Home' MHD Supply Chain Solutions : MHD Mar-Apl 2016 Contents to deliver milestones, or the whole project, by
agreed deadlines. This may involve agreeing a
bonus payment for early completion, or requir-
ing compensation, generally in the form of ‘liqui-
dated damages’, for late delivery.
Liquidated damages are generally a daily
rate, capped at a total amount or a proportion
of the overall project value. In agreeing an
appropriate rate, the guiding principle is that
the amount is to compensate the customer
for the delay, not punish the supplier. For
example, a rate might reflect the additional
costs (or savings failed to be realised) that are
attributable to the delay. This might include
rent for warehouse space you cannot use, or
the labour costs that would otherwise have
Consider whether there are any project
requirements that, if not satisfied, may mean
you need an ability to suspend or end the
project. For example, if it is not guaranteed that
planning approvals can be obtained, then you
may need a break clause. This might allow you
to terminate the contract, possibly based on
payment for work undertaken to date.
Completion of the project is a significant point
in time, as it may trigger final payments and
mark when the system is to be handed over.
This is important for insurance and for knowing
who holds the risk in relation to the system. It is
worthwhile defining carefully when the project
is ‘complete’ – is it when the system has been
physically built, when the system has demon-
strated it can cope with particular throughput, or
when the system goes live? The contract might
set out details of what performance is required
before the system will be accepted for handover.
Site operational requirements
The contract is a good place to include any
site-specific operational requirements that will
apply to your supplier.
• Do you have any ‘black-out’ periods when
installation or testing has to be limited or not
permitted? For example in the FMCG and
retail sectors, this might be the busy trading
period prior to the Christmas season.
• The supplier might be given a fenced-off
work area for which they are responsible for
safety and security. It is also important that
the supplier’s installation activity does not
interfere with operations at the site (and from
the supplier’s perspective, that site operations
do not interfere with the installation).
• Can the supplier access the site at any time, or
are there particular working hours that apply?
• Are there any particular types of product in
your supply chain that have their own regu-
lation – such as liquor, tobacco, dangerous
goods and so on? Are there any specific
requirements that will impact on the project?
• Site specific requirements also extend to the
IT integration aspects of the project – for
example, might the supplier have to comply
with your IT security policies?
Spare parts and maintenance
Delivery of the system is generally only part of
the story. After it is built, it is likely that a system
will require ongoing maintenance and the provi-
sion of spare parts.
Does the contract include the provision of a
spare parts package? If not, what is likely to be
required in future? Consider whether parts are
generic or only supplied by the one supplier.
Do the warranties require the use of authorised
parts? If so, what operational risks does this
introduce? Are commitments required in the
contract as to the ongoing provision of these
parts or the price at which they will be available?
If the system has specific maintenance
requirements, this might form part of a separate
maintenance service. If this is the case, this
may raise a whole other set of issues – such
as what does the service encompass, what is
excluded, what are the response times and what
fees are payable?
Successful implementation of a supply chain
automation project can be both complex and
multi-faceted. It is worthwhile investing time
during the planning phase to research and
consider the relevant stakeholder and contract
issues, such as those described in this article.
This allows risks to be better managed and
greatly improves the chances that the project
will deliver a successful return on investment.
Michael Milnes is a corporate and
commercial lawyer at law firm Mills Oakley
in Sydney. Contact Michael by email at
“It is worthwhile
investing time during
the planning phase to
research and consider
the relevant stakeholder
and contract issues.”
MHD SUPPLY CHAIN SOLUTIONS — MARCH / APRIL 2016
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