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Contract Management Contract Pre-Planning, Risk Management, Legal Aspects, Creating and Managing SLA's (service level agreements), Contracts Database, Contracts Close Out

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  #1  
Old 02-21-2008, 11:53 AM
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Default Contract Clause

I want to write in a standard clause much like Ikea has in their procurement policy not give more than 40% of a companies capacity to prevent over-reliance on the business.

Can anyone help?
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Old 03-14-2008, 03:52 PM
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Default Re: Contract Clause

No advice?
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Old 03-17-2008, 05:28 PM
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Default Re: Contract Clause

... just for interest sake why would you want a clause like this?
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Old 03-17-2008, 06:15 PM
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Default Re: Contract Clause

Good question…

I want to prevent over reliance on our business from SME’s.

If I want to remove a smaller supplier from the bidding list I would ask for evidence of other similar sized contracts or put in a term that the supplier must have say 10million liability insurance. This normally scares the suppliers I know are too small to submit.

However this is me getting around the problem and because it’s not a clear way, I may inadvertently remove potentially the best supplier. Instead I would like to be more upfront with my intention.

For example I have a contract for a TMC; we spend around 3 million pounds per year on air travel. I want to put a clause in so that should we choose supplier X they can't take me to court if I choose to end the contract as it could potentially make the business insolvent. I know that one company we deal with has a turnover according to companies house of £400k (less than the business we give him alone), very dodgy, obviously I wouldn’t want to deal with someone like that but what’s to say all my suppliers don’t do the same thing???

If I have this clause should it go sour I’m protected.

I'm very much into supporting SME's but at the same time I want to remove any responsibility should such a business collapse because I moved the contract elsewhere.
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Old 03-17-2008, 07:17 PM
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Default Re: Contract Clause

... sorry for maybe a very uninformed remark, but surely if a bid was won by a company to supply the service they should continue doing so and that a contract has breach clauses which could be invoked should any party go into breach. Whatever the outcome of such a breach (beit termination or remedial) the result should be accepted - even if it means that the servie provider might close its doors.

I have had the same issue here, result - company closed its doors but could not hold us liable for that, as the breach procedure (signed by both parties) was followed and could not be contested. The main thing was - and is critical to the quality of the contract -that the contract was a fair contract and not one sided. The court could motion that a contract is one sided (in SA anyway) and then the breach would be non enforceable.

.... but like I said, my experience and thoughts - I might be smoking my socks saying this, maybe someone else could climb in and shed some light on this. Greg?
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Old 03-17-2008, 07:34 PM
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Default Re: Contract Clause

Thanks Jacques, What I hoped to acheive was a standard term to apply to all contracts to show fairness in the tender document so that a tender panel cannot get it wrong.

My thinking is that using a "% of the total business" method rather than the "tricks available" is the best approach.

To shed more light, I don't want companies with little turnover getting hold of an account they can't handle. Unfortunatly the stakeholders in my company don't understand the potential service issues that could arrise from a TMC working from home with his wife as the secretary...
Presumably someone with half a brain would work that out however if a clearly defined 40% is written in there is no problem.

I can see where I may have confused the issue, I do not want this to effect the contract after the award to terminate the contract, more to prevent the wrong type of supplier being awarded the contract in the first instance.
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Old 03-18-2008, 11:28 AM
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Default Re: Contract Clause

Jacques - good points.

Cristian - I understand what you are looking to accomplish, however I can't say that I actually have an example clause to provide to you.
May I suggest that you post your question on the IACCM Contract Management forum and hopefully someone can advise with an example clause.
www.iaccm.com

As this is an element of Risk Management - perhaps the survey below may also be of interest to you:

How Mature Are Your Risk Processes?

In 2005, IACCM undertook its first risk maturity study, which included an "Industry Maturity Index". It's time to update that study, so we are inviting you to provide input to the on-line survey and compare your risk approaches with the standards for your industry and beyond..

Risk management is high on the list of priorities for those in Legal, Contract Management and Procurement. Our global networked economy has taken risks to new heights, as supply chains extend, as regulations increase, as organizations fragment.

Yet at the same time as these 'downside risks' require increased focus on standards and compliance, businesses face unparalelled risks from fast-moving competition, from innovation, from new markets. These demand greater speed and a readiness to embrace change.

How well are we faring? And which industries are coping best with this dynamic environment? The survey attracts hundreds of inputs, allowing results to be segmented not only by geography, but also by industry and business function. We will even distinguish buy-side and sell-side perspectives.

The survey will take no more than 5 minutes to complete and results will be issued later this month. To participate please visit https://www.etouches.com/busrsk2008
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Old 03-18-2008, 01:32 PM
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Default Re: Contract Clause

Done, many thanks for the link.
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  #9  
Old 03-19-2008, 06:05 PM
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Default Re: Contract Clause

Ahhh - got it now ! smoking my socks does not go down well.

Should this not form part of the prequalifying criteria set by yourself i.e. 150mil should not be more than 40% of company anual revenue? someting of the sorts and would disqualify any company that do not comply with this. Just easier to do it upfront (obviously you will have companies take chances but also insist on audited financials as a pre-requisite to your tender)???

Or should I get another pair of socks
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Old 07-16-2008, 03:32 PM
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Default Re: Contract Clause

Quote:
Originally Posted by Jacques Fourie View Post
Ahhh - got it now ! smoking my socks does not go down well.

Should this not form part of the prequalifying criteria set by yourself i.e. 150mil should not be more than 40% of company anual revenue? someting of the sorts and would disqualify any company that do not comply with this. Just easier to do it upfront (obviously you will have companies take chances but also insist on audited financials as a pre-requisite to your tender)???

Or should I get another pair of socks
Your right, and by new common law in the UK criteria to disallow companies from winning contracts must be stipulated in the PQQ stage and cannot be part of the decision weighted matrix.

My real problem is that alot of my current suppliers are too small to handle our business, we suffer because of the level of service.

I was looking for a "trick" to say its now part of the rules as any re-tendering I would have to let them past the PQQ stage as they are a current supplier.

To limit the amount of business by X amount to prevent overreliance I thought being a good clause to have as if the business were to drastically increase in that area I would not be under the obligation to automatically award the additional work to the exisiting supplier.

The mannor in which IKEA have done it (according to what I read from Supply Management) was that this was part of their terms and conditions with all their suppliers.

Any suggestions on how it can be worded to acheive what I aim without being obvious?
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