Monday, April 11, 2011

Negotiating Claims

A Supplier may allege a claim for a number of reasons including:
·      The buyer had certain obligations that they failed to perform.
·      The buyer made representations that they relied upon.
·      The buyer or other parties from the buyer made certain commitments.
·      There were mistakes in the specifications or drawings provided by the Buyer.
·      There were latent conditions that were unknown at the time of the contract                      which were subsequently discovered.
·      The buyer, the buyers’ agents or other suppliers working for the Buyer took certain actions that affected the Supplier (delays, interference, re-work, etc.)

In negotiating claims you need to first consider the validity of their claims against you:

  1. First look at the information the provided as part of the claim:
A.   Is it correct in terms of calculation?
B.    Is it substantiated with adequate back up documentation?
C.    If it isn’t available, can it be reasonably estimated?

   2. Second, for each item in their claim you must check the basis for the claim.

A.   Is it the result of our violation or breach of the agreement?

B.  If the claim is based outside the agreement:
C.  Are there prior dealings between the companies? Was the activity here any different from the prior dealings? (Eliminate basis of reliance on prior dealings)
D.  Is the claim the result of our violation of our responsibility? (Such as failure to mitigate losses)
E.   Is the claim a request for "equitable relief" for "extenuating circumstances”?
F.   Are they really extenuating circumstances?
G.  Are they risks that they assumed, or should have been aware of?
H.  To what extent did the activity or our actions cause problems for them as a result of those extenuating circumstances?
I.    Are there areas where portions of the claim exist as a result of negligence or mismanagement on their side?
J.   What are they?
K.  How much are they worth?
L.   Highlight and immediately deduct them from their claim.

   3. If the claim is based on the Agreement:
A.   Does the agreement address the point?
B.    What does it say?
C.    Is it clear or is their room for interpretation.

   4. Did the claimant take steps to mitigate the damages, as they are required under common law to do?

   5. Did they take steps that are inconsistent with mitigating damages, such as bulk         ordering of large quantities?

2. Offsetting Counterclaims:

Can you offset any of their claims by counter claims that we have?
A. Performance to committed contract levels:
     1. Delivery to schedule
     2. Quality to standards
B. "Equitable relief"

3. Getting the necessary information.
Frequently suppliers may be unwilling or reluctant to provide you with the detailed information necessary for you to adequately review the basis for the claim and the calculation of the charges. When faced with this type of situation they may not have the information, they may be trying to hide something or, they may have inflated the claim amount in hopes for a reduced settlement where you split the difference. The reality is if they were to pursue the claim in a court of law they would need to prove their case and their damages so you should agree to accept nothing less. If they don't provide you with what you need to properly evaluate the claim you can refuse to take action on it, which leaves them with the only alternative of suing you. Prior to any case going to court both sides have the right of "discovery" in which they can view the opposition's case against them, the evidence, the claim, the calculation of damages, etc. At this point you will know what they have and can decide whether to try to reach a negotiated settlement or proceed with the suit.

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