Checklist: Review of terms and conditions for the purchase of goods and services from the perspective of the buyer (USA)

Introduction

This checklist is to assist in-house counsel who are drafting and reviewing business-to- business (B2B) contracts for the purchase of goods and services as a buyer. It provides an overview of the key considerations in conducting such a review.

This checklist addresses the following steps:

1. Consider the purpose of the agreement
2. Review the general terms and conditions
3. Review specific terms and conditions for the purchase of goods
4. Review specific terms and conditions for the purchase of services

The checklist is presented as a list of requirements or points for consideration that you can check off as they are addressed. At the end of the document, there are explanatory notes corresponding to each requirement in the checklist.

For additional information, see How-to guide: Drafting a sale and supply of goods agreement and Checklist: Delivery and acceptance of goods in a business-to-business sale of goods contract.

Step 1 – Consider the purpose of the agreement

Step 2 – Review the general terms and conditions

Step 3 – Review specific terms and conditions for the purchase of goods

Step 4 – Review specific terms and conditions for the purchase of services

General notes

The agreement

The seller usually drafts the agreement for the purchase and sale of goods. It is common for sellers to use standardized agreements for all their sales. As a buyer, you should review a standardized agreement to make certain that the contract sets out an accurate statement of the intentions of each party. When reviewing the agreement, be aware of ambiguous language and ensure that the scope of the agreement is defined clearly. It is helpful in the interpretation of any contract that the preamble and introduction set out the general purpose of the agreement.

For further information on standard contracts, see Checklist: Assessing whether standard terms and conditions should be used for the supply of goods and services.

Legal framework

Article 2 of the Uniform Commercial Code (UCC) governs most contracts for the sale of goods in every US jurisdiction except for Louisiana and Puerto Rico. Article 2 sets out general rules for sales, most of which may be changed or supplemented by agreement of the parties to a contract.

Article 6 of the UCC, which deals with bulk sales, has been repealed in every jurisdiction except for California. ‘Bulk sales’ are defined generally in Article 6 as sales ‘not in the ordinary course of the seller’s business of more than half of the seller’s inventory and equipment.’ In states other than California, such sales are governed by Article 2, or the local law relating to sales of goods in Louisiana or Puerto Rico.

A contract for the sale of goods may also involve Article 7 of the UCC, insofar as the delivery and shipment of goods by a third party is concerned. Article 7 applies to warehouse receipts and bills of lading.

General terms and conditions

The terms that are required to create an enforceable contract for the sale of goods or services are minimal. UCC section 2-204(1) says that a ‘contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.’ Generally, a valid contract will be found if there is sufficient clarity in the agreement for each party to know what their responsibilities are under the agreement and what they will receive in exchange for the performance of those responsibilities. A well-drafted contract will include sufficient terms to ensure that the agreement accurately reflects the agreement of the parties and provide for reasonably foreseeable contingencies. A contract for the purchase of goods or services may include many of the standard terms and conditions found in other contracts.

See also, How-to guides: How to effectively incorporate standard terms and conditions in a commercial agreement or transaction and Maximizing the use of boilerplate clauses to limit the risk of unforeseen events.

Terms and conditions for purchase of goods

Common terms and conditions in a contract for the sale of goods include:

• a description of the goods being sold;
• the quantity being sold;
• the price for the goods; and
• the time and place of performance.

These four items may be considered the basic terms for finding an enforceable contract.

Other common terms include:

• conditions of delivery;
• risk of loss;
• right to cure deficient performance; and
• warranties or disclaimers of warranties.

UCC section 2-207 has removed the common law rule that an acceptance must mirror the offer. A ‘definite and seasonable expression of acceptance or a written confirmation’ is an acceptance of an offer ‘even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.’ The additional terms are considered proposals for addition to the contract.

The additional terms will become part of a contract between merchants unless:

• the offer expressly limits acceptance to the terms of the offer;
• the new terms materially alter the contract; or
• notification of objection to the new terms has already been given or is given within a reasonable time after notice of them is received.

Terms and conditions for purchase of services

A contract for the sale of services will include the same terms and conditions for the sale of goods, with some added points to consider. The services to be provided will be described, and many sellers of services find it advisable to include a description of the services that will not be provided, especially if it is commonly expected that those additional services usually would be provided (eg, user support beyond a certain time period or periodic maintenance in terms of equipment).

Step 1 – Consider the purpose of the agreement

1.1. What is the general scope of the agreement?

Before beginning a review of the agreement, understand what your organization is seeking to achieve. Reach a definite understanding of what is being agreed to, or what your organization believes the agreement to be. One of the fundamental rubrics of contract interpretation is that a court, when faced with determining what contractual terms mean, must try to give effect to the intentions of the parties and effect the purpose of the contract. It is good practice to understand the fundamental purpose of the agreement and to keep your company’s interests in mind when reviewing the terms.

1.2 Identify potential sources of disputes

Understand whether the competing interests of the parties could give rise to a dispute. Most potential areas of conflict can be avoided if dealt with in advance by setting out clear contract terms.

Common areas of dispute include:

• delivery times;
• quality of goods delivered;
• warranties; and
• indemnification.

1.3. Review the preamble and recitals

The preamble will usually lay out the purpose of the agreement and provide context. It may provide background information as to how the agreement came about. Similarly, recitals set out the common factual and – sometimes – legal understanding of the parties as they enter into the contract. This understanding can help with subsequent interpretations of the agreement, as it will provide a frame of reference as to what the parties intended to do.

A preamble may or may not be construed as an enforceable part of the contract. If there is language that shows the preamble is not a part of the agreement, that preamble should be regarded solely as an aid to interpretation.

The preamble may also add context to the agreement by referring to any related transactions between the parties. This can aid the interpretation of the parties’ intent. Read the entire agreement to determine whether the prior transactions are a part of the new agreement, or if the new agreement is just a supplement to the prior transactions.

Step 2 – Review the general terms and conditions

2.1 Are there ambiguous clauses or terms?

An ambiguous term is one that could have more than one reasonable interpretation or definition in the context of the agreement. If there are multiple dictionary definitions, this does not necessarily mean that there is an ambiguity: a ‘pump’ can be either a machine for moving fluids or a type of shoe, but it should be clear from the context of the agreement which definition is applicable. If there is room for confusion, it is best practice to define the ambiguous term. Definitions may even refer to diagrams, photographs, exhibits, webpages, or any other resource necessary and applicable to the contract.

2.1.1 Interpretation

An ambiguity in a contract will not render the contract void or voidable. The impact of an ambiguity is in the way that the ambiguous term is interpreted.

Interpreted against the drafter due to control

Courts will most likely interpret the ambiguous term in the manner that is less favorable to the drafter because of the drafter’s control of the document. The reasoning appears to be that, if the drafter had wanted a more favorable interpretation, they would have made it explicit.

Fully negotiated – courts may find a meeting of the minds

If a contract is fully negotiated, and not merely a standard form agreement, then courts are likely to find a ‘meeting of the minds’ and enforce the contract as written.

Identify ambiguity and work to fix it

When reviewing a contract, make sure each term is understood. Terms of art peculiar to an industry should be identified and understood. Both parties should make sure that the document memorializes the agreement in a way that is understood by both parties. It is best practice to use plain language to help reduce confusion and vagueness.

2.2 Is there a confidentiality provision?

Confidentiality provisions are more common in contracts for the sale of services, but they are not unheard of in contracts for the sale of goods.

2.2.1 Agreement not to disclose confidential information between parties

Contracts for the sale of services – particularly services that call for the use of the proprietary information of the buyer – will often contain confidentiality provisions. These provisions can take the form of a nondisclosure agreement. A nondisclosure agreement allows the parties to operate in privacy. A buyer should make sure that a confidentiality or nondisclosure agreement provides that the buyer’s information will be made available to others – including employees or contractors of the seller – strictly on a ‘need-to-know’ basis. Disclosure should be limited to those persons who could not provide the services without the buyer’s information. In matters involving trade secrets, particularly those involving information technology, it is not uncommon to encourage adherence to the confidentiality provisions through use of a liquidated damages clause.

For more information see: How-to guide: How to draft a confidentiality agreement and confidentiality clauses and Checklist: Reviewing a confidentiality agreement (receiving party).

2.2.2 Data privacy

Data privacy is a security concern. The party who has access to private data must take steps to protect the security of that data.

State laws provide for notification when private data is accessed or leaked to another party. Notification must be provided to the persons who are the subjects of the data, and in some cases, to law enforcement authorities. A contractor who has access to private data held by your organization may be responsible for providing notification if they are responsible for a breach of your data security.

State and federal laws on the standards for the protection of data vary.

2.2.3 Requiring prior written approval to disclose

Many state and federal laws impose firm restrictions on third-party access to private data. These restrictions are usually based on the nature of the data involved, or on the nature if the person who is the subject to the data (children). For instance, sensitive information such as medical records, financial details, and personal identifiers (a person’s name, address, or Social Security number) is typically protected by stringent regulations. Organizations that handle such data must ensure compliance with these legal requirements to safeguard privacy and confidentiality.  

Beyond the legal obligations, organizations may voluntarily commit to keeping certain data confidential. This commitment is often included in contracts or agreements, stipulating that any disclosure or access by another party requires prior written approval. This approach not only enhances data security but also builds trust with clients and partners by demonstrating a proactive stance on privacy protection.  

Requiring written approval before disclosure ensures that data sharing is controlled and documented, allowing organizations to assess the necessity and implications of such actions. It also helps in maintaining a record of who has accessed the data and for what purpose, thereby supporting accountability and transparency. 

2.3 Is there a choice of law/venue/forum clause?

2.3.1 Choice of forum or venue

A choice of law/venue/forum clause sets out in advance where disputes will be resolved, and the body of law to be used in resolving them. This provides certainty and reduces forum shopping. Parties are allowed to contract for the jurisdiction that will best interpret the contract and that with which the parties may be most familiar. A buyer should consider what might be involved with a potential lawsuit against a seller. Mandating that a dispute be litigated in a distant forum will pose problems in obtaining the testimony of live witnesses if they are not located in or near that forum.

Note that there must be some relationship between the forum chosen and the subject of the contract in order for a forum selection clause to be considered enforceable.

2.3.2 Choice of law

In circumstances where a transaction may implicate the laws of various jurisdictions, the applicable law should be specified in the terms of the agreement. Contracts that do not follow the laws within the jurisdictional boundary of the agreement may not be enforceable.

2.3.3 Substantive issues

While it may seem as though the commercial laws of individual states are substantially the same, there are still important differences between them. For example, it is well established that every contract includes an implied covenant of good faith and fair dealing. Courts in different jurisdictions vary however, as to whether that implied covenant is a separate contractual duty that may give rise to an action for breach, or whether it is merely a general guiding principle. It is important to understand how the laws of a selected jurisdiction may affect your rights.

2.4 Is there a dispute resolution mechanism?

Many business-to-business contracts include a mechanism for resolving disputes outside of the traditional court system.

Alternative options to litigation for handling disputes include:

• mediation;
• arbitration; and
• a hybrid, in which the parties agree to mediate, and if a resolution is not reached within a stated amount of time, the dispute is submitted to arbitration.

Alternate dispute resolution mechanism often provides a means to avoid expensive and protracted litigation. A mediation clause, although less common in commercial contracts than an arbitration clause due to the non-binding nature of mediation, has the advantage of allowing the parties to craft a mutually acceptable remedy for a dispute. This offers – at least in theory – the possibility of preserving an amicable relationship between the parties.

2.5 Are there terms that survive the expiration of the agreement?

Some contracts contain terms and conditions that allow for certain obligations and provisions to survive the expiration of the agreement. For example, confidentiality or non-disclosure provisions are typically written to apply for a certain time after completion of a contract, or until the happening of a named event. Some liability clauses or acts to hold harmless may contain survival clauses. A clause or provision will not survive the end of the contract unless the contract explicitly says so.

Understand the terms and conditions that may survive the expiration of the contract and consider whether these are acceptable to your organization.

2.6. What are the seller’s obligations and warranties?

2.6.1 Terms and conditions that the seller has the obligation to fulfil

It is important to review the seller’s terms and conditions and to ensure that they properly reflect the contractual rights and obligations of the agreement.

The seller’s obligation is, in general terms, to perform the act agreed under the contract. The implied covenant of good faith and fair dealing may impose additional implied obligations regarding the manner in which those services are rendered. There may be additional terms relating to the seller’s warranty of the quality of goods that are supplied during the course of performance.

Other implied warranties regarding the quality or performance of goods are set out in Article 2 of the UCC. It is common for these implied warranties to be disclaimed or limited, especially in business-to-business transactions.

2.7 What are the price and payment terms?

2.7.1 Price

It is important to ensure that the price term is ascertained and stated clearly in the written agreement. In a contract for the sale of services, a price term can be a retainer agreement, or may be hourly or project-based.

2.7.2 Method of payment

Clearly set out the amount to be paid and the payment schedule, along with all acceptable forms of payment. A contract may provide for payment by cashier’s or certified check, or payment by wire transfer. Many contracts will also state what will occur (such as a cessation of performance) if payment is not made.

2.7.3 Receipt or invoice

It is a good idea, as the buyer, to check that the contract includes a term requiring that receipts be provided at the time of payment or upon completion of the transaction. The seller or service provider should send invoices as soon as possible after the services have been rendered, or as soon as the time for payment has arrived, depending on the contract obligation.

2.7.4 Liabilities for reimbursement

You should clarify whether reimbursement insurance is required to be carried by the seller. Some states require the service provider to carry reimbursement insurance before being allowed to contract for services within the state.

2.7.5 Payment versus acceptance

Payment may constitute an acceptance of the other party’s performance so that if payment is received and the contract provides that payment is acceptance, acceptance may be found upon the act of payment. Alternatively, if the parties contract that payment is not an acceptance, then payment would not constitute acceptance. Acceptance of performance could limit the right to a remedy for the seller’s inadequate performance and may limit a seller’s inclination or obligation to cure defective performance voluntarily.

2.7.6 Taxes

The contract should state explicitly which party bears the responsibility for paying all applicable taxes. This must include state, local, federal, and international taxes. Specifying how taxes like sales tax, value-added tax (VAT), customs duties, and withholding taxes will be handled, is crucial especially in contracts for goods sold across state lines or international borders. Failure to make a clear allocation of tax responsibility can lead to unexpected costs and legal disputes.

Example

A software-as-a-service (SaaS) platform sold by a company in New York to a business in California. New York and California both have different sales tax rates and regulations, and both may consider digital services taxable. A well-drafted contract would explicitly state that the California buyer is responsible for all applicable sales, use, and excise taxes, and for any other taxes, fees, or charges ‘imposed by any governmental authority on the services provided under this Agreement.’ 

2.8 May the agreement be changed or modified?

2.8.1 Time frame for modifications

A contract will often include provisions specifying a time frame within which a modification is allowed. This is especially common in contracts for the sale of services, when performance might be rendered over an extended period of time, as opposed to a contract for the sale of goods, in which performance is almost always complete upon delivery of the goods. Modifications may require new consideration, meaning that a decision must be made to either modify the contract or enter into a new agreement. Typically, written consent of both parties is required to modify the contract. Requiring written consent protects both the buyer and the seller, as any additional obligations, or any modifications to existing obligations, are stated explicitly and acknowledged.

2.8.2 Changed method of payment

Payment systems, and preferences regarding how payment is received or made, can change. A contract that continues over time, such as a service contract or a contract for the sale of goods to be delivered at different times, might include a provision for changing the method of payment. For example, a seller who is dealing with a new customer as a buyer might require that payment be made by certified funds, but might be willing to accept payment by non-certified check once the relationship is established and the seller is able to confidently rely on payment by the buyer. A buyer should be aware of potential changes in the payment method, particularly if the contract allows the seller to change it unilaterally. The currency of payment should also be delineated in the agreement when dealing with international transactions, or a domestic transaction that may involve a foreign party.

2.9 Is there a right to terminate the agreement?

2.9.1 Time frame

A contract will sometimes detail time frames in which termination is allowed. It is easier to terminate an agreement when there is an ample amount of time for performance that allows for the possibility of contracting another service provider. However, this is not the case when time is limited and performance is due.

2.9.2 Events triggering the right to terminate

A contract that provides an option to terminate an agreement should detail the events that can trigger the option. A clause that allows one party to terminate ‘for any reason or no reason’ poses clear risks to the other party to the agreement who has likely planned for the contract to last for the full agreed duration.

2.9.3 Notice of termination

If there is a right to terminate, the contract should require notice of termination to give the other party time to attempt to mitigate the impact of any resulting business disruption.

See Checklist: What to consider when terminating a contract.

2.10 May performance be assigned or delegated?

2.10.1 Allows or does not allow assignment or delegation

Assignments of contracts occur when a party transfers their contract rights to another party. Delegation occurs when a party transfers its duties of performance to another party. As a general rule, assignment or delegation is allowed unless the contract expressly prohibits it. A buyer should consider how important it is to them that the services be performed by a particular party or if it is preferable to limit delegation. This will depend on the type of service being rendered (such as those of a custom nature or dependent upon a specialized skill set), and the buyer’s preference in dealing with certain parties. For example, maintenance of a large-scale printing press would require extensively trained personnel and would not be comparable to the maintenance required for a standard business copier. In most situations, contracts for personal services may not be assigned or delegated.

2.10.2 Prior written approval

Generally, if prior written consent from the buyer is required for an assignment or delegation, any transfers without consent are invalid. If the requirement for written consent is not included in the contract, it is a good idea to amend the terms to include it.

2.11 Is there a force majeure clause?

2.11.1 Act of God or unforeseeable circumstances out of the parties’ control

Is a party’s obligation excused due to an ‘act of God’? Consider what happens if a presumed ‘act of God’ was predicted but did not occur (ie, a hurricane was forecast but did not hit the area). A failure to perform services in anticipation of a hurricane that did not happen could be considered a breach of contract, unless the contract defines ‘act of God’ in a manner that allows non-performance for an expected occurrence.

Step 3 – Review specific terms and conditions for the purchase of goods

3.1 Are there manufacturer warranties?

Warranties implied by law are applicable only in the sales of goods, not services. A sale of services includes no warranties except those as may be provided by the seller. There are no implied warranties for services; however, a provider who does not meet the standards for providing services could be held liable in negligence, rather than for a breach of warranty.

3.1.1 Terms and conditions that the manufacturer warrants

A manufacturer may make express warranties that go beyond the scope of the warranties implied by Article 2 of the UCC. The specific items and aspects of the goods warranted should be understood.

Note that it is common for manufacturers to disclaim or limit warranties, particularly in B2B transactions.

3.1.2 Assignments or transfers of this warranty

Some warranties are not transferable, and if the goods are sold to someone other than the original purchaser, the manufacturer will be under no obligation to honor the warranty.

3.2. What are the provisions for delivery, inspection, and acceptance?

3.2.1 Time of delivery

State the date and time for delivery of goods and consider the consequences of an untimely delivery. Similarly, clearly state the time that agreed services will be provided by. If it is important that services are rendered no later than a certain time, insert a ‘time is of the essence’ clause and consider the inclusion of a liquidated damages provision.

Under UCC section 2-513, a buyer has the right to inspect the goods at any reasonable place and time and in any reasonable manner before payment or acceptance of goods. If the seller is required or authorized to send the goods to the buyer, the inspection may be after the arrival of the goods. The right to inspect may be limited or eliminated by prior agreement of the parties.

3.2.2 Canceled orders

Is there a provision that sets out the consequences for canceling an order? Will partial reimbursement be required? Many contracts – especially in the publishing industry – call for a ‘kill fee,’ or a payment that is due to a seller if a contract is canceled through no fault of the seller. A kill fee is generally not implied, and courts will not require such a fee in the absence of a contractual provision. Although a kill fee is for the benefit of the seller, a buyer who agrees to the possibility of it may find that the goodwill generated by making sure that cancellation of a contract does not result in a total loss to the seller is worth the extra expense.

3.2.3 Rejection of orders in whole or in part

UCC section 2-601 allows a buyer to reject all or a portion of the goods if they do not conform to the provisions of the contract. The parties may agree otherwise and require acceptance of any tendered goods. According to UCC section 2-602, a buyer has a reasonable time after the delivery or tender in which to reject the goods. Reasonableness of time depends on the nature, purpose, and circumstances of the action (UCC section 1-205).

3.2.4 Repair, replace, or reject goods

The contract will generally specify the exact nature and quantity of the goods. Goods are deemed non-conforming when they are not as specified in the purchase agreement. If the goods are rejected as non-conforming, the contract may give the seller the right to repair or replace those goods. Likewise, in a contract for the sale of services, the contract may give the seller the option of correcting or repairing defective performance.

3.2.5 Damage for additional expenses occurred

Many contracts will limit the damages for which a seller is liable. Some contracts may exclude any liability for damages beyond the purchase price of the goods. Limitation clauses are usually disadvantageous to the buyer, whose potential losses could be greater than those contemplated by a limitation clause. At the same time, many sellers will insist on such a limitation for their own protection. A buyer should, if possible, reject an unreasonable limitation that does not allow the buyer any meaningful recourse.

3.3. Who bears the risk of loss?

3.3.1 Extent of seller’s risk

The risk of loss of goods damaged or destroyed before delivery is usually set out in the contract and will be determined by the shipping terms used. Parties are, of course, free to include their own judgment in determining liability in their contract; however, the use of standardized terms of art makes it less likely that one party will be able to claim an ambiguity or unclear meaning in a contract.

3.3.2 Transfer of risk to the buyer

Normally, the buyer does not bear the risk of loss until the goods are delivered. The contract may provide for the risk to shift at some other time (eg, upon delivery by the seller to the carrier who will deliver the goods). The allocation of risk should be clear in the contract. The buyer may find it advisable to include a term requiring the seller to obtain insurance coverage for goods being transported.

Step 4 - Review specific terms and conditions for the purchase of services

4.1 What is the scope of the services to be rendered?

4.1.1 Limiting services

A contract for the sale of services will set out the services to be rendered but will also usually limit the scope of service. This will help to set expectations and make it clear that the seller has agreed to provide only certain specific services. A buyer must be clear, even before beginning to negotiate a contract, what services the buyer wants to receive and is willing to pay for. The buyer should also take some steps (eg, checking references) to be sure that the seller is capable of performing the services in a timely and competent manner.

4.1.2 Catch-all to include reasonable additions

Some service contracts include a catch-all provision that provides that the seller will honor all reasonable requests for additional services, such as repairs or operator support. The difficulty with such clauses is limiting the services provided to ‘reasonable’ requests. ‘Reasonable’ is in the eye of the beholder, so it is best to limit the additional services that will be provided to a specified time frame, such as 30 days after the completion of the sale.

4.2 What is the time frame for the provision of the services?

4.2.1 Start date

Include a start date for the services expected to be rendered. The start date may be contingent on an underlying event.

4.2.2 End date

Define the act or manner that constitutes the end date of services. What is the act or manner that marks the end of the service either periodically over a length of time or a one-time service?

4.3 Are warranties provided for the services?

4.3.1 Licensed personnel

All personnel providing services should be properly licensed. In some cases, the work may be performed by unlicensed persons, provided the work is appropriately supervised by licensed persons. If licensure requires insurance, proof of insurance should be available.

4.3.2 Standards of services provided

Standards and services provided set the expectations for the custom and brand of the company. Generally, state laws do not provide for implied warranties for the quality of services rendered. The standards may be stated generally, using terms such as ‘services provided under this Agreement will be performed in a workmanlike and professional manner’, or ‘in accordance with prudent industry practices and standards.’

Additional resources

UNCOITL, International Sale of Goods (CISG) and Related Transactions

Related Lexology Pro content

How-to guides:

How to supply goods internationally
How to draft a supply of services contract
Drafting a sale and supply of goods agreement
How to avoid liability for defective products in supply of goods agreements

Checklists:

Assessing whether standard terms and conditions should be used for the supply of goods and services
Delivery and acceptance of goods in a business-to-business sale of goods contract

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