Poor Communication = Poor Supplier Performance, Part VI

After reading the first five parts of this series, it may seem that all you have to do is communicate properly and you’ll always get what you want, when you want it.

Well, you will indeed avoid much of the heartburn that less educated buyers experience.  But even if you apply everything you’ve learned up to this point, there still is a risk of your expectations not being met by your supplier.

You see, there is a term called Force Majeure that’s used quite often in contracting and procurement.  Force Majeure is French for “superior force.”  In contracts, it refers to something beyond the control of the parties, usually an Act of God, like a hurricane, tornado, flood, tsunami, etc. that prevents one of the parties from performing its obligations.  Force Majeure also can cover things like war, riots, and the like as well.

So including a standard Force Majeure provision in your contract is always reasonable, right?

After all, you wouldn’t want to penalize a supplier for failing to deliver when its building just burned down, would you?

In that type of case, no.  But Force Majeure clauses (or the invocation thereof) aren’t always reasonable.

What if the Force Majeure clause listed a labor strike as a Force Majeure excuse?

What about failure to receive materials or supplies?

Are those things really out of the control of the supplier?

Maybe not.

What about “the biggest depression we have had in this country since 1929?”

Is that a reason to excuse someone from their contractual responsibilities?

Apparently, Donald Trump thinks it is.

You see, Mr. Trump’s organization was building a skyscraper in Chicago using borrowed funds.  They failed to make a payment on that loan, prompting the lender in November 2008 to file suit against the Trump Organization.

Trump’s defense?

Force Majeure!

Yep, the financial crisis that was gripping the world at that time was viewed by Trump as an event worthy of declaring Force Majeure so that the lender would keep funding the project.  As of this writing, the case has not yet been judged or settled.

But the point is that you have to be careful with Force Majeure clauses.  If you aren’t, your supplier may be making excuses that should not be valid and your organization will be struggling as a result.

The point is not to list within your Force Majeure clause every possible situation that could happen, regardless of the probability of occurrence.  But it is very helpful to list several foreseeable events and specify in your Force Majeure clause whether or not those events are excusable under Force Majeure.

You can’t eliminate the grey areas.  But you should reduce the grey areas.  Again, using analytical skills to think through various scenarios can make a big difference.

One Response to Poor Communication = Poor Supplier Performance, Part VI

Leave a Response