Managing risk in supply chain contracts
Posted 19 hours 9 minutes ago by Harperjames
Permanent
Full Time
Other
South Glamorgan, Cardiff, United Kingdom
Job Description
When you're managing contracts across a supply chain, you're also managing risk, especially in an uncertain trading environment.
The logistics of manufacturing and transporting goods during a global supply chain crisis have become increasingly complex, with rising fuel costs, shortages of HGV drivers, escalating raw material prices, and post-Brexit regulatory changes all adding pressure. If you're dealing with late deliveries, inflated costs, or supplier disputes, it's not just frustrating; it can be financially damaging.
You need to know that your supply contracts are protecting your business, not exposing it. Our commercial law solicitors work with you to build strong contractual protections, clarify liability, and effectively manage risk allocation, enabling you to operate with greater confidence and fewer commercial vulnerabilities.
Our commercial contract dispute solicitors often deal with requests for legal advice on supply chain contract topics such as:
Gone are the days when a company could contract with another company to supply or deliver goods and ignore any associated legal or reputational risks. When it comes to supply chain contracts, price is not always the determining factor of who wins a tender or gets the contract or at least. In the opinion of commercial solicitors, choosing the cheapest supplier or haulier may actually increase your risk of commercial litigation through contract disputes, ultimately costing your business more and damaging your reputation with a manufacturer further up in the supply chain or with the end consumer.
Supply chain risk factors include:
Risk factor Issues
Governance: Any hint of bribery, corruption or tax evasive practices can not only result in investigation that damages your supply chain but can also risk your reputation, even if you are only part of the supply chain and not directly concerned in the governance issue.
Data protection and confidentiality: It is inevitable that those in a supply chain need to share data but contractors may not be as diligent as your company in complying with data protection, client confidentiality, cyber security and GDPR. This can lead to breaches of data protection legislation that may not directly result in GDPR non compliance for your business, but can still cause significant reputational damage if your company is linked to a data breach. Following recognised principles of supply chain security can help you assess and manage these risks more effectively across your supplier network.
Treatment of supply chain workforce: However far removed your company may be in a vertical contract supply chain your business can still be affected if a supplier or carrier fails to treat their workforce properly. Examples include:
Due diligence in the supply chain Commercial solicitors say that putting the time in with due diligence prior to the signing of commercial contracts significantly reduces supply chain breakdown and, just as importantly, the potential for commercial litigation over supply chain disputes. Requiring contractors to complete due diligence questionnaires so that your business knows its supply chain in the same way as you 'know your client' should be one element of the due diligence procurement process, as well as ensuring that potential business partners fully understand the environmental or other standards they will need to work to if involved in your supply chain. Understanding the standards expected of them ensures they can properly tender for the work or correctly price the contract.
Managing risk through specialist supply chain contracts The management of risk, after the due diligence phase, includes ensuring that your supply chain contracts limit your risks (whether those are legal or reputational) and your liabilities. Examples of clauses that can help manage supply chain risks include:
Contractual clause Comments
The supplier must comply with any industry specific regulations and legislation and, where relevant, must maintain membership of an industry professional body and comply with training regimes. If the supplier fails to comply with these requirements, you could include this as a reason for you to have the right to terminate the contract. If your business is being asked to commit to enhanced standards, beyond the industry norm, this may involve additional contract negotiation.
The supplier must maintain insurance cover at a specified level. Insurance will not cover every risk and a contracting party may want to include a force majeure clause so that a contracting party is not liable for forces outside its control.
Data protection: A data protection clause emphasises the importance of a contracting party complying with GDPR, not only in relation to the legislation but the potential for the termination of the contract or penalties.
Use of sub contractors: Your business may want to specify that the contracting party should only sub contract with sub contractors approved by you or who are members of a recognised industry body. If you are being asked to commit to this type of agreement it could affect profit margins if your hands are tied on your choice of sub contributor. One way to minimise risk is to include a list of pre agreed sub contractors. Where sub contractors are likely to be used, you may want to include a requirement for flow down provisions so each sub contractor is bound by the same conditions and adherence to standards.
Audit provisions: Audit provisions help manage risk by those in the vertical contract regime being clear that their performance is being monitored in accordance with agreed standards, key performance indicators and the consequences of non compliance with the contractual standards.
Review provisions: Any supply chain contract should include industry specific review provisions. It is also crucial to regularly update your commercial contracts to ensure they remain fit for purpose.
Termination clause: The termination clause needs to consider if a supplier can terminate for breach of contract or if there are scenarios where a contracting party can be allowed to remedy their breach of contract. In some cases, you may want to include a provision for the immediate termination of the contract. Any termination clauses need to consider, on an industry specific basis, difficulties in securing alternate suppliers or carriage of goods and the importance of continuity of business until alternatives can be organised, especially when assessing whether you can terminate a commercial contract.
Dispute resolution: With an increased risk of commercial contract disputes arising from the global supply chain crisis, it is essential to be proactive in managing disputes to achieve a quick and cost effective resolution. Including a requirement for supply chain disputes to be referred to commercial arbitration is one solution. Alternatively, you might consider commercial mediation as an effective form of alternative dispute resolution, depending on the nature of the disagreement and the relationships involved.
Reviewing your supply chain contracts It can take petrol shortages, motorway demonstrations and threats of port blockades for a company to realise just how exposed they are to protracted and expensive commercial supply chain litigation. No commercial litigation solicitor would suggest that a review of a supply chain contract will eradicate all risk but you may be able to minimise your risk . click apply for full job details
The logistics of manufacturing and transporting goods during a global supply chain crisis have become increasingly complex, with rising fuel costs, shortages of HGV drivers, escalating raw material prices, and post-Brexit regulatory changes all adding pressure. If you're dealing with late deliveries, inflated costs, or supplier disputes, it's not just frustrating; it can be financially damaging.
You need to know that your supply contracts are protecting your business, not exposing it. Our commercial law solicitors work with you to build strong contractual protections, clarify liability, and effectively manage risk allocation, enabling you to operate with greater confidence and fewer commercial vulnerabilities.
Our commercial contract dispute solicitors often deal with requests for legal advice on supply chain contract topics such as:
- Can a transport company escape a supply chain contract that is no longer economic to fulfil for a transport company because of the sudden rise in salaries for HGV drivers and rapid increase in petrol prices?
- Can a manufacturer sue their sub contractor as the company has not met an agreed delivery timescale resulting in the manufacturer being in breach of their sales contract with a retailer?
- Can a company terminate a contract for non performance when the fault lies with the supply of goods rather than their quality?
- Can a retailer claim reputational damage and consequent loss from a manufacturer or supplier as failure to supply goods to the end consumer has led to complaints and refunds?
Gone are the days when a company could contract with another company to supply or deliver goods and ignore any associated legal or reputational risks. When it comes to supply chain contracts, price is not always the determining factor of who wins a tender or gets the contract or at least. In the opinion of commercial solicitors, choosing the cheapest supplier or haulier may actually increase your risk of commercial litigation through contract disputes, ultimately costing your business more and damaging your reputation with a manufacturer further up in the supply chain or with the end consumer.
Supply chain risk factors include:
Risk factor Issues
Governance: Any hint of bribery, corruption or tax evasive practices can not only result in investigation that damages your supply chain but can also risk your reputation, even if you are only part of the supply chain and not directly concerned in the governance issue.
Data protection and confidentiality: It is inevitable that those in a supply chain need to share data but contractors may not be as diligent as your company in complying with data protection, client confidentiality, cyber security and GDPR. This can lead to breaches of data protection legislation that may not directly result in GDPR non compliance for your business, but can still cause significant reputational damage if your company is linked to a data breach. Following recognised principles of supply chain security can help you assess and manage these risks more effectively across your supplier network.
Treatment of supply chain workforce: However far removed your company may be in a vertical contract supply chain your business can still be affected if a supplier or carrier fails to treat their workforce properly. Examples include:
- Failing to pay the national minimum wage
- Allowing HGV drivers to work beyond permitted hours
- Not complying with illegal working legislation or the Modern Slavery Act 2015
- Discriminating against some workers in contravention of The Equality Act 2010
Due diligence in the supply chain Commercial solicitors say that putting the time in with due diligence prior to the signing of commercial contracts significantly reduces supply chain breakdown and, just as importantly, the potential for commercial litigation over supply chain disputes. Requiring contractors to complete due diligence questionnaires so that your business knows its supply chain in the same way as you 'know your client' should be one element of the due diligence procurement process, as well as ensuring that potential business partners fully understand the environmental or other standards they will need to work to if involved in your supply chain. Understanding the standards expected of them ensures they can properly tender for the work or correctly price the contract.
Managing risk through specialist supply chain contracts The management of risk, after the due diligence phase, includes ensuring that your supply chain contracts limit your risks (whether those are legal or reputational) and your liabilities. Examples of clauses that can help manage supply chain risks include:
Contractual clause Comments
The supplier must comply with any industry specific regulations and legislation and, where relevant, must maintain membership of an industry professional body and comply with training regimes. If the supplier fails to comply with these requirements, you could include this as a reason for you to have the right to terminate the contract. If your business is being asked to commit to enhanced standards, beyond the industry norm, this may involve additional contract negotiation.
The supplier must maintain insurance cover at a specified level. Insurance will not cover every risk and a contracting party may want to include a force majeure clause so that a contracting party is not liable for forces outside its control.
Data protection: A data protection clause emphasises the importance of a contracting party complying with GDPR, not only in relation to the legislation but the potential for the termination of the contract or penalties.
Use of sub contractors: Your business may want to specify that the contracting party should only sub contract with sub contractors approved by you or who are members of a recognised industry body. If you are being asked to commit to this type of agreement it could affect profit margins if your hands are tied on your choice of sub contributor. One way to minimise risk is to include a list of pre agreed sub contractors. Where sub contractors are likely to be used, you may want to include a requirement for flow down provisions so each sub contractor is bound by the same conditions and adherence to standards.
Audit provisions: Audit provisions help manage risk by those in the vertical contract regime being clear that their performance is being monitored in accordance with agreed standards, key performance indicators and the consequences of non compliance with the contractual standards.
Review provisions: Any supply chain contract should include industry specific review provisions. It is also crucial to regularly update your commercial contracts to ensure they remain fit for purpose.
Termination clause: The termination clause needs to consider if a supplier can terminate for breach of contract or if there are scenarios where a contracting party can be allowed to remedy their breach of contract. In some cases, you may want to include a provision for the immediate termination of the contract. Any termination clauses need to consider, on an industry specific basis, difficulties in securing alternate suppliers or carriage of goods and the importance of continuity of business until alternatives can be organised, especially when assessing whether you can terminate a commercial contract.
Dispute resolution: With an increased risk of commercial contract disputes arising from the global supply chain crisis, it is essential to be proactive in managing disputes to achieve a quick and cost effective resolution. Including a requirement for supply chain disputes to be referred to commercial arbitration is one solution. Alternatively, you might consider commercial mediation as an effective form of alternative dispute resolution, depending on the nature of the disagreement and the relationships involved.
Reviewing your supply chain contracts It can take petrol shortages, motorway demonstrations and threats of port blockades for a company to realise just how exposed they are to protracted and expensive commercial supply chain litigation. No commercial litigation solicitor would suggest that a review of a supply chain contract will eradicate all risk but you may be able to minimise your risk . click apply for full job details