Continuing our series on how to buy a piece of equipment, we touch on the dreary matter of contracts and specifications. We do this because we’ve got an interesting impossible purchasing situation going on. Customer wants the product, has money for the product, but we can’t do a deal, and while we futz around, their project is slipping deadlines.
Because you, the researcher, doesn’t normally buy a major capital item very often, and because you don’t get to learn anything much about how your organization buys things, you can easily wind up with the low-bid you didn’t want, have outrageous administrative costs sucked out of your budget, or in some cases, not get anything at all!
Here’s what to think about….. First of all, a contract that results from a bidding or sole source acquisition has to be fair to you, and also for the vendor. To your purchasing department, a proper deal throws all of the technical and financial risk at the vendor. No milestone, or progress payments, no budget for custom engineering, no packing or shipping costs, installation when it’s not needed, and warranty terms that are not normal commercial practice; this adds up to an inflated price, or a no-bid by the guys who really should do the job. Take a look at your organization’s sample contract. Does it look like something you’d sign on to if you were a supplier? Remember, you’re not buying an off-the-shelf commodity item, like a toaster. Almost always, you’re asking for some degree of customization, which can cost engineering time, and adds time and risk to a build. If you’re not in the habit of giving a money-back guarantee on your own experimental results, you shouldn’t expect the same from, say, us!
Terms. It’s an expensive item. It takes months to design and build. During that time, the system builder has, in order to maintain some semblance of viable credit, typically paid in full for all the purchased parts. In our particular world, these parts are usually more than half the delivered cost. Furthermore, your friendly vendor has been paying salaries, outsourced shops, and most important, has been working on your project, not something else. The solution is milestone, or progress payments. If your organization does not allow this, be aware that the vendor is adding financing or maybe factoring costs to the bid. This costs you more. Worse, without progress payments, if the job cancels (say you leave for another place, or your funding gives out), unless a contract is extremely clear on this subject, the vendor is left holding an expensive, unsaleable item. The risk is substantial; one of these can drive even a medium-sized company into the red for the year. It can actually bankrupt a small entity. The way I see it, if the customer doesn’t have up-front and progress money in a build, they have much less incentive to follow through.
Unfamiliar terms: FOB X. FOB stands for ‘freight on board’ an archaic shipping terms related to the days when freight primarily floated away on a ship! FOB Destination means that you, the customer, assume none of the shipping costs, including often substantial insurance. FOB Factory means that you own the item from the minute it leaves our floor, and you are responsible for separate shipping and insurance costs. The difference is typically a few thousand bucks. Academic institutions and some gov’t agencies will always specify FOB Dest. Other arrangements are possible, including, in some cases, saving money by picking the item up yourself, investigating your institutions actual insurance capability, or any special arrangements they have with shippers. In addition to money, it is critical to have the correct shipping mode if you expect to receive your elephant without some fork lift’s tusks eviscerating it en route! Make absolutely sure that someone’s insurance is covering the full replacement cost.
Warranty. In nearly all cases, purchased parts carry a one-year warranty. If something burns out, it is returned not to the system builder, but to whomever made the thing. Contract specs, however, often ask for ‘additional year’ costs. This is hard to estimate, as one might have to figure out how to do it on all the components. I have great confidence in the stuff we build, and our ability to react to problems, so I’ll quote that extra year, but its just a guess. (One of our competitors offers “lifetime warranty”, which, of course is nonsense. We’re still taking care of systems we built 45 years ago, but we don’t pretend that it’s guaranteed!) The other thing of significance is that if your system takes a while to put together, say six months, the clock has been running on many of the components, and in reality, by the time you plug the item in and start using it, it really only has a few months left. Don’t worry too much about this. Our vendors have always been generous and understanding about this – they have a relationship to maintain.
Abuse, consumables, toxic waste. Be sensible. Parts that normally wear out, or are corroded away by your nasty process, are not covered by a warranty. In the university environment in particular, the very first thing that happens to a new system is that it is mis-operated. The second thing is that half the safety features get bypassed, and protective panels get permanently removed. This thing is not a car or a household appliance, with a legion of lawyers standing behind the manufacturer, all geared up to deny a warranty or even a safety claim. It’s an R&D tool, and the manufacturer doesn’t even really know what you’re doing with it. If you’re rational, and we’re honest, any problems will be solved, but do not expect excessive hand-holding, reimbursement for repair costs, or, sadly, that something you melt down can even be replaced. In fact, some process items, such as pumps, are federally classified as toxic waste containers, and may even not be allowed to be shipped.
Performance Bond. Oy vey! This is topical. We’re about to start building a substantial tool – not as a direct order, but as a supplier to an entrepreneur. We warned the latter that he’s stepping into very murky waters by trying to contract a system by himself, and now he’s seeing the first alligator nipping at his butt. The customer wants a performance bond for the full value of the system. This ugly thing is what makes the paint job at your city hall cost twice as much, the new water line in your lab cost as much as whatever’s connected to it… and so forth. What it means is that I have to add, best case, 10% to a job for an insurance policy guaranteeing that you get something delivered that satisfies absolutely vague conditions. If I’m the entrepreneur, or the garage shop, I could also be looking at putting my house up as collateral! As a small company, even with a large commercial insurance policy, I’d be insane to sign on for one of these. It’s the customer who needs to guarantee the job payment to the vendor, not the other way around. I’ll let you know how this particular one works out… if it does.
Leasing. This is also topical. As I’ve mentioned before, our research customers have largely been impoverished for the last two presidential terms because science and technology are not priorities any more. So, inevitably, we’re being asked for ‘the cheaper version’, used or rebuilt equipment, or a short-term lease. This is all new, and basically, a very bad sign. Cooke Vacuum has, for most of its long history, been able to provide the lowest cost for a given functionality, but we can’t compete with our own surplus equipment, and definitely can’t support leasing of things that would have minimal resale value. However, if this is the future, we’ll adapt somehow. Right now, I can operate a lease through a specialized leasing entity as long as the item is, say, over $500k. There are no mechanisms that make sense for smaller items.
I hope that this brief post helps our customers think about the otherwise ignored aspects of the purchasing process. Knowledge may or may not be power, but in contracts, knowledge may save you money and risk!
