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Rate Contracts
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Rate
contracts are mutual agreements between the buyer and the
seller to operate a set of chosen items, during a given
period of time, for a fixed price or price variation.
Under this system the rates are fixed and at times even
the quantity of the selected items. As and when the need
arises the buyer issues a Purchase order directly on the
basis of the rate chart available on the supplier who in
turn supplies the items.
The system of rate contract is prevalent in public
sector organistions and |
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government
departments. It is common for the suppliers to advertise
that they are on “rate contract” with the
DGS & D (Directorate General of
Supply & Disposal), for the specific period for the given
items. After negotiation, the seller and the buyer agree to
the rates of items. Application of rate contract helps
organisations cut down the internal administrative lead time
as individual firms need not go through the central purchasing
departments and can place orders directly with the suppliers.
However, suppliers always demand higher prices for prompt
delivery, as rate contracts normally stipulate only the
rate and not the schedule on which the item is needed.
This difficulty has been avoided by ensuring the delivery
of a minimum quantity at the agreed rates. This procedure
of fixing a minimum quantity is called the running
contract and is being practiced by the railways and the DGS&D. |
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As mentioned above, this system of buying helps an
organisation reduce its internal as well as the external lead
time, reduces administrative work load as the files don't need
to go up and down, helps in building Buyer-supplier
relationship as the contract period id usually one year and
then there is always a chance of the same players doing the
next contract.
The system works well normally in a situation
where the selected items are routinely consumed. However,
there is no compulsion that the demand be uniform over the
period of time. |
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