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THE OFFER AND OTP
Acronyms are not defined as the advice offered is only suitable for use by informed USCT members / ITSI practitioners who have studied our doctrine
I can write much about the offer; below aspects provides some main pointers when dealing with offers, that some PCT ’s have failed to observe. The PCT treats the deal with the supplier and the end buyer independently. The PCT may secure a signed OTP or offer from a supplier at one time, where within weeks months or even years later the PCT may have secured an end buyer for such goods.
e.g: Dear supplier could you please provide us an offer for the following products as specified on this enquiry as expressed in this email.
e.g: Dear supplier, and offer to procure is being advised for your immediate consideration as per the PDF provided.
A PCT may instigate the enquiry to seek an offer. A PCT may also apply initiative and actually advise an offer to procure, for the supplier to consider intently, defines the specific difference of these two said trading applications. The former aspect is the easiest aspect, the latter is only suited for those who have had good experience trading after studying the doctrine.Withe offer, the PCT is asking the supplier for a “full offer’ detailing suppliers procedures. The offer to procure on the other hand–the PCT is asking the supplier to offer goods based on the type of deal that the PCT is able to service. This aspect does produce the most results because the supplier fully ‘understands’ what the PCT is asking for.
With the supplier, the PCT seeks an offer to procure or offer; to the end buyer the PCT serves a full offer. Both aspects intend to legally bind each principal to the PCT once the offer is accepted is the accepted ‘safe’ course for a PCT to apply unless the parties want to be legally bound to each other early. In such a case the offer states “this offer is legally binding once signed and accepted’ this aspect is the ’natural’ aspect of any offer.Signing an offer as legally binding serves the intent that parties want to conduct business and is prepared to bear legal consequences accordingly. A supplier (or end buyer) who signs an offer as binding, then later pulls out of the deal is legally bound to pay compensation for losses or for expenses incurred; albeit likewise applies to the perspective of the PCT, hence applying the added term ‘subject to final contract’ is a viable position, a safer position, but a weaker trading position, when compared to the legally binding aspect.
The use of an ICPO or LOI as often seen being touted by ill informed others, is not a legally supportive of International trade rules. Such localised aspects of doing business, should never be used in international transactions involving the purchase and sale of commodities; no different to FTNX using in house processes in such deals; for instance a RFQ is an in-house document we created decades ago which should not be used by the PCT when securing a supplier because there are no laws dealing specifically with RFQ’s.
e.g: We provided a RFQ to which the supplier returned as signed. A copy is provided to the court
e.g: Court: What’s a RFQ?
Not such misunderstanding is evident when proper terms of reference are used.
When an offer not accepted on its first presentation, a rejection is in effect. An experienced informed PCT will understand that receiving reply, even an adverse one, is much more important than the actual rejection. An experienced and sagacious PCT could intentionally reject asn offer served by a supplier weeks latter and still keep the event live by countering with an OTP. This is important because an offer from a supplier to a PCT will often carry unworkable and even at times illegal aspects.The OTP allows the offer to be rejected in where the OTP is served. Same ideal applies on the end buyers side as the PCT will reject an unworkable OTP or Quote and rebound with it own offer and format.
e.g: Dear FTNX here is our offer.Please consider and return ASAP.
e.g: Dear Supplier, your offer is rejected due to unsafe, improper and un-workable practices. Please consider our OTP.
Only an experience PCT could act in such a manner for purpose of keeping a potential deal alive.
Securing supply does not always relate to the idea that the secured goods will be sold immediately to an end buyer. To buy goods from a supplier and then sell such goods simultaneously to the end buyers is the most commonest approach being attempted by most traders, which often does not lead to a successful deal. The ‘flipping of a contract’ aspect is an allowable aspect usually reserved for those who have had some good trading experience as ‘flipping the contract’ is a much more complex business situation. The most comfortable method to apply is for the PCT to seek long term assurance of supply (In house process:AOS) by securing a long term offer from a supplier first and then over time, end buyers are tested one at at time on merit. An AOS just like an MOU is not a legally binding aspect. In effect the buy side and sell side become two independent transactions.They may seem related, when in fact they are not. The offer proper, once signed defines the intent of parties to actually become legally bound to each other at such a time, and not when the contract is signed. Therefore no valid contract is in effect if an offer has not been accepted first, is the standard uniform application worldwide. All countries including Iran, China and Russia comply with and understand such ’international’ business practices. Signing an offer is made subject to contract, ideally however such offers also carry a short validity date- which is an adverse aspect.
The PCT should have sought a long term offer carrying validity for 3 months or longer. To offer buying goods in the ‘future’ is also a sound trading application also defined as ‘futures’ as opposed to on the SPOT transactions. Future dealing is where the greatest scope can be found to close a deal by the PCT. In all cases the supplier sends the PCT an offer with a validity date. The PCT has a limited time to secure an end buyer. Once the end buyer side accepts the contract from the PCT (the seller) and advises the financial instrument, the offer secured prior is signed and advised to the supplier, who responds with a contract which is signed and returned as soon as possible. This aspect offers the safest trading aspect for the new PCT. If an offer from the supplier is advised and accepted by the PCT before testing end buyers, then words in effect stating that this offer is legally binding subject to final contract being served or signed. This means the PCT is very close to being fully obligated and legally bound to perform and becomes bound when the final step becomes apparent. The PCT aims to become legally bound once it is RWA; meaning once finances to pay for goods have been realised- and not before.
In Summary
- An offer is usually made as being subject to final contract; this means, the offer is binding once the contract is issued or is returned as signed.This is the safest trading mode for the PCT as no formal obligation to perform is yet apparent.
- Subject to final contract also prescribes the idea that if the contract is issued which has entries applied within, which contradicts what was accepted on the offer, the offer serves reference in rectifying the situation.
- This is why an elaborate and detailed offer must be produced by the PCT covering all the important elements serving the interests of the PCT that must also be scribed on the contract.
- A principal who has accepted an offer will find it difficult to added entries in a contract which does not suit the safe strict trading position of the PCT.
- Legal action can be sought where an offer has been accepted in where the principal will not change contradicting terms of the contract on the conditions a loss has been recorded by one party due to the inactions of another
- An ICPO is not an offer, it’s an irrevocable order to purchase actual goods as per a localised or interstate deal as often used in USA or other countries using a similar localised aspect e.g: A Pro forma invoice. The intent is to purchase goods ordered which cannot be reversed once made. An offer serves to test intent of parties, to legally bind such before the contract is signed.
- A commercial pro forma invoice presented to a short terms factor is closer to the aspect of an ICPO than an offer.
- An offer must have a price applied to the goods or no contract can be legally effected.
- Regardless of localised law, under international trade rules an offer can be accepted or rejected. If rejected a new offer is advised once prior objection have be considered.
- Amendments applied to a rejected offer is an unacceptable aspect as amendments fall upon the same ground as ‘alterations.’ An offer must be accepted or rejected is the best practice aspect.It stop ‘legal loop holes’ being created.
- The offer is converted to a PDF with the word original written. It is signed by hand rescanned and returned by email carrying date and signature. Entries made in the contract acknowledges this event.
- The PCT must be RWA before signing a contract with a supplier. This means the supplier serves an offer to the PCT who has until the validity date to secure an end buyer and becomes RWA.
- At the point when the financial instrument is transferred to the supplier, the deal will begin to incur costs and expenses; the transferring of the financial instrument is the point where the PCT must now legally perform
- An offer being advised by email must have the word ‘original’ printed on it and the added latest clause “ This offer becomes an original offer after Meta Tags have been attached upon transmission by sender via email.”
The orthodox and safest trading routine is;
- Quote
- Offer (includes in principle MOU, AOS or OTP)
- Contract
- Payment: Financial instrument
- P.G
- First Delivery
- Presentation of delivery documents
- Collection : Financial instrument
- Payment of commission protected for each SI assisting the PCT
- Remedy for any defective goods
- Next delivery in a revolving transaction
In Summary
The PCT must secure supply in a disclosed form first. The method used to do so comes second to this primary aspect.Let’s say an AOS is secured instead of an offer; the next aspect must still lead to an offer or OTP as the legal aspect stipulates that there can be no contract without an offer being accepted first. The AOS and other related documents allows the PCT to now test the purchase intent of end buyers.The importance of securing ‘supply’ first is evident on many fronts.TRA stipulates as much and is an ideal quick reference guide to use when the new PCT is unsure the next move–once the study period is over. In short, no signed offer means no valid contract can be enforced. An illegal or improper formation of a contract is not a valid contract.
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