Strategic Supplier Responsibilities: Is Your Supplier Relationship Faltering?

By Allan Watton on September 24, 2019

You may have experienced the sinking feeling that a strategic supplier relationship is not going the way you had hoped (and indeed planned for). In fact, you may well be experiencing that feeling at present. That being the case, it is of vital importance that you equip yourself with a solid understanding of both your rights and your strategic supplier’s responsibilities (contractual, statutory and implied).

Our first recommended step is always to seek out a means of building a faltering relationship into a successful one through the establishment of mutually beneficial outcomes, but it is often the case that doing so is only possible if you are appropriately equipped with the right knowledge and experience.

And that leads us to your strategic supplier’s responsibilities. Court rulings mean that strategic suppliers must take responsibility for their expert obligations, which expand far beyond the partnership’s contract.

In this post I want to explore exactly what those expert obligations are and also give you a practical example of how a potentially fractious situation might be clarified by the expert supplier’s duty to warn.

Your Expert Supplier’s Responsibilities

In brief, an expert supplier has a legal responsibility to think on your behalf and warn you of any issues that might have an adversely material impact on the service provision they provide (or are to provide). This responsibility exists in the pre-contract stage and extends throughout the length of the relationship. Essentially, you can contractually rely upon professional advice from your service provider, even if there is nothing written in the contract terms that reflects these obligations.

In practical terms this means two things:

  1. Your strategic supplier relationship shouldn’t offer any nasty surprises once the contract has been signed and the services are being implemented.
  2. If the relationship is victim to a previously unforeseen issue that, given the supplier’s expertise, it would have been reasonable for it to have identified the issue pre-contractually, the supplier has a duty to resolve it at their own cost.

In theory, this means that in the event of contracting with an expert supplier and agreeing a contract in which your business outcomes are clearly and quantitatively stated, the onus is entirely upon the supplier to ensure that your outcomes are satisfactorily met or surpassed.

The key is in the representation that a solution to your required business outcomes can be provided. The how is not relevant in terms of a supplier’s duty to warn — if they have said that they can fulfil the contract for an agreed price and time-scale, they are contractually obliged to do so.

What Makes a Supplier an ‘Expert’?

In simple terms, your supplier is an expert if they have represented to you that they have undertaken the delivery of similar outsourced/commissioned or managed services for another organisation at some point in the past. Therefore, it is most likely that your supplier is an expert, as it is in their best interests to actively promote their relevant expertise.

Note that past services rendered by your supplier to other organisations do not need to be identical in form and function to your own strategic relationship — they only need to be ‘similar enough’. It is expected for strategic project relationships to have their own unique idiosyncrasies, and as such, your supplier would not have reasonable ground for claiming against ‘expert status’ on the basis that prior relationships were different in minor aspects.

A Case Study – A Supplier’s ‘Duty to Warn’

In order to demonstrate how a supplier’s duty to warn might practically become relevant, let’s explore a hypothetical situation relevant to local authorities. Note these key principles apply to commercial organisations too.

Say you have commissioned a call centre to be run by your expert supplier. At the outset of the commissioning arrangement you specified the necessary quantifiable business outcomes.

One of your objectives was for a 24 hour turnaround on resourcing housing repairs. For such an outcome to be possible, your expert supplier would have planned to populate the call centre with operators of differing ‘skill levels’ — each level attracting a different pay grade. The majority of issues would be handled by the less skilled (and less expensive) operators, but more complicated scenarios would quickly be escalated to an operator with the appropriate level of expertise, or perhaps back to the repairs operations team.

During the bid process, the supplier would have analysed the nature and types of calls coming into the centre. It would have made recommendations as to the types, skill levels, and support systems that would be necessary for the local authority to improve the tenant’s turnaround time in having the problem resolved, the authority’s business outcomes and lower costs. The responsibility for putting together a detailed implementation plan that would meet the local authority’s business outcomes would have laid squarely on the supplier’s shoulders. 

Let’s say that during the implementation and transition process, the supplier identified a fundamental flaw within its original plans — the planned staff split and/or the process changes and IT systems would not be sufficient to achieve your business outcomes. The only practical way to resolve the issue would be to invest additional funds in more experienced staff and improved IT systems.

In this scenario, it would not only be your supplier’s responsibility to address the issue by making whatever improvements were required, but they would also be fully liable for any additional costs above the original contract value. This responsibility would remain in place for the duration of the contract.

A Duty to Warn is Ironclad, But You Must Preserve It

It would not be unusual for the story above to conclude with the supplier threatening to break from the contract and/or insisting upon an increase in the contract value in order to achieve the original business outcomes, but at that point the argument for the supplier’s duty to warn would come into effect.

Only the most bullish of suppliers would persist through initial dispute, mediation, and finally the courts before most likely being admonished by a judge who would more than likely find in your favour. As recent case law has established, the supplier’s duty to warn is distinct and very difficult to argue against.

Conclusion

There is really only one situation under which a supplier can come out on top, which is if your team manages the strategic project relationship in such a way that the supplier’s duty to warn is diminished (or destroyed). To discover how to avoid doing so, tips for avoiding failure in strategic partnerships and much more, download our free white paper: Strategic Vendor Responsibilities.

Photo Credit: Shutterstock

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