PurchTips edition #337<\/p>\n<\/div>
Procurement risk management is one of the challenges a professional in this industry will have to develop.<\/p>\n
Intangible services<\/a> \u2013 work whose quality you can\u2019t experience before the performance \u2013 are among the most difficult things to procure. If you\u2019re not careful when contracting for intangible services, you can get stuck with an incompatible supplier for an unprofitably long period of time.<\/p>\n Any time you procure intangible services, there\u2019s a risk that things won\u2019t go as hoped. To prepare for the possible need to undo a decision, beware of supplier proposals with high, non-refundable, up-front fees, like setting up fees.<\/p>\n Sometimes, it is better to choose a services supplier whose set up costs are \u201cbaked in\u201d to their monthly fees rather than a supplier whose lifetime contract value is lower but charges high up-front fees. That latter arrangement will only benefit you if the deal works perfectly, which \u2013 for intangible services \u2013 is far from certain.<\/p>\n When you contract for an intangible service, you are buying a result, like a reduction in security compromises, an increase in sales, etc. Incorporating metrics or service levels in your contract ensures that the supplier understands the goal it is working towards and is not just \u201cdoing its own thing.\u201d<\/p>\n Often, when you incorporate service levels into a contract, you specify the conditions under which you have the right to terminate the contract if the supplier fails to perform to an agreed-upon standard.<\/p>\n Suppliers will tend to fight this, making service levels a difficult term to negotiate. A clause that may be easier to negotiate while serving the same purpose is a mutual termination for convenience clause. This allows either party to terminate the contract for any reason (not just for default). Clauses like this that give an identical right to both parties are easier to negotiate.<\/p>\n One thing that differentiates a termination for convenience clause from a ‘termination for default’ clause is the number of days notice required. It is customarily longer for a ‘termination for convenience’ clause, so make sure you can live with the period during which you\u2019ll still be tied to the supplier before you agree to the number.<\/p>\n Become a member of one of the world\u2019s largest procurement associations today.<\/a><\/p>\n Recommended Reading<\/strong><\/p>\nHere are some tips for service procurement risk management:<\/h6>\n
Steer Away From High Up-Front Fees.<\/strong><\/h6>\n
Incorporate Metrics\/Service Levels in Your Contract.<\/strong><\/h6>\n
Use a Mutual Termination for Convenience Clause.<\/strong><\/h6>\n
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