Tuesday, January 11, 2011

Statements of Work - Risk Management

Most company standard templates are designed to deal with average risk procurement situations using average risk suppliers. Depending upon the risks involved in the procurement, with the Supplier or that are created by terms that are negotiated in a master agreement, some risks and costs could shift to the Buyer. You may need additional terms and conditions to help manage the cost and risk. Here’s a few examples of what I mean:

Contract / Risk Management Terms
Alternative logistics model requirements such as supplier stocking
Approval of project personnel
Approval of suppliers, lower tier subcontractors
Control over assignment, assignability rights
Audit or examination of books and records,
Background investigations for personnel
Change of control rights in the event the supplier is sold or merges with another company
Change management processes,
Conflict of interest requirements
Coordination of work requirements
Stricter confidentiality requirements
Damages and changes to the types of additional types allowed such as liquidated damages.
Escalation procedures for problem resolution.
Escrow of materials
Exchange rate risk terms
Fitness for a particular purpose (additional warranty)
Guarantees (products, services, satisfaction)
Inspection of facilities rights
Additional insurance requirements
Professional liability and errors and omissions
Employee dishonesty insurance
Key employee restrictions / non-competitive activity
Most favored customer
Multi-year price protection (“option” pricing)
Ownership and license rights in developed materials.
Order of precedence between incorporated documents
Parent / company guarantee.
Payment rerms (alternative)
Progress or milestone payments
Restrictions on recruiting/hiring of employees
Response time / performance criteria
Risk of loss (different from normal delivery terms)
Safety & security requirements
Temporary use of facilities
Temporary use of machines
Termination rights (alternative)
Trigger clauses related to credit rating or other events such as release of escrow.
Uptime / downtime credits
Service level agreements
Warranties (additional),
Stricter warranty response obligations

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