<< Pre-contract appraisal

1. Reliance

Litigation can negatively affect the provision of goods and services from a supplier.

Even if your organisation is in the right in respect of any dispute against the supplier, it can suffer as a result of taking action – for example, it could strain relations and a supplier may become unco-operative.

Questions then arise as to:

• How your organisation will replace the supplier’s goods or services at short notice. There are also associated risks if another supplier is appointed. It will not want to be passed a “poisoned chalice” and could charge you a premium and invoke onerous terms and conditions if coming in at short notice with the sense that your organisation sees it as a “distressed” purchase.

• How you will manage the transition between your original supplier, which you are in dispute with, and any new supplier and what co‑operation you can expect.

• How the appointment of a new supplier will affect any litigation – for example, if your organisation ends up paying twice because it needs to pay the new supplier but has already paid the original firm for unsupplied goods

2. Uncertain timescales

Length of litigation depends on:

• How long it takes to assess the strength of your case against the supplier;

• How long it takes to engage solicitors and barristers;

• Pre-litigation correspondence and meetings to achieve settlement;

• Putting formal claim documentation together and serving this on the supplier;

• Availability of witnesses and experts for court proceedings;

• Availability of court dates;

• Dates that either party decides settlement is possible;

• Time to agree the terms of any potential settlement.

This uncertainty can make it difficult to predict how to obtain goods and services while litigation is ongoing.

The high-profile case BSkyB v EDS, which involved the outsourcing of an IT project, lasted a number of years before being decided.

3. Costs

Litigation costs can rise quickly for both parties. The general rule is that the loser pays the winner’s costs (or a large proportion of them).

Therefore, after a certain point in litigation, a party may think it is too difficult to settle or pull out if the other side insists that this is dependent on their legal costs being paid.

In BSkyB v EDS legal costs were estimated to be more than £70 million.

These are just some of the examples of problems that can arise because proper checks are not carried out on suppliers.

>> Using the Kraljic portfolio purchasing model