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  • Writer's pictureZsofia NAGY

Contracting in supply chains

Updated: Nov 7, 2023



Today I have to reflect on an article shared by Guido Palazzo on LinkedIn as I still see a lot of basic contracting issues in supply chains.


As an external expert, I do work which involves checking supplier contracts and reviewing these for risks and impact from time to time.


I still come across contracts, which should have never been signed because of gaping holes in the liability sections and how these are settled in case of a disagreement / dispute in a decent, professional way (before going to court).


People expect decent business behaviour based on such contracts, no wonder we have problems, as many of these contract holes don't fall under areas which one can clearly defend from a legal standpoint (legislation is far from adequate in international trade).


As an example from my observations:

If a supplier has to put in the contract that they are only liable for any damage towards your company if you take them to court - please never engage the supplier, as they are not interested enough in the contract to make it work for both of you.


If they are willing to describe in more detail what they take accountability for and where the line is when they need you to go to court as their liabilities cannot be sufficiently spelled out (e.g. you can have a solid set of T&Cs and/or SLAs, no matter which terminology used), then it can be a good business relationship.


For SME business and startups, scaleups, the below are important:


1. Take contracts and contracting as a process seriously: write them considering the worst case scenario, but prepare paragraphs based on the best course of action on both sides that protects the interest of both.


2. Don't ever assume anything: if something is not clear, talk it through, then write it down.


3. Try looking at the contract as if you were on the other side and see, if you'd agree to it or not....don't push for anything that you'd not agree to if someone else presented it to you (and vice versa, don't accept either).


4. There is a reason why contracting should not be cut short and time is well spent on it: have contract templates, have a decent lawyer, have the business case calculations.


5. Even if you are a small company, do ask for all cross-functions impacted to review the contract and provide you with feedback.


For large businesses:

Only engage in a contracting process, if you are willing to see the interest of your business partner. Doing business is still a two-way street.


If you run someone over and don't care....you will eventually meet someone down the line, who has the power to run you over and leave you to the curb.


Even larger corporations get on the short end from time to time (I've seen many interesting cases of these as well), so the more businesses stick to ethical rules, the less of these problems we have.


For everyone:

Stick to what you promised and assume responsibility where it is due.

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