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What is a scheduling agreement in simple terms?
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What Is A Scheduling Agreement
A scheduling agreement is a type of agreement between a client and vendor where there is a long-term furnishing of services or material procured at predetermined dates over a period of time.
In other words, the delivery of products and services is spread out over a certain period of time as per the delivery schedule provided in the contract.
For example, if you are a car manufacturer, you may want to enter into a scheduling agreement for the supply of tires, transmissions, or other components for your vehicles.
If you know that you are producing 20,000 units every month, you can enter into a scheduling agreement where your vendors supply you with 20,000 transmissions and 80,000 tires every month so you can satisfy your production needs.
Note that the actual procurement process is more complex than that as I’m simplifying the example to illustrate a scheduling agreement.
Why Enter Into A Scheduling Agreement
The main purpose of executing a scheduling agreement is to define the frequency and schedule based on which you will receive merchandise, by when you must pay for the merchandise, the process of accepting the deliveries, and the various procurement deadlines.
In certain situations, your company may require a constant supply of materials, components, items, or goods to produce its own goods and services.
By entering into a “scheduling agreement”, you have the advantage of entering into a contract once and ensuring you are constantly fed with the goods and services you need over a certain period of time.
This can be much more efficient than having to negotiate individual contracts every single time.
Also, by having a schedule agreement in place, both the vendor and client can lock in prices and plan their business operations in light of the volume of business they will do with one another.
How Scheduling Agreements Work
A scheduling agreement is generally an addendum to a much larger contract.
However, depending on the needs of an organization, a scheduling agreement can be entered into as a standalone agreement.
The fundamental reason why scheduling agreements are signed is to establish a schedule based on which materials are delivered or services rendered by the vendor.
Based on the scheduled furnishing of the products and services, the client will know when to make payment, how to accept the products and services, and what are the other expectations.
In most cases, scheduling agreements are entered into for a fixed period of time.
If the parties wish to continue their relationship beyond the term, they will renegotiate the terms of the new scheduling agreement at that time.
Content of a Scheduling Agreement
Typically, scheduling agreements need to contain certain essential elements to deal with the contracting parties’ needs.
You’re likely to find the following elements in a standard scheduling agreement:
- Delivery schedule for the products or services
- Description of products or services to be delivered
- Nature of the delivery (automatic, upon request, or other)
- Client’s payment obligations for every delivery
- Delivery approval process by the client
- How to deal with non-conforming deliveries
- Term of the delivery
- Contract pricing and potential price adjustments over time
Depending on your specific needs, you can add other provisions to your contract to ensure that things are clear between the parties.
Scheduling Agreement Software
There are many software solutions out there designed to help clients manage their ongoing delivery of goods and services.
For example, SAP being an enterprise software provider provides software solutions allowing large companies to deal with scheduling agreements.
For example, an Outline Agreement in SAP can be of two types: a contract or a scheduling agreement.
You can find more information on SAP scheduling agreements by looking at the SAP community of users.
Enforceability of Scheduling Agreements
Scheduling agreements are legally binding contracts and enforceable by the courts.
If you are considering signing an agreement where you schedule your deliveries based on a pre-defined process, make sure you fully understand your rights and obligations.
The vendor must make sure that it can provide the necessary goods and services in the quality, quantity, and price as provided for under the contract no matter the market conditions.
The client, on the other hand, must receive the delivery of the goods in good faith and pay as per the terms of the contract, no matter the price fluctuations in the market.
Both the client and vendor have to consider their needs, the market conditions, the duration of the contract, and other risk factors before signing a scheduled delivery agreement.
Should a party fail to respect the terms of the contract, they will be exposed to a breach of contract claim and may have to pay for damages.
Scheduling Agreements Takeaways
So there you have it folks!
What Are Scheduling Agreements
A scheduling agreement is a legally binding contract where the parties mutually agree to have certain goods or services delivered based on a mutually negotiated schedule under the contract, according to a predefined price, and delivery process.
The advantage of scheduling agreements is that you can supply the raw materials, components, parts, goods, or services that you need on a regular basis to fulfill your business needs.
By working with the same vendor, adopting a repeatable delivery process, and working on volume, both the vendor and the client can become more efficient in the process of mutually serving one another.
Now that you know what is a scheduling contract, why it’s beneficial to sign one, what it includes, and what are its key features, good luck with your research and procurement!
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