in the form of Letter of Intent (with all terms & conditions) or LOA and MOU if detailed terms & conditions are enforceable as Contract, in future Contract could be signed with agreed clauses by both parties..

4. Why Contracts formed ? Contracts help to build relationships between buyers and sellers Contracts attempt to allocate risks and responsibilities between the parties Contract : “ An agreement enforceable by law is Contract” The Commercial Manager/Project Coordinator must understand and balance the needs of the contracting parties

5. Essentials of Contracts Competent Parties Consideration Lawful Purpose Certainty of Terms Offer Acceptance

6. Contracts- Written Vs. Oral A contract is a promise between parties Contracts maybe written or oral If the following are present (on a scrap of paper, or even oral), a contract may exist: The parties The goods/Services Time at which the transaction will occur Generally contracts are made as per domestic law (The Indian Contract Act, 1872)or UCC (Intl. convention)

7. Contract Develop contracts that contain clear deliverables and contractual obligations and standard terms and conditions, while identifying and mitigating all risks.

8. Contract Formation Prepare negotiation plan Negotiate major issues Prepare draft contract Negotiate minor issues Review and approve contract Obtain contract signature

9. Usual Contentious Clauses Pricing and Payment Terms Liquidated Damages/Penalties/Retention Liability/Indemnification Terms Warranties (Scope, Duration, Risk Purchase) Rejection Clause Arbitration

10. Pricing & Payment Terms Pricing : - On what basis, we are offering our price i.e. FOB / Ex-Works / CIF/ C&F etc. Here customer wants all responsibilities on supplier and supplier wants minimum responsibilities / scope. Payment Terms : - Customer wants minimum investment & wants min. advance, wherein supplier’s aim to get adequate initial advance & prorata payments to fund the working capital for assigned project. So, reaching at settlement /mutual agreement point is main aim to offer/sell the product. Customer wants security for making payment for advance.

11. LD / Penalities / Retention To safeguard the delay customers want to impose LD/ or retention of money / or imposing penalty for not fulfilling performance obligations. Our main aim in these clauses are to reach an agreeable solution acceptable to both parties.

12. Liability / Indemnification Terms The liability clause is also contentious matter, every customer wants to set higher liability to supplier as far as possible & supplier just wants the opposite. Apart from fixing liability, we have to check whether in contract there should not be indemnification which we shall not able to adhere/fulfil. Indemnification should be restricted to the offered product, design, engg. & related with its performance only.

13. Warranties Scope & its duration Risk purchase ; Is it applicable or not ?

14. Rejection clause Customer wants that in case supplier’s material is not upto the mark (as per contract stipulation), they must have option to reject the goods. This clause should be dealt with care & precision.

15. Arbitration This clause is essential to short out the disputes, in case its errupts, it defines, dispute resolution method or where disputes should be addresses and related laws.

16. Standard Contracts Terms : Why ? Most major companies develop standard contract forms, procedures and clauses (regarding our Std T&C, we will present separate slides & presentation) These standards allow contracts to be processed more quickly, cost effectively and with reduced risk Standards also help to assure that agreements entered into are aligned with the company’s business objectives

17. Sources of Risk in Contracts Commercial & Political Contract Terms and Conditions Scope and technical risks

18. The Contract A well written agreement answers who, what, where, when, and what to do if….