What is a supplier’s Duty to Warn?

By Allan Watton on

One of the key factors in creating a successful supplier relationship is to understand that the written contract terms with your supplier do not represent the final word on how your partnership should be maintained. If your supplier represents itself as an ‘expert’, legal precedence has established a raft of implied responsibilities (Expert Responsibilities) that it must adhere to, which includes its Duty to Warn. Also, if your supplier acts as a specialist, it cannot contract out of being an expert. If it tries to, a court would probably still uphold its ‘expert responsibilities’ in the event of a disagreement.

How do I know if my supplier is an ‘expert’?

In simple terms, your supplier is an expert if they have represented to you that they have undertaken delivery of similar outsourced/commissioned or managed services for another organisation at some point in the past.

From a self-promotional standpoint, it is in a supplier’s best interests to represent themselves as an expert. Their original proposal to you probably included details of services they have successfully outsourced from other organisations. Your supplier may well have extolled the benefits of their expertise relating to the specific services you want to outsource to them.

It is important to note that the type of services that your supplier has claimed to be a specialist in do not have to be identical to the services you outsourced – they just have to be ‘similar enough’. Each type of outsourced service carries its own unique idiosyncrasies, so differences in service delivery experience are expected.

There are many levels of ‘experts’. What is fundamental is to understand whether your strategic supplier has represented that they can provide a solution to your operating problem within your organisation. What precise solution they propose isn’t particularly relevant. What matters is whether they have proposed a solution or not.

duty to warn

In terms of identifying your supplier as an expert, no further considerations are required.

What does an expert supplier have a duty to warn me about at the pre-contract stage?

The case of Stephenson Blake (Holdings) Limited v Streets Heaver Limited helped set the scene for organisations that rely on strategic or professional advice from expert strategic suppliers. The judgment confirmed supplier responsibilities upon entering into an outsourcing agreement with a strategic supplier in which you relied on their professional advice pre-contractually.

The case helped to clarify that an expert supplier is under a duty to:

  1. Validate what their advice covers – and separately, what the solution they provide to you covers.
  2. Validate what their advice and solution does not cover.
  3. Validate the consequential impact on the outsourced service and business outcomes relating to what their advice does not cover and, separately, the consequential impacts of what their solution does not cover.

If the supplier does not explain these items appropriately to you during the bidding process, it usually becomes liable to resolve any subsequent related issues at its own cost.

For example, during the bidding process, you may have asked suppliers to suggest ways in which a particular service should be outsourced in order to achieve specific cost reductions or service improvements. Under those types of circumstances, your supplier has a duty to ‘think for you’ and to ‘warn’ you (before you enter into the contract) of any issues that might have an adverse material impact on the service provision they are purporting to provide.

Your expert supplier’s ongoing Duty to Warn

A separate case (J Murphy & Sons Limited vs. Johnston Precast Limited) reinforced the ‘duty to warn’ principle. The key interest is not so much the facts of the case itself but the Judge’s restatement of the general principles of how expert suppliers should be accountable for their advice – and over what time period.

The case set a clear legal precedent in terms of an expert supplier’s duty to warn:

  • An expert supplier has a ‘duty to warn’ that extends throughout the length of the contract term – not just at the outset.
  • This duty exists independently of (and can often supersede) any written terms in the contract.

There are multiple scenarios under which an expert supplier’s ongoing duty to warn would come into play.

For instance, the aforementioned court case related to a dispute between a construction company (Murphy) and a pipe layer (Johnston). Johnston represented itself as an expert in pipe technology and underground pipe laying. Once the contract had been signed, and the implementation had started, Johnston became aware that the materials stated within the original contract would not be fit for purpose. Despite this knowledge, they continued without informing Murphy of the situation. The Judge ruled that as an expert supplier, Johnston had a responsibility to pass on such information, regardless of the fact that the original contract explicitly stated that the original materials be used.

The practical realisation is this – your expert supplier is accountable to correct any adverse operational issues at its own cost under either of the following circumstances:

  • If it implements changes to an outsourced service that results in said adverse issues it had not warned you about.
  • If it knowingly continues with a faulty service delivery method – even if it is specified in the contract.

To identify just how powerful your actions on a programme can be in overturning the written terms of a contract – Clause 15(i) of the Murphy contract said: ‘The Customer must rely on its own skill and judgment and recognise good civil engineering practice in relation to the goods and shall satisfy himself that goods specified are suitable for the Customer’s intended purpose.

On the face of it, this term stated that the customer was responsible to make sure that any professional advice it received and any services it purchased from the service provider was suitable for its purposes. It expressly excluded the service provider from having any responsibility in this respect.

Despite this term being expressly written into a contract that both parties had signed, the Judge found that this term did not relieve the service provider from its on-going duty to warn the customer if it knew, or ought reasonably to have known about a potential (but relevant) problem with the customer’s programme.

Conclusion – Your Supplier’s Duty To Warn

If for example, your service provider implements changes to an outsourcing service or upgrades some software but fails to warn you regarding any adverse impact that these changes may have (for example, the service changes don’t work or you lose software functionality as a result of the upgrade) then the service provider is accountable to put any adverse operational issues right at its own cost.

 Key Points:

  • Your service provider has a duty to warn you about what their advice and solution covers and what it does not cover
  • Your service provider must validate the consequential impact on the project of what their advice does not cover and, separately, the consequential impacts of what their solution does not cover
  • This duty to warn exists not only pre-contractually but throughout the duration of the contract
  • The duty to warn exists independently of any written terms in the contract.

Want to Learn More?

This article is an extract from our white paper on strategic supplier responsibilities. To read more about Expert Responsibilities, Implied Terms and Duty to Warn, and how they are enforced in practice, you can download the full white paper ‘Strategic Supplier Responsibilities’.

See also our FAQ on What are Supplier Expert Responsibilities?