An “agency” is a legal relationship where one party, the agent, agrees to represent or act for another party, the principal.  Under agency, the principal entrusts the performance of certain activities to the agent, with the performance being transacted in the name of or on the account of the principal.  The principal has the right to control the agent’s conduct in matters entrusted to the agent. An agency relationship may be created orally, by a writing, and, in certain cases, by conduct.  A thorough examination of agency law is beyond the scope of this post; rather, the purpose of briefly highlighting the concept of agency here is to point out that,vis-à-vis the employer-employee relationship, the buyer is entrusted to conduct procurements by its employer (the principal). As a result of this trust, an agency relationship is created between the buyer and employer which imposes a fiduciary obligation on the buyer.  This fiduciary relationship between buyer and employer is important in that, as an agent, a buyer owes certain duties to its employer in representing the employer to suppliers and in conducting procurements.  Unless the duties are otherwise modified and agreed to between buyer and employer, a buyer will have the following duties of loyalty, obedience, performance, accounting, and notification.

Duty of Loyalty. Loyalty is the most important duty owed by a buyer to the employer.  The buyer has the duty to act solely for the benefit of the employer and not in the interest of anyone else (including the buyer).  The buyer cannot “self-deal,”including benefiting in any way personally from the procurement or procuring any product or service from himself or herself. The duty of loyalty also means that any knowledge or information obtained through the agency relationship is considered confidential between the buyer and employer.

Duty of Obedience.  A duty of obedience is placed on a buyer, requiring that the buyer follow all lawful and clearly stated instructions of the employer.  If a situation arises where the employer cannot be consulted—such as in the middle of a negotiation—the buyer may deviate from the employer’s instructions without violating this duty if the circumstances so warrant.  Where instructions are not clearly stated, a buyer can fulfill the duty of obedience by acting in good faith and in a manner reasonable under the circumstances.

Duty of Performance. Under the duty of performance, an agent implicitly agrees to use reasonable diligence and skill in performing the work.  The degree of care or skill required is usually that expected of a reasonable person. However, the duty imposes a higher standard on those who are considered“specialists.”  Thus, procurement professionals, specialists in their vocation, are held to a higher degree of skill.  This requires that a person who holds himself or herself out as a procurement professional fully exercise the skills claimed.  Additionally, to claim the special skills associated with being a procurement “professional,” the buyer must make a reasonable effort to maintain those skills (such as through training and professional certifications).

Duty of Accounting. Because a buyer is committing money (the supplier’s price) and receiving property (product or service) on behalf of the employer, the buyer has a duty of accounting.  This requires the buyer to keep track of money committed and the receipt of product or service.  The employer and buyer can agree that certain responsibilities under the duty of accounting be delegated to other individuals, such as a finance department or to a receiving department.  In combination with the duty of loyalty, a duty of accounting also requires that a buyer report and turn over to the employer all gifts (such as from suppliers) received by the buyer.

Duty of Notification. Simply, a duty of notification requires that all an agent knows, the principal must know.  Therefore, a buyer must notify its employer of all matters that come to the attention of the buyer that concern the subject matter of the agency (meaning, procurement matters).  Buyers typically fulfill this duty by providing status reports and tracking and communicating metrics, such as negotiated savings, relating to procurements.

In other words, you may need to step up your game...