How Procurement Should Manage its Relationship with Legal

By Susan Avery

January 12, 2017 at 8:31 AM

jim baehr.jpgAs managing supply chain risk continues to be on the minds of CEOs in 2017, procurement leaders may want to ensure their teams have a good understanding of the legal aspects of their relationships with suppliers and good rapport with the company’s attorneys.  

That’s the message from James M. Baehr, Group Lead at Sourcing Strategies Group LLC, to members of the Institute for Supply Management Greater Boston (ISMGB) affiliate in a recent webinar. Baehr, who serves as President of ISM-Pittsburgh and blogs for My Purchasing Center, spoke to the procurement professionals on the topic, “Legal and Supply Management: An Increasingly Important Relationship.” 

As Baehr sees it, that increased focus on managing supply chain risk is helping to bring procurement and its colleagues in legal closer together. Both functions need  to keep on top of changing laws and regulations around the world while staying in touch with internal stakeholders and suppliers.  

“When a was a practitioner at Bayer Corp., I always worked with great legal counsel,” Baehr tells the procurement professionals attending the ISMGB webinar. “Based on their experience working with the business they’d often approach me with some aspect of a deal that concerned others in the company,” he says. “They were helpful in pointing out business expectations.”

Know the Law

To begin, supply management professionals need a working knowledge of laws, regulations and codes, Baehr says. “We don’t need to be lawyers or law experts, but we do need to understand how the laws, regulations and codes influence what we do every day.” 

In his talk, he described the roles of procurement and legal. Procurement serves as the key interface between the company, its legal counsel and the supply base. Procurement takes the lead in managing the company’s relationships with suppliers, and thus, should be overseeing legal’s interactions with them. As for legal, its role is to manage risk and advise the business on litigation. Legal also assists the audit department.

 ISM principles and standards.jpgBaehr suggests procurement professionals become familiar with the ISM Principles and Standards of Ethical Supply Management Conduct; procurement pros working in the public sector may want to include the American Bar Association  Model Procurement Code for State and Local Governments, and those working at global companies investing time in learning about international contract and labor law and other regulations. 

And while he says it may sound like common sense, procurement professionals should also brush up on their companies’ procedures and policies and basic contract law. Other areas they may want to consult include Environmental, Health and Safety (EHS) regulations and intellectual property laws.

Contracts

Once a contract is in place, procurement professionals need to know what’s it in to manage the relationship with the supplier going forward. Baehr calls a contract, “a roadmap to the relationship.” In the webinar, he reviewed these basic contract components: 

  • Consideration. Each party must be providing something of value to the other, a product, service, or payment. 
  • Offer and acceptance. The offer made by one party, is accepted by the other for payment. 
  • Intention to create a legal relationship. The parties to the contract must intend for the contract to be legally binding. If not, it should be clearly stated within the document. 
  • Legal purpose. In order to be legally enforceable, the contract must be for legal purposes.
  • Competent parties. The parties entering into the contract must be capable of making the contract and understanding what they are doing.

So, what’s expected of procurement? “The obligation is on procurement to communicate stakeholder and supplier concerns about contracts to the legal department,” Baehr says, suggesting procurement regularly communicate with colleagues in the department—meet for coffee, stay in touch, and include them in sourcing initiatives. Setting deadlines for responses and being mindful of legal counsel’s time are other ways to help ensure a good working relationship. 

He also suggests procurement leaders put together a joint training program for their team and company legal counsel. “If you know your counsel, if you have a relationship with them, you will be more successful,” he says.

Baehr also spoke to procurement professionals who work with outside legal counsel. In these cases, he says it’s important for procurement leaders to consult with in-house counsel first to ensure they understand the billing process. And it may be challenging for procurement to get on the radar of outside counsel. Again, communication is key. “There is a benefit for them to build a relationship with you in that that is going to drive additional business for them,” he says. 

Looking ahead, Baehr says procurement may be hiring more lawyers to work directly on sourcing initiatives, and legal may be called upon to offer insight into how the company spends its money. And, there could be conflict: Procurement may become involved in sourcing outside legal services as a way to better manage costs. 

Also see these articles at My Purchasing Center. 

Risk Experts Advise Procurement: ‘Know Your Supplier’   

Wayfair Teaches Suppliers to Deliver Quickly and On Time

Now Was Not the Time: Sourcing Resources and an Unstable Economy

 

 

 

 



Tags: purchasing MRO indirect Risk management Supply chain management Careers Procurement sourcing
Category: News Article

Susan Avery

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Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com. 


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