Tuesday, January 18, 2011

Risk - How Suppliers try to manage risk, liability, and costs

Prior to the Contract they should:
·       Manage the quotation and any representations made before or during the process to only those things that can be clearly delivered.
·       Ensure that their response to the Quotation is clear, states any necessary assumptions or clarifications including the clear definition of deliverables by both parties.
·       Review of requirements as to suitability of what is requested / proposed

In the Contractual Terms they will.
  • Refuse to accept the transfer of the cost, risk or potential liability by simply striking out a clause.
  • Accept a limited transfer of the cost or risk by any combination of the following::
    • Limit the remedies a Buyer has for the Supplier’s failure to meet the obligation such as by saying that a specific remedy is the “sole and exclusive remedy”
    • Limit the standard of performance they provide to reduce the potential of them failing to perform such as wanting to commit to use commercially reasonable efforts.
    • Place a dollar limit on their liability for failing to perform.
    • Include qualifying language in the commitment to water down their commitment and their potential liability. For example adding a requirement of knowledge for a specific commitment.
    • Propose language or terms to transfer some of the risk and cost to the Buyer such as language where the parties agree to share in the cost..
  • Ensure there are clear definitions of deliverables and dependencies.
  • Ensure there is a clear definition of responsibilities for all parties.
  • Accept only those terms that can be reasonably performed and managed.
  • Seek relief from performance for problems caused by parties not under their control such as Buyer specified Suppliers or subcontractors or Buyer supplier items.
  • Require clear measurement criteria and acceptance tests
  • Ensure any warranties and performances are tied to what they can reasonably manage.

For Risks they assume they will:

  • ·       Transfer risks contractually to their suppliers and subcontractors.
  • ·       Perform qualification of subcontractors, and Suppliers.
  • ·       Flow down of responsibilities and liabilities. 
  •      Manage the activity and deliverables.
  •         Implement strong change control and change management.
  • ·       Ensure all involved meet performance requirements.

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