Buyers shrink from claims

4 October 2009

05 October 2009 | Allie Anderson

Few buyers regularly seek damages for supplier underperformance, according to the latest SM100 poll.

In response to being asked how often they invoke liquidated damages clauses in contracts, 74 per cent of respondents in the survey of 100 buyers by SM answered "never" or "not often".

Most suggested that calling on such options when vendors failed to deliver risked endangering supplier relations. One buyer said the clauses "encourage adversarial, sometimes aggressive relationships". Karen Wontner, purchasing manager at Cardiff University, said: "This is seen as a last resort after attempts have been made to get the supplier to rectify the problem."

Another pointed out that using the terms can often be a time-consuming and costly exercise, while others argued settling disagreements through negotiation was a far more suitable solution. "If there is a dispute that relates to the terms and conditions, then go for arbitration rather than an expensive, time-delaying court case, which will almost certainly cause an adverse relationship in future requirements," said consultant Alex Strange.

A number of respondents said if contracts were managed properly, poor supplier performance could be avoided. "You need to get your own house in order before you can start imposing penalties," said Susan Davis, national inventory manager at Senate Electrical.

Of the 21 per cent of buyers who "regularly" use liquidated damages clauses - plus 5 per cent who do so "all the time" - most concurred there must be a mutually agreed way of assessing the problems and implementing a solution.

Clauses must be both reasonable and proportionate, they argued. Tom Woodham, director of consultancy Crimson & Co, said: "Used well, such clauses focus both parties on the key things to get right in a relationship. Used badly, they can become a significant barrier to a mutually beneficial relationship."

SMoct2009

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