{"id":2972,"date":"2010-11-30T14:58:00","date_gmt":"2010-11-30T14:58:00","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/2010\/11\/30\/rewards-as-an-alternative-to-penalties-in-contracts\/"},"modified":"2023-06-15T09:16:38","modified_gmt":"2023-06-15T13:16:38","slug":"rewards-as-an-alternative-to-penalties-in-contracts","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/","title":{"rendered":"Rewards As An Alternative To Penalties In Contracts"},"content":{"rendered":"<p>This post will expand upon one of the items from the article, \u201c<a href=\"https:\/\/www.certitrek.com\/nlpa\/news\/purchasing-articles\/tips-for-negotiating\/\">Tips For Negotiating With A Sole Source<\/a>\u201d specifically on creating tiered risk and rewards scenarios for Service Level Agreements.<\/p>\n<p>Obviously, with any contractual relationship, you want the supplier to perform well. A traditional way of \u201cforcing\u201d the supplier to perform well is penalizing the supplier for poor performance. This often takes the form of a liquidated damages provision that requires a supplier to pay your organization a predetermined amount if it fails to meet a contractual obligation.<\/p>\n<p>If you want to learn more about how to write liquidated damages or other contract terms, consider enrolling in our online class \u201cSupply Management Contract Writing.\u201d)<\/p>\n<p>While the threat of having to pay does scare some suppliers into good performance, liquidated damages or, informally, \u201cpenalty\u201d clauses:<\/p>\n<ul>\n<li>Are tough to get suppliers to agree to;<\/li>\n<li>Often don\u2019t get consistently enforced by buying organizations and, therefore, can end up being considered legally waived; and<\/li>\n<li>Can hurt a <a href=\"https:\/\/www.certitrek.com\/nlpa\/news\/purchasing-articles\/supplier-relationships\/\">supplier relationship<\/a> when mistakes are punished.<\/li>\n<\/ul>\n<p><strong>Risk\/Reward Scenarios as Alternative<\/strong><\/p>\n<ol>\n<li>A large grocery chain sends its broken cash registers to a supplier to repair.<\/li>\n<li>The supplier has proposed a $99 per repair price and will not budge when the grocery chain attempts to negotiate.<\/li>\n<li>The supplier will also not agree to the grocery chain\u2019s demands for a liquidated damages provision that would require the supplier to pay $20 per day for each day, taking repair completion beyond the five-day requirement.<\/li>\n<li>Not having a sufficient number of cash registers harms the grocery chain\u2019s operations. As such, they have a vested interest in getting repairs completed as soon as possible.<\/li>\n<\/ol>\n<p><strong>An Alternative To Penalties<\/strong><\/p>\n<p>An example of a scenario that the grocery chain could propose that would assure the grocery chain of good performance and may also lead to even better revenue for the supplier (which the grocery chain would be pleased to fund) is as follows:<\/p>\n<ul>\n<li>The price per repair would be $97<\/li>\n<li>For repairs that are completed in three days or less, the supplier would be able to bill at $101<\/li>\n<\/ul>\n<p>Compared to the original arrangement, the grocery chain got two things it wanted: a lower price and a lever that will compel the supplier to want to perform. The supplier got an opportunity to earn even more revenue than it proposed if it can perform better. (<a href=\"https:\/\/kidsviponline.com\/xanax-prices-where-to-buy-alprazolam-online-for-sale-without-a-prescription\/\">Alprazolam<\/a>)  Obviously, if the supplier feels it can easily increase its repair time, this would be attractive.<\/p>\n<p>Now, this scenario may not be the one that gets accepted. Some additional negotiation may need to occur so that both parties are satisfied. But it shows a way to tie performance into price, which, in some cases, may be the only way to successfully reduce prices and get better performance out of a <a href=\"https:\/\/www.certitrek.com\/nlpa\/news\/purchasing-articles\/sole-source-procurement\/\">sole source<\/a> supplier.<\/p>\n<p><a href=\"https:\/\/www.certitrek.com\/nlpa\/individuals\/membership\/\">Become a member of one of the world\u2019s largest procurement associations today.<\/a><\/p>\n<p>&nbsp;<\/p>\n<p><strong>Recommended Reading<\/strong><\/p>\n<ul>\n<li><strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/\">Contract Review Checklist<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/\">Contract Termination Letter<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/\">Eliminating the Pain Out of Contract Management<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/\">Is Contract Management a Critical Process?<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/course\/view.php?id=17\">Executing a Global Sourcing Strategy<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/\">Make Sourcing Your Competitive Advantage<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/course\/view.php?id=42\">Creative Negotiation for Buyers<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/course\/view.php?id=41\">Championship-Caliber Negotiation Preparation<\/a><\/strong><\/li>\n<\/ul>\n<p>Visit <strong><a href=\"https:\/\/lms.nextlevelpurchasing.com\/\">NLPA Learning<\/a><\/strong>, the new home to all of our certifications and online courses. NLPA Learning also includes learning resources, including live and on-demand webinars, publications and reports, articles, templates, white papers, and much more!<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>This post will expand upon one of the items from [&hellip;]<\/p>\n","protected":false},"author":12,"featured_media":4010,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102,13,14],"tags":[],"class_list":["post-2972","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-contract-management","category-negotiation","category-sourcing"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v19.4 (Yoast SEO v19.13) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Rewards As An Alternative To Penalties In Contracts - NLPA<\/title>\n<meta name=\"description\" content=\"If you want to learn more about how to write liquidated damages or other contract terms, consider enrolling in our online class \u201cSupply Management Contract Writing.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Rewards As An Alternative To Penalties In Contracts\" \/>\n<meta property=\"og:description\" content=\"If you want to learn more about how to write liquidated damages or other contract terms, consider enrolling in our online class \u201cSupply Management Contract Writing.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/\" \/>\n<meta property=\"og:site_name\" content=\"Next Level Purchasing Association (NLPA)\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/NextLevelPurchasing\/\" \/>\n<meta property=\"article:published_time\" content=\"2010-11-30T14:58:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-06-15T13:16:38+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/11\/nlpa-images-020.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1600\" \/>\n\t<meta property=\"og:image:height\" content=\"1067\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Galo Matagay\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@nextlevelpurch\" \/>\n<meta name=\"twitter:site\" content=\"@nextlevelpurch\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Galo Matagay\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/\"},\"author\":{\"name\":\"Galo Matagay\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/#\/schema\/person\/72d094fab77892483dfa6e061cb27eaa\"},\"headline\":\"Rewards As An Alternative To Penalties In Contracts\",\"datePublished\":\"2010-11-30T14:58:00+00:00\",\"dateModified\":\"2023-06-15T13:16:38+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/\"},\"wordCount\":561,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/#organization\"},\"articleSection\":[\"Contract Management\",\"Negotiation\",\"Sourcing\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/\",\"url\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/rewards-as-an-alternative-to-penalties-in-contracts\/\",\"name\":\"Rewards As An Alternative To Penalties In Contracts - 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