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Legal 101

?. Legal 101. Frequently Asked Questions throughout the Procurement Process. ?. Legally Binding. Contract Litigation. In the event that there is a dispute between Emerson and a Supplier, Emerson has the ability to litigate or pursue court involvement

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Legal 101

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  1. ? Legal 101 Frequently Asked Questions throughout the Procurement Process

  2. ? Legally Binding

  3. Contract Litigation • In the event that there is a dispute between Emerson and a Supplier, Emerson has the ability to litigate or pursue court involvement • Emerson may elect not to do so based on Supplier Relationship • Emerson may elect not to do so because they deem it more cost effective to resolve another way • If there is no contract, Emerson’s options are more limited

  4. 3 Benefits to having a Contract • Certainty of provisions • Easier to enforce • Continuity of Supply

  5. ? Clauses

  6. Does the Location of a Clause Matter (e.g., in the MSA or DSA)? • Where you include a clause depends on whether you want it to apply to every division purchasing from the supplier (in the MSA) or only to a specific division (in the DSA). • An MSA is governing over every single corresponding DSA. • Thus, as a general policy, Emerson should keep all major clauses, terms and conditions governing every division in the MSA, with division-specific commercial terms included in each DSA.

  7. How does the Raw Materials Clause work? • Raw Materials Clauses adjust the product price as the raw material price changes. • These changes help Seller maintain a stable profit margin and assure that Emerson will not overpay for a product when input costs decrease. • The Raw Materials Clause adjusts the product price based on the portion of the total price attributable to the raw material in question. [Raw Material Portion] * [Raw Material Adjustment] + Non Raw Material Price = Product Price

  8. How does the Raw Materials Clause work? • For example: • The price of steel decreased from $750 to $500 in the last quarter (a change of 33.3%) • ($500 - $750)/$500 = - 33.3% • The total product price is $100, and $20 of the product price is attributable to steel • $20 of the product price would be adjusted down by 33.3%: • $20 * .333 = $6.67 reduction. • $80 (the non-raw material portion of product price) would remain the same • The total price after the Raw Materials adjustment would be ($20 - $6.67) + $80 = $93.33

  9. How does the Raw Materials Clause work? The Next Step • For example – The next quarterly adjustment: • The price of steel increased from $500 to $600 in the last quarter (a change of 16.6%) • ($600 - $500)/$600 = + 16.6% • The total product price is $93.33, and $13.33 of the product price is attributable to steel ($20 from before - $6.67 price adj.) • $13.33 of the product price would be adjusted up by 16.6%: • $13.33 * .166 = $2.21 increase. • $80 (the non-raw material portion of product price) would remain the same • The total price after the Raw Materials adjustment would be ($13.33 + $2.21) + $80 = $95.54

  10. What information needs to be included on Schedule 1 if I use a Raw Materials Adjustment? • Product specifications • Identification of Raw Materials • Price • Total price of product • Portion of price based on dollar value attributable to Raw Materials • Price Revision • Index followed for calculations

  11. How does the Currency Clause work? • Currency Clauses adjust product prices to correspond with changes in exchange rates. • They are disfavored in Emerson contracts.

  12. When can I use the Currency Clause? • To include a Currency Clause in an MSA: • Contract must be worth > $2M • Must include a preferred supplier or manufacturer • Must contract for procurement of a corporate managed commodity • Currency Clause must be approved by Team Leader • To include a Currency Clause in an SDSA: • Must be approved by VP of procurement or VP of supply chain • Must be approved by Procurement Business Leader

  13. What does the C-TPAT provision mean and when do I use it? • C-TPAT stands for Customs-Trade Partnership Against Terrorism • Businesses participating in C-TPAT programs undergo supply-chain audits and are required to maintain a certain level of import/export screening. • These businesses are subject to less stringent customs inspections when they import products. • Emerson Contracts require that Sellers comply with C-TPAT standards regardless of their participation in the program.

  14. What do the RoHS, WEEE, REACH, & IPPC clauses mean and when do I have to use them? • RoHS (Restriction of Hazardous Substances) restricts the use of hazardous materials in the manufacturing of electrical equipment • WEEE (Waste Electrical and Electronic Equipment) holds manufacturers responsible to dispose of electronics properly • REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) controls the production and use of chemicals • IPPC (International Plant Protection Convention) regulates the use of solid wood packaging material (SWP).

  15. What do the RoHS, WEEE, REACH, & IPPC clauses mean and when do I have to use them? • All regulations are implemented by the EU, although other countries (including China) have their own versions of these regulations. Emerson’s standard language covers all similar provisions, as well. • Regardless of where products were produced, it is important that anyand all products Emerson purchases comply.

  16. If all of the shipments are to be domestic, can I revise EMR2006? • Rarely. • The EMR2006 is standard for domestic and international contracts. • For particular scenarios that concern terms outside of EMR2006 language, please discuss these concerns with legal.

  17. ? Risk

  18. Do I need to check up and make sure a supplier is complying with the Contract Terms & Conditions? • No, whether the supplier is in breach of the contract does not depend on whether you check up on them. • Whether you check up is a business decision – a cost-benefit analysis. • Ultimately, the question is whether the supplier can cover its liability to Emerson in the event of breach. • This is why Emerson seeks certain insurance coverages or parental guaranties. • Whether to check up on compliance may have to do with how comfortable you are with the supplier’s financial situation in light of the potential risk Emerson has from incorporating supplier’s product into Emerson’s products.

  19. What happens if the Supplier does not comply with the contract terms & conditions? • IfSupplier has breached the contract, it is up to Emerson to determine whether and how to enforce the contract terms. Please consult the Law Department if you believe there to be a material breach. • Enforcement could include negotiation of commercial considerations in exchange for a release of claims. • Enforcement could include termination of the agreement and a claim for damages.

  20. ? MSAs and DSAs

  21. Can we sign a DSA without an MSA? • NO! Emerson policy requires an MSA in place before or at the same time as entering into a DSA. • A DSA must have a corresponding MSA in order to incorporate Emerson’s desired terms and conditions. • The DSA document and MSA document each reference the other.

  22. Can you amend the terms of a DSA without amending the terms of a MSA? • Yes, unless the terms create a conflict between the DSA and MSA. • Amendment of the DSA requires references to the corresponding MSA.

  23. Which terms trump if there is an inconsistency between the DSA and the MSA? • If there are conflicting terms, the DSA terms will supersede the MSA terms • The Contract Author should investigate potential conflicts in conjunction with the legal reviewer assisting with the amendment.

  24. What is the difference between the SDSA and Purchase Contract? • A SDSA is a document that looks like a MSA and DSA combined. They are used when it is not possible or rational for Emerson to leverage the purchase of that specific product across multiple divisions. • Purchase Contracts are used for one-time purchases or contracts with less than one year duration.

  25. Can we sign an MSA with a supplier’s parent company & order products from its divisions under DSAs? • Yes, you can enter into DSAs with divisions of the parent company that signed the MSA, as the DSA merely incorporates the terms of the MSA. • Note, however, that the parent company will not be bound to back up its subsidiary unless you work with your legal reviewer to incorporate language into the MSA whereby the parent guaranties the performance of its subsidiaries. • If you are working with a Supplier that has several subsidiaries, consider potential implications

  26. ? Inventory What is the difference between Consignment, Buffer Inventory and Vendor Managed Inventory?

  27. What is Consignment Inventory? • Consignment puts the product in an Emerson facility while it is still owned by the Supplier. • Emerson has possession, Supplier has legal ownership • Emerson takes title when it the product for use • Product must be nonspecific to Emerson (not customized for use only by Emerson)

  28. What is Buffer Inventory? • Buffer Inventory is an amount of the supply product that the Supplier keeps for use in supplying Emerson in case production slows or stops • Supplier has possession and ownership

  29. What is Vendor Managed Inventory? • Vendor Managed Inventory requires the Seller to maintain control over the inventory and manage the amount kept in inventory • The supply is located at the Seller’s warehouse or a third-party vendor • Emerson will provide the Seller with information about its needs and the Seller is responsible to maintain that level of the needed product • Emerson is generally responsible to pick-up the product

  30. ? Contract Timing

  31. What are the relevant dates? • Effective Start Date – the date that the contract is deemed to begin • Effective End Date – the date that the contract is deemed to end; marks the end of the business relationship under the contract • Execution Date – the date that the contract is signed or executed

  32. Can I backdate the contract so that it’s effective in the past (e.g., if orders have already gone out)? • Backdating an effective date is okay. • This is the date that the contract relationship starts • May have tax consequences • Backdating the execution date is not okay. • This is the date on the first line of the contract • This is the date that the contract is signed • It must be the correct date; otherwise it is fraud

  33. Questions?

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