Most purchasers do not recover damages

29 September 2009

30 September 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 out of 100 buyers surveyed by Supply Management answered "never" or "not often".

Most suggested calling on such options when vendors' failure to deliver risked endangering supplier relations beyond repair. One buyer said the clauses "encourage adversarial, sometimes aggressive relationships".

Another pointed out that using the terms can often be a time-consuming and costly exercise, while many argued arbitration was a far more suitable solution to countering supplier underperformance.

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 18 buyers who regularly use liquidated damages clauses - of which five 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."

SMsep2009

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