| Bid (or surety) bond: | Guarantees that if the bidder wins it will accept the purchase contract; if the supplier refuses, the extra costs to the buyer of going to an alternative source are borne by the insurer.
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| Capital goods: | Long-term tangible or intangible assets that are not bought or sold in the regular course of business, have an ongoing effect on the organization's operations, have an expected use of more than one year, involve large sums of money, and generally are depreciated.
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| Cash discount: | Price discount offered for early payment; for example, a 2/10 net 30 cash discount means a discount of 2 percent if payment is made within 10 days, with the gross amount due in 30 days. This is the equivalent of earning an annual interest rate of approximately 36 percent.
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| Commodity exchanges: | An organized commodity exchange provides an established marketplace where the forces of supply and demand may operate freely as buyers and sellers carry on their trading.
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| Cost-No-Fee (CNF) contract: | If the buyer can argue persuasively that there will be enough subsidiary benefits to the supplier from doing a particular job, then the supplier may be willing to do it provided only the costs are reimbursed.
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| Cost-Plus-Fixed-Fee (CPFF) contract: | The buyer agrees to reimburse the supplier for all reasonable costs incurred (under a set of definite policies under which "reasonable" is determined) in doing the job or producing the required item, plus a specified dollar amount of profit.
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| Cost-Plus-Incentive-Fee (CPIF:) contract: | Both buyer and seller agree on a target cost figure, a fixed fee, and a formula under which any cost over- or underruns are shared.
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| Cumulative discount: | Varies in proportion to the quantity purchased over a period of time not on the size of any one order.
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| Direct costs: | Can be specifically and accurately assigned to a given unit of production, for example, direct material is 10 pounds of steel or direct labor is 30 minutes of a person's time on a machine or assembly line.
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| Escalator clause: | Provides for either an increase or decrease, or both, in price if costs change.
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| Fair price: | The lowest price that ensures a continuous supply of the proper quality where and when needed and returns a reasonable profit to the supplier.
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| Firm bidding: | A policy of notifying suppliers that original bids must be final and revisions will not be permitted under any circumstances.
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| Firm-Fixed-Price (FFP) contract: | The price set is not subject to change, under any circumstances.
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| Fixed costs: | Generally remain the same regardless of the number of units produced.
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| Forward buying: | The commitment of purchases in anticipation of future requirements beyond current lead times.
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| Hedging: | A simultaneous purchase and sale in two different markets which are assumed to operate so that a loss in one will be offset by an equal gain in the other.
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| Indirect costs: | Incurred in the operation of a production plant or process, but normally cannot be related directly to any given unit of production.
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| Most-Favored-Customer clause: | A price protection clause (sometimes referred to as a "most-favored-nation clause") specifies that the supplier, over the duration of the contract, will not offer a lower price to other buyers, or if a lower price is offered to others, it will apply to this contract as well.
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| Multiple discount: | For example, 10, 10, and 10 means that for an item listed at $100, the actual price to be paid by the purchaser is ($100 - 10%) - 10%($100 - 10%) - 10%[($100 - 10%) - 10%($100 - 10%)] = $100 - $10 - $9 - $8.10 = $72.90. The 10, 10, and 10 is, therefore, equivalent to a discount of 27.1%.
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| Payment bond: | Protects the buyer against liens that might be granted to suppliers of material and labor to the bidder, in the event the bidder does not make proper payment to its suppliers.
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| Performance bond: | Guarantees work will be done according to specifications and in the time specified. If another supplier does rework or completes the order, purchasing is indemnified for these extra costs.
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| Price protection clause: | In a long-term contract for raw materials or other key purchased items with one or more suppliers, the buyer may want to keep open the option of taking advantage of a lower price offered by a different supplier.
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| Quantity discount: | Applies to particular quantities and varies roughly in proportion to the amount purchased.
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| Raw materials: | Includes sensitive commodities, such as copper, wheat, and crude petroleum, but also steel, cement, and so forth.
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| Responsible bidder: | Fully capable and willing to perform the work
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| Responsive bidder: | Submits a bid that conforms to the invitation for bid.
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| Resale: | Can be subdivided into two groups (1) items that formerly were manufactured in-house but have been outsourced to a manufacturing supplier, and (2) items sold in the retail sector, such as clothing sold in general-line department stores and food sold through supermarkets.
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| Robinson-Patman Act (Federal Anti-price Discrimination Act of 1936): | States that a supplier must sell the same item, in the same quantity, to all customers at the same price.
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| Semivariable costs: | May vary with the number of units produced but are partly variable and partly fixed.
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| Services: | Includes many types of acquisitions from intangible to a combination of intangible with a tangible component; includes advertising, auditing, consulting, architectural design, legal, insurance, personnel travel, copying, security, and waste removal.
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| Sherman Antitrust Act of 1890: | States that any combination, conspiracy, or collusion with the intent of restricting trade in interstate commerce is illegal.
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| Small value items: | Includes items of small comparative value such as maintenance, repair, and operating (MRO) supplies.
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| Special items: | Includes custom-ordered items and materials that are special to the organization's product line.
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| Standard production items: | Includes nuts and bolts, many forms of commercial steel, valves, and tubing, whose prices are fairly stable and are quoted on a basis of "list price with some discount."
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| Trade discounts: | Granted by a manufacturer to a particular type of distributor or user.
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