Thursday, November 3, 2011

Escalation procedures in contracts

Many contracts have two types of escalation procedures. The first is escalation when there is a problem. These types of escalation procedures have the problem be escalated up within the supplier based upon a particular schedule. For example the initial call for help may go to a help desk that has one level of capability. If they are not able to resolve the problem in X hours, they need to escalate it and involve the next higher level of support. If the next higher level of support can’t solve the problem in Y days, they need to escalate it to the original product designers to help discover the source of the problem and fix. If they can’t solve the problem in Z days, it needs to get escalated to the company’s senior management so they can assign their best experts to resolving the problem. In doing this type of escalation as the time increases, the level of expertise involved in helping identify and solve the problem also increases.

The second type of escalation that you also find in contracts is escalation in the event of a dispute between the parties. Many times an item in dispute may become personal. Over the course of a project or over time the representative of the buyer or supplier may take something
personal and simply refuse to budge on an issue. Those individuals may not want to agree to something if it will expose to their management a problem they caused which is the source of the dispute. They may not want to agree as agreement could impact them meeting their goals or metrics. There are a number of reasons why people may not want to agree. You include and use escalation procedures to help resolve problems and avoid potential litigation. The value that an escalation term provides is it takes the issue out of the hands that have been in the heat of the battle. The person that it gets escalated to will usually have different goals and different metrics they manage to so they can look at it differently. They can put it into the perspective of all the business they manage, not just the individual contract. Instead of looking at it from the perspective of someone that’s in the heat of the battle they can look at the issue from a different perspective, such as the relationship you have or the relationship they want to have with your company.

There are a number of ways that you can do escalations. If an issue is important and needs to be resolved immediately you can require an immediate escalation. I would keep the number of those types of escalations at a minimum. For other issues one of the best times to do an escalation is when you have supplier reviews. Have an open issues list that includes all the areas that are open and in dispute. The simple fact is many times the supplier’s management team won’t know about the issue as they haven’t been informed about it. I’ve had many times where the dispute was immediately resolved at the meeting.When your counterpart knows that the issue will come up at the meeting and they will need to explain it, can put pressure on coming to agreement. Escalation won’t guarantee you that you will get the results you want. It does help get around the person that may have been the problem.

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