"Are You Negotiating 50 Critical Clauses in Your Material Purchase Agreements?"

This Blog outlines 50 essential contract clauses—34 common for both domestic and import purchases and 16 additional clauses specific to import transactions for Bought out materials. By understanding and negotiating these clauses effectively, procurement professionals can enhance contractual robustness, prevent cost overruns, and ensure seamless execution of supply agreements.

Examples of Bought out materials

1.   Raw materials of any type

2.   Semi-finished items

3.   Complete finished Items

4.   Consumables

5.   Capital- items/Tangible assets (all types) & their maintenance spares

6.    Sales promotion materials

7.   Packaging materials

8.   After-sale service Spares

9.   Non-production items  like office supplies, administration items & so on

Please refer to my YT videos outlining these clauses

List of 34 clauses

Prices

1.    Rates for individual materials at the line-item level and discounts

2.   Rates validity period

3.    Escalation clause /methodology for negotiating future rate changes

4.   Taxes and tax variations

Quantity and order size

1.    Order Quantity & Amount, Order type -Purchase order or agreement or contract and acceptance requirements from either side

2.    % Order quantity variations with no change in prices 

3.    Quantity Measurement method   at the client site, sample size & cost of destruction

Quality specifications

1.    Quality specifications, receipt inspection types, and sample size

2.   Pre-delivery inspection at vendor site or buyer site

3.   Rejections observed by clients  at the  receipt stage, manufacturing or assembly stage –responsibility  for returning or picking, timelines, and costs thereof, and replacement time

Design changes

1.   Managing design changes –methodology, sample, and pilot approval requirements

2.   Timelines for implementing minor & significant changes  and managing old inventory

3.   Costs of new or modifying toolings, Jigs, and fixtures at the vendor’s end

Payment terms

1.    Payment terms- advance  & bank guarantee requirements, credit period

2.   Payment modes -cheque, Online transfer, UPI, cash, debit card, credit card, etc

Warranty

1.    Warranty –Period, free replacement - period and shipping mode and costs or warranty credit rates and currency

2.   Warranty verification process

Delivery terms

1.    Documentation requirements

2.    Delivery Costs, locations, and timeline

3.   Modes of shipment (Road, Rail, Air, Ship, Courier or multi-modal)

4.   Part load or full load delivery by truck

5.   Costs of airlifting  consignments for emergency shipment

6.   Delivery Quantity, schedule, and lot sizes

Marine insurance

1.   Responsibility, Location From –to  destination, premium costs,

2.   Timelines for  replacement in case of shortage or damaged deliver

Packaging & Labelling

1.   standards & specifications, and costs

2.   Shipping worthiness  requirements for Road or Rail or  Air  or  Ship or  Courier

Legal and other terms

1.   Statutory compliances and responsibilities

2.   Ethical standards

3.   Confidentiality and intellectual property and non-disclosure agreement

4.   Dispute resolution mechanism, costs, and timelines

5.   Applicable laws and Jurisdiction place

6.   Force majeure definition, scope, responsibilities, and obligations in case of such events.

7.   Termination

Industry-specific or Item specific, more clauses can be added

List of 16 clauses specifically for Imports

Purchase team must negotiate following 16 clauses

1.   Payment Currency

2.   Currency exchange fluctuations mechanism

3.   Inco terms (CIF, C&F, FOB, etc)

4.   Payment terms like Advance, TT, shipping documents through the bank, LC

5.   Imports LC –Costs  of openings and amendments, usance periods, shipping, and negotiation documents, bankers in both countries, LC acceptance

6.   Usance interest rates in case of LC

7.    Responsibility for customs clearances  and paying import duty and customs/port charges and compliances

8.    Import licenses responsibility, costs, and compliances as per Impex policy

9.   Pre-shipment inspection by 3rd party in the overseas country, costs, and reports

10.                 Shipping documentation, number of sets, and advance intimation of shipment

11.                 External packing specifications and markings on boxes for identification

12.                  HSN-classification numbers on vendor invoice for each material to be imported

13.                 Custom examination requirements for opening boxes at customs

14.                 Transit time from shipping port to destination port

15.                 Choice of shipping liner and type of ship (Bulk cargo, container ship, etc)

16.                 Trans-shipment, part shipment, route

Effective negotiation of purchase contract clauses is essential to safeguard an organization’s interests while maintaining strong supplier relationships.

A well-structured purchase contract must comprehensively all relevant terms as mentioned above.