terms and conditions nacm northwest march 2017

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 CoffeeNACM Northwest – March, 2017

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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A Little More About Me!

• Married for 24 years (Karen)• Two girls (Ali & Alayna)• Two cats & one dog!

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A Little About Crescent

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A Little About You!

• Years of experience?• Construction or other?• Local/Regional/National?

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Which T’s & C’s Prevail???

Which T’s & C’s should prevail, OURS or THEIRS?

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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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Who to Review/Approve T’s & C’s?

Receipt of Modified T’s & C’s

District Manager ReviewWhat’s the process in your company?Who has the authority?

DCM RFM

Acct MgrProject Mgr

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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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What If … No Review? Ctd

The ultimate costs include loss of customer & financial exposure!

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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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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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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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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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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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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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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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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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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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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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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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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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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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Pitfalls/What to Look For Ctd

10.Arbitration/Mediation Clauses

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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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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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Pitfalls/What to Look For Ctd

13.Termination Clauses- Restocking Fees- Cancellation Fees- Penalties

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Pitfalls/What to Look For Ctd

14.1 of 2 pages15.“See reverse side”16.“Based on inspection” or “upon receipt”17.“No change orders can be accepted without

written confirmation”

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Pitfalls/What to Look For Ctd

18.FOB Shipping Point vs FOB Destination19.Per Plans and Specs

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Pitfalls/What to Look For Ctd

20.Minority Participation Requirement– Frequent on public funded projects

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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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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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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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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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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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Minority Participation Requirement Ctd

Why is this topic important?– Potential heavy governmental scrutiny– Significant civil fines– Criminal prosecution– Prison sentences

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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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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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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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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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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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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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Minority Participation Requirement Ctd

What is easier to provide a CUF, a minority contractor or minority supplier?

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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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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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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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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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Minority Participation Requirement Ctd

What if a customer asks for a WMBE listing?

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Pitfalls/What to Look For Ctd

This is not an all inclusive list!– Read carefully! “Gotcha’s” can be anywhere!

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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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Opportunity

• Sometimes you need to create the opportunity to negotiate the terms and conditions

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Questions

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