Avoiding Disputes When Winding Down a Supply Relationship
ISM's 93rd Annual International Supply Management Conference
St. Louis, MO
Jeffrey J. Mayer, Partner, Freeborn & Peters LLP
John T. Shapiro, Partner, Freeborn & Peters LLP
It happens to all of us...sooner or later, a supplier relationship must come to an end. But how can the conclusion stay civil and light on the litigation? It will take some work, but Freeborn & Peters LLP partners Jeffrey J. Mayer and John T. Shapiro presented several tips to help supply management navigate these sensitive waters in this Tuesday afternoon session.
Some of the main points made by Mayer and Shapiro included:
- It's important to address an issue as early as possible. The longer you wait to handle it, the more complex the problem can become.
- Document any and all significant changes in the relationship, because when a contract comes to an end it can be difficult to avoid dispute if you haven't been keeping track of things such as billing discounts that are inconsistent with stated prices, you subtracted charges not provided for in the contract, or any number of other issues. Also, although formal amendments to contracts are the best, e-mails are perfectly acceptable in most states.
- It pays to know what your goals are. For example, you might not want to end a relationship, but rather reduce a number of orders. In this case, they recommend having a chart to reference/summarize what you are doing. Record-keeping, although it can be mundane work, is highly effective.
- Develop a consistent way of doing business. Expectations can drive a relationship...or end one. Cultural considerations can come into play, too. "When companies don't consider these cross-cultural differences from the beginning, they can have real problems," said Mayer.
- Analysis prior to supplier notification is key. "You have to be truly objective if you want to stay out of court," said Shapiro. "Figure out what you're doing and maybe it is already in the contract in some manner. And know that if you make a mistake, the supplier is going to be more likely to go to court."
The session included a sample of clauses normally utilized when winding down a supplier relationship. One example is when the buyer provides ideas as to how the supplier can improve how things are done, although cost improvement recommendations made by a supplier will be implemented by joint review. "There are a just as many methods and clauses to handle the completion of a supplier relationship as there are situations," Mayer said. "The key is, you have to look at all aspects of your relationship with the client."