The three basic types of contracts
- Definite contracts: A Definite Contract is more of less what we think of when we buy something. There is a clear thing that the other person is going to do for us, when know when it will happen, and we know about how much it will cost. Everything is defined (or definite). For example:
- You go to the grocery store and buy a gallon of milk
- You hire a mechanic to fix your car.
- You buy a car that will be delivered in a week. This purchase may have more complex terms and financing and be for a lot more, but all the terms are defined
- Indefinite contracts: An Indefinite Contract is a framework agreement where some of the elements are unknown and in commercial business these are frequently called Master Services Agreements (MSA). This can seem complicated but probably in a couple indefinite contracts right now:
- Your credit card: When you got a credit card they checked your credit, maybe looked at a few other things to ensure that you could pay your bills but you probably didn’t pay much when you entered into that contract, instead:
- The credit card company agreed that in the future, when you want to buy something, they would cover the cost
- You agreed that you would pay them back plus interest
- So when you got your card you didn’t agree to what you would buy, or how much it would cost, or the exact day you would pay, but you agreed to a framework for figuring all those things out
- Your Amazon or other e-commerce profiles: When you sign up with an e-commerce site you enter into an indefinite contract
- You give them your address, payment information and agree to the terms of buying on their site
- They make it easy for you to find what you want and buy it
- This contract lasts until you cancel it, and the exact things to purchase are undefined, It is indefinite.
- But when you signed up with Amazon you didn’t agree to purchase certain things, you just entered into an indefinite framework.
- Purchases under indefinite contracts: These are the individual purchases under an indefinite contract. So each purchase you make through your credit card, or on Amazon is a purchase through that indefinite contract you setup. And these are great because
- Both parties have vetted each other
- You’ve agreed to basic contract terms (like payment interest, delivery locations, delivery speed, things like that) so you can contract fast
- It is easy (you swipe your card or hit the purchase button)
- But it takes two steps, you first have to be approved for the credit card/amazon account, then you have to make the purchase
E-commerce is killing small retailers, and Indefinite contracts are killing small government contractors:
- Who is who: In these examples:
- The established government contracting companies are the credit card/amazon
- The government is the person using the card/website
- New contractors are small brick-and-mortar retailers
- Imagine this: You want to buy a pair of headphones:
- You could go to a store and compare brands and prices and hope they have a pair that you like, and then maybe go to a second store if you didn’t like the first one.
- Or you go on Amazon and:
- Instantly compare hundreds of offers
- Have thousands of reviews to look at
- Have the certainty that if the product shows up broken Amazon will give you a refund
- Most people are choosing to buy online and it is crushing small retailers
- This is what the government does: The government has set up thousands of easy purchasing mechanisms with established contractors that are fast and convenient to buy through. So not surprisingly the government spends a LOT of money through indefinite vehicles.
