09.09.15

Demanding Good Supply

Demanding Good Supply

In the world of large scale construction, one of the most important relationships a contractor can have is with his suppliers. In Jamaica we have a culture of handshake agreements and we are often comforted by knowing we can call the "owner man" personally if we ever have an issue. This is all well and good until something goes terribly wrong and persons on both sides run out of fingers to point. The formalization of building supply contracts is an act that needs to be practiced more frequently in the industry and prudent businessmen have recognized the advantages. A supply agreement forces contractors to plan and think ahead of their projects. It provides them with a security of supply as well as a pre-agreed pricing formula. The contractor can use the long-term commitment he is giving to the supplier as leverage to negotiate more competitive prices. It also provides reasonable lead time for a supplier to ensure that his inventory is at sufficient levels to satisfy the contractor as well as other retail customers without delay. One of the hidden benefits of the long term contracts is that they in turn reduce the cost of administration for a contractor who typically has to to maintain and re-submit purchase orders continuously throughout the life of a project.

Delivery A supply contract should incorporate an obligation on the supplier to deliver the building material to a specified site. This provision should indicate a window of days that the supplier has to notify the contractor that the material is ready for delivery. Generally, the agreement should have a schedule of quantities and delivery dates upon execution which can be amended by the contractor providing notice.

some instances, the supply contract will stipulate particular circumstances which will justify a delay in delivery; however, these circumstances must be presented to the contractor within a window of time along with proof of the circumstance. An example of these circumstances could be a general shortage of material on the market. This is important to note as the encompassing theme of a delivery provision is that it imposes a per day penalty on a supplier when they fail to comply with the delivery schedule. It is also prudent to impose an obligation on the supplier to source the required material elsewhere if necessary and provide it to the contractor at the agreed price within the contract.

A supply agreement should expressly provide for a verification method of what was delivered and the condition it was in, with authorized representatives of both parties signing and dating the agreed delivery documents.

Price Similar to the delivery schedule, a price schedule should be annexed to the agreement which states the price per unit that the contractor will be paying for each good. Typically there is a general estimate of how much goods the contractor will be purchasing over the course of the project. The contractor pays a percentage of this cost up front, and then incremental payments are made at agreed intervals based on what has been delivered to date.