L4M6 2.4 Identify the process for terminating stakeholder relationships

Supplier termination process: what happens in the managing exit and new supplier on-boarding stage?

-A buyer is required to on-board a new supplier to replace the terminated supplier. -The buyer will need to use the Kraljic matrix to see where the product/services is located. -If the buyer terminates the relationship, the buyer should documents the supplier's shortcomings in terms of contract breaches. -The process of termination will be more difficult if the contract is vague and poorly-worded.

What should an exit strategy include regarding continuity of supply?

-An obligation for the current supplier to continue delivering the services at the same level of quality for the transition period. -An obligation for the supplier to continue to abide by all terms and conditions of the contract. -A requirement for the supplier to provide access for the buyer to all the necessary information that will be required to keep delivering the service after the transition period. -A requirement for a parallel service for a given period of time while the new supplier gets the service up an running. -A requirement for the supplier to keep the same team performing the services during the transition period.

What should a buyer put in a contract to ensure it has adequate termination provisions?

-Avoid entering into evergreen contracts or ones with auto-renewal clauses. See what are evergreen contracts? and what are auto-renewal clauses? -Include a 'termination for convenience' clause, which allows the buyer to terminate for any reason at any time. -Incloude provisions about confidentiality and intellectual property rights which will survive the termination of an agreement.

What should a buyer be aware of regarding confidentiality when terminating contracts?

-Confidentiality provisions like indemnity arrangements which usually survive a contract termination. -Non disclosure agreements where if a party which has signed the agreement discloses confidential information there will be a penalty for doing so.

What can happen if the buyer-supplier relationship ends in hostility?

-Conflict can arise where both parties may have to enter mediation or arbitration or have the matter settled in court, all of which is time consuming for both the buyer and supplier. See what is mediation? and what is arbitration? -It is likely the transition of services will be more difficult, like the quality of service may decline.

Supplier termination process: what needs to be done when developing an exit strategy?

-Create a detailed exit plan to minimise disruption for the business' daily operations. -Consider TUPE provisions. -Consider what will happen to any stock currently on the supplier's premises? -What will happen to any assets or equipment that belong toe the supplier or have joint ownership? -What about any outstanding work the supplier is required to complete? -What about outstanding payments to the supplier?

What does a buyer need to be aware of regarding Finances when terminating a contract?

-He needs to ensure taht early termination will not result in any financial penalties. -If the supplier has committed a material breach of the contract the buyer may be entitled to some financial remedies (esp. seroce redits for IT support contracts). See what are service credits? -He needs to know the costs associated with terminating a contract, such as transition costs if two suppliers are being paid at the same time. -He will need to destroy any information regarding financial information shared (esp. if there was an open book costing arrangement).

What are the steps in the supplier termination process?

-Identify supplier performance issues -Contract management -Obtain business approval to terminate -Develop exit strategy -Review market/qualify new supplier -Give written notice of termination -Manage exit strategy/new supplier onboarding

Supplier termination process: what are the features of obtaining business approval to terminate?

-If the supplier has instigated termination and the buyer wants to continue the relationship, the period prior to official termination may involve a negotiation period. -If the negotiation fails, the relationship will continue to termination. -If the buyer is terminating the relationship, depending on the value of the contract the buyer may have to develop a business case for senior management to approve the termination.

Why is security of data an important consideration when terminating contracts?

-If there are no data security clauses in a contract the buyer will have no way of requiring the supplier to return or dispose of it in a way which does not affect the security of the buying organisation. -In the UK, the General Data Protection Regulation 2018 makes it mandatory for a buyer to have a formal contract with all suppliers which process personal data on their behalf, meaning the supplier must return or delete all personal data once the contract has ended.

Supplier termination process: what are the features of -identify supplier performance issues and -contract management?

-In terms of poor performance, termination will be a last resort for the buying organisation. -If contract management has been undertaken, poor performance should be highlighted to suppliers at performance reviews. -If contract management has been undertaken and the supplier fails to improve, the buyer should start the process of contract termination.

Supplier termination process: what happens in the giving written notice of termination stage?

-Most contracts say that termination must be made in writing with a notice period. The notice period could be any time. The shorter the notice period the less time the buyer will have to mobilise a new supplier. -Communicating the termination is an important step of the process. The method used for this will again depend on the existing buyer-supplier relationship.

Before undertaking any procurement, a buyer will need to review whether or not TUPE applies as it could affect the costs of the tendering supplier and length of mobilisation period. In what situations does TUPE apply?

-Outsourcing (a supplier takes over activities from a buying organisation). -Re-tendering (a new supplier takes over activities from another supplier. The product/service being transferred must be the same for TUPE to apply). -Insourcing (a buying organisation takes over activities from a supplier and brings them back in-house).

What are the four main types of intellectual property rights (IPR)?

-Patents (which protect inventions). -Copyrights (which protect original works of expression). -Trade secrets (valuable information on technology regarded as confidential and providing a competitive advantage). -Trademarks (marks and symbols which distinguish the products from other companies).

Why is it better to end the buyer-supplier relationship amicably?

-The buyer may need to work with the supplier in the future (esp. important when the market is small). -Former suppliers may be viewed as less risky to new, untested suppliers. -The buyer must continue to work with the supplier during the termination period, and this process will be smoother if the relationship is amicable.

Why would a buyer-supplier relationship be terminated?

-The contract comes to a natural end once the product is no longer needed. -The contract has reached the end date specified in the terms and conditions. -The contract is re-tendered as another supplier can provide a more competitive offer. -The buyer may be rationalising the supply base. -The supplier suddenly increases prices for no justifiable reason. -The contract is terminated due to a material breach, like poor performance. -The supplier is involved in activities that could damage the reputation of the buying organisation. -The supplier becomes insolvent. -The supplier merges with or is acquired by another company. -The supplier no longer wishes to deal with the buyer as a customer (e.g. if the supplier views the buyer as a nuisance). -Termination can come from contract frustration. See what is contract frustration?

What are service credits?

A contract mechanism for performance management. If a supplier fails to meet the standard set in the service credits the buyer has the right to deduct set amounts of money from the payments owed to the supplier.

What is contract frustration?

As a result of an unforeseen incident beyond either party's control, the obligations of the contract become impossible to perform.

Supplier termination process: what is done in the review market and qualify new supplier stage?

Before exiting the current supply relationship the buyer needs to locate a new source of supply; the buyer should review the market to see if there are several alternative suppliers in the marketplace.

What are auto-renewal clauses?

Clauses in a contract which state that if the buyer does not give sufficient notice, then the contract will auto-renew for another period.

Example of TUPE

If TUPE does apply to an employee when they transfer to the new company, they will do so with all of their terms and conditions of employment intact (the new employer must pay them the same and give them the same amount of annual leave).

What is arbitration?

The settling of a dispute between buyer and supplier by an impartial third party. This party may be named in the contract. The buyer and supplier agree to accept the third party's decision.

Why should the process of managing contract termination involve all key stakeholders?

There may be key operational considerations the buyer is not aware of (e.g. sales teams will know the volume of supplies needed in the coming weeks; legal will advise on any potential negative effects of termination).

What are evergreen contracts?

These are contracts with no end date.

What is mediation?

This involves a neutral third party encouraging the buyer and supplier to not just think about their legal rights under the contract but also their commercial interests. Mediation attempts to get both parties to reach a compromise.