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Mirror your partner's dreams; the relationship will grow
Brian Farrington Ltd is committed to working with leading organisations involved in risk and procurement, co-delivering procurement and supply chain risk solutions to clients across the UK and globally.

Partner With Brian Farrington Ltd

Our Partner Programme is designed to provide you with innovative procurement and supply chain risk solutions. We create close business relationships for mutual business benefit, and as procurement and supply chain ‘challenges’ becomes a corporate level priority for leading organisations there is no better time to join us.

Becoming a Value Added Reseller (VAR)

VAR partners of Brian Farrington Ltd are primarily resellers of our innovative PROCURISK®, a web-based application that facilitates a structured assessment of Procurement & Supply Chain Risks. Our VAR partners will be skilled in the application of our proprietary methodologies, and able to provide full delivery services, as well as ongoing training and support to your clients.

Consulting Partners

You will be a professional consultancy practice in the risk domain who have specialised industry and application expertise. Typically, you will specialise according to industry or region and closely work with your clients to define and implement risk and related procurement and supply chain solutions.

If you are interested in our Partner Programme and would like to talk please get in touch with Stephen Ashcroft who can be reached at +44 (0)1744 20698 s.ashcroft@brianfarrington.com Twitter @ProcureChange.

 

For details of Procurisk®, a web-based application, facilitating a structured assessment of Procurement & Supply Chain Risks Ray Gambell can be reached at 01744 20698 r.gambell@brianfarrington.com Twitter @Procurisk. Go to www.procurisk.com.

PROCURISK® is procurement and supply chain risk intelligence software that helps people see and understand risk.

 

 

 
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And what was breakfast like for you?
It’s all over and I’m more energised than tired.  Yesterday was the first event in our International Festival programme.  It was a breakfast event focussed on 60 Minute Business Boost: Energise, Fortify and Flourish 2 July @theHub  We’re quietly pleased at the positive response.

It was a real kick meeting so many clients and contacts, and having the whole team working together to make this #IFB2014 event such a great experience.

[caption id="attachment_3152" align="alignleft" width="230"]Here's our MD Brian enthusing the audience Here's our MD Brian enthusing the audience[/caption]

Everything went off without a hitch – from the presentations to the breakfasts to the entrance arrangements at the Hub. The room (not just a standard room by the way, it really is like something of a James Bond lair!) the right size – with an amazing ‘event’ feel - and everything was in close proximity to each other. I think at the last count we had over 30 people chowing down for a breakfast of pastries, toast and fruit plates.  The fresh orange juice was definitely a hit.

Having the exhibitors, briefing material and demo stations in one section I thought was a great idea. It turned this room into a type of ‘hub’ and it was never difficult to find a new person to talk and discuss what they do to boost business to grow the bottom line and achieve their ambitions.

 

 

 

ifb 60 forum


You know what?  We were a touch concerned about the ‘appetite’ from business owners and company directors for a thought provoking procurement update providing inspiration and momentum for their businesses.

 

 

[caption id="attachment_3155" align="alignleft" width="230"]Brian and Ray - all smiles Brian and Ray - all smiles[/caption]

Energise, Fortify and Flourish was our strapline and it really did appear to have resonance with the delegates. It was all underpinned with a bit of steel though.  For example the role of purchasing to impact on the bottom line - the opportunity to reduce purchase prices without reducing quality.  And also considering risk: the need for due diligence when working with suppliers and unacceptable risks that some companies enter into.  The presentation part of the event ended with some pretty sharp questions and, what looked like some valuable insights in response.  A good, mature and valuable event - with no ‘flannel’. There was a flurry of exchanging business cards during networking as the successful event came to a close – always a good sign.

 

 

 

 

[caption id="attachment_3153" align="alignleft" width="230"]Steve greeting the first delegate of the day Steve greeting the first delegate of the day[/caption]

Everyone at Brian Farrington would, of course, like to thank the Attendees, Co-Sponsors, Keynote Speakers, Programme Committee and Presenters for making it great event. If you would like a copy of the presentation slides please get in touch and I’ll get them across to you.

- Steve

PS Our next event is the Innovators days, 16 July. Delighted to say we've had a great response to join us at another cracking venue.  Hope you can join us, either way sign up to our newsletter, below for advice and insights on procurement.
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What else is there outside the trinity of KPIs?
Key performance indicators (KPIs) are a positive means of illustrating that the value of your procurement operations is beyond "just" cost reduction and administration of orders.

I will take it for granted that the trinity of delivery, quality and cost will already be included. Right?  RIGHT!? :)

Measurement of parameters in a vacuum can be misleading. Procurement should also track performance in comparison to others - benchmarking internally, by each country's operation in a multinational organisation for example, or externally with other organisations through an "honest broker".

Four inter-related areas form the basis of procurement performance indicators:

  • Strategy - implementation against agreed milestones, for example the amount of expenditure influenced by procurement, usage and linkage to IT strategy (including different forms of e-procurement) and the broader business strategy.

  • People - this facet can take many forms, such as service quality or stakeholder satisfaction through questionnaire surveys and an objective assessment of procurement competencies. An example would be public-sector staff having a thorough understanding of the implications of the Alcatel judgement.

  • Procedures - clarity on procurement and supply chain management procedures such as for outsourcing key services, major projects or low-value purchasing.

  • Governance - there are regulatory requirements and best-practice aspirations that procurement should consider when developing KPIs. The acronym PESTLE (Political, Economic, Social, Technological, Legal and Environmental) is helpful when considering governance issues.


The overarching aims of your "Procurement Performance KPIs" are to demonstrate effective management of third-party spending and to provide a framework for monitoring performance and continuous improvement. The challenge is to obtain access to relevant information, avoiding potential data overload, and engendering commitment from stakeholders to a continuous improvement process.

In grappling with developing your own KPIs, what have you found particularly helpful?

If you'd like some ideas that have proven useful for other people seeking the value of procurement operations, get in touch - I'd love to help.

- Steve

PS More on KPIs here and for the best insights  straight to your inbox sign up to our newsletter ‘Think Procurement – scroll to the bottom of the page for details, thanks.
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Using a force majeure clause


This area is a minefield and, if you get it wrong, you will undermine your contract.

If worded badly, a "force majeure" clause can provide a huge loophole to legally excuse contract performance. The parties in a contract must know the precise definition, scope of its usage and limitation of the clause. A brief definition of force majeure is

"irresistible compulsion or coercion".


In 2002, in the case of Mamidoil-Jetoil and Moil-Coal v Okta, the judge stated that force majeure could only be cited to excuse performance of contractual obligations in circumstances where events are outside the control of the contractual party.  In other words, the clause can only be brought into play when events could not have been avoided or mitigated by reasonable steps by the party concerned.  The clause can be written to include provisions for the buying company to claim relief from liability for its non-performance.

We will, however, focus on what you must take into account in offering the supplier the provision of force majeure. Here's 5 points to inform your thinking on how to set up and use Force Majeure clause:

  1. Your definition. When writing a contract, you should define a force majeure event and detail the causes that will meet such an instance. You should take legal advice on this, considering acts of God, war or armed conflict, acts of terrorism, acts of government, earthquake or disaster. If your supplier wants these included in a force majeure clause, you should ask for the supplier's risk mitigation strategy to deal with each circumstance. They should have such a strategy and this will help you decide whether to include the specific event.

  2. Events to be rejected from the clause. There are some events that should be rejected, such as the supplier claiming a shortage of skilled labour and failures in his subcontractor's supply chain. You should also reject strikes, floods and fire on the basis that there should be a risk mitigation strategy capable of being implemented at very short notice.

  3. Supplier obligations. The clause should include a requirement for the supplier to alert your company to a force majeure situation within, say, 48 hours of it happening. This notification should include details of the occurrence and evidence of its effect on the obligations of the supplier, who should also set out what they are doing in mitigation. The two parties should meet soon after the event to discuss terms to mitigate the effects and facilitate the continued performance of the contract.

  4. Termination. You should include a provision to terminate the contract if, for example, the force majeure event continues for a longer period than, say, 28 days. This mechanism will need to state how many days' notice - for example, 14 days - should be given to terminate the contract. It is probable that some compensation may be due to the supplier and this will need to be set out in the contract.

  5. Mitigation. Your organisation must also have a mitigation plan, in case it has to terminate the contract.  In addition, it is advisable to see your legal services department when you have collected the relevant information.


5 areas to focus on in the use of a Force Majeure clause. What have I missed?

So here's the lesson:

If you're unsure about the Force majeure clause you're using, there's probably a decent reason.

And you may well find, like me, that by finding a way to make your Force Majeure clause more useful to the Buyer (and the Supplier) you'll find the contract performance benefits.

And the Supplier will pay a lot more attention to it.

And they'll help you deliver your required outcomes.

That can't be bad.

- Steve

What about the most favoured nation clause?

PS for the best insights  straight to your inbox sign up to our newsletter 'Think Procurement - scroll to the bottom of the page for details, thanks.
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Where now for the EU Procurement Directives?

Public procurement is legally accountable for its decisions.


Depending on the value of the specific purchase it will be subject to EU Procurement Directives. The existing Directives, harking back to 2006, could not be deemed to be a robust solution to effective procurement. The new Directives are complex, unproven and laden with potential bureaucracy. There are legal, governance, commercial and financial ramifications for public sector procurement strategies and policies. These considerations abound with implications for private sector organisations bidding for contracts in the future.


A selective critique and commentary follows on some highlights of the new Directives.

Where now for the EU Procurement Directives?

On the 14 January 2014 the European Parliament voted to accept the new Directives to replace Directive 2004/17 (Utilities Directive) and Directive 2004/18 (Public Sector Directive). These are likely to be implemented in the UK by the Cabinet Office during 2014. The official line is that the new EU Directive on public procurement intends to make the process of purchasing goods and services by public bodies, faster, more flexible and more effective. Time and events will tell! Those on the receiving end of public procurement processes wax lyrically about the overwhelming bureaucracy, unclear specifications, pre-qualification documents requiring a plethora of policies, unclear tender evaluation models, lack of feedback to unsuccessful bidders and timescales that are not adhered to. There is solace in the fact that the Remedies Directive remains unchanged.

We predict it will be used with more vigour when the future outcomes of public procurement decisions emerge, together with the manner in which the new Directives are applied in real life scenarios.

The final version of the “Proposal for a Directive of the European Parliament and of the Council on public procurement (Classical Directive) (First Reading)?? can be found on the Council of the European Union – Institutional File: 2011/0438 (COD) – Public Sector Directive. The Utilities Directive reference is 2011/0439. The Concessions Directive reference is 2011/0437.

Commercial organisations will welcome the abolishment of the ‘Negotiated Procedure.’ This is replaced by a new process, ‘Competitive Procedure with Negotiation.’ The Negotiated Procedure has been actively discouraged by UK Public Sector policy, arguably on the basis that the ‘Competitive Dialogue’ procedure was more fitted to complex procurements. This missed the point. The private sector sees negotiation as a positive practice, engaged in by mature organisations who genuinely seek to reach a long-term solution. Negotiation will offer a challenge to those public sector buyers who lack advanced skills. The scope of negotiations could include cost models supporting the price, key contract clauses such as limits of liability, insurance, damages and the provision of accurate management information.

The National Audit Office reports are testimony to failures of the public sector to engage in meaningful clarification and negotiation.

The implementation of the ‘Competitive Procedure with Negotiation’ is likely to need extensive bedding in. The procedure has the potential to generate challenges to contract award decisions. This will prove costly for all the parties involved.

The abolition of differentiation between ‘Part A’ and ‘Part B’ services is a welcome change. Currently, Part A services are subject to the full scope of the Procurement Directives. This includes financial services, cleaning services and insurance services. Part B services have been subject only to limited regulation and it may be postulated that, in consequence, some Part B services have exposed the public sector to excessive pricing regimes from parts of the private sector.

An example, from real life, is a service provider to the private sector charging £750 per hour, whereas the same supplier was charging the public sector on a multiplier of 1.5. The immunity of some Part B service providers is, of course, now threatened.

It is optimistically held that the new Directives will be a boost for small and medium enterprises (SMEs). The Directives will encourage (our emphasis), public sector buyers to break large contracts into smaller lots and capping turnover requirements for businesses. Hence, there is only encouragement and intent. It must not be forgotten that under the current procurement regime it has always been possible to break a procurement requirement into Lots. This approach has been contrary to the public sector penchant for aggregating requirements to obtain lower prices, notably by the Office of Government Commerce and its successors.

The consequence has been SMEs actively being discouraged, if not deliberately excluded, from some procurement exercises. This has fostered the award of contracts to large UK, European and USA corporations. The concentration of public contracts by value and strategic significance has largely been swept under the carpet.

What will the future hold?

It is beguiling to believe that public sector buyers will now concentrate on advertising requirements in Lots. The main reason, we suspect, will be the danger of an avalanche of tenders from SMEs and the resources required to deal with that situation. The public sector has not adopted best practice conducting due diligence on suppliers prior to contract award. There are numerous examples of a sole source suppliers entering into administration, without the buying organisation having Plan B in place. Worse still, is the absence of risk modelling on a broader scale than just probing the financial health of contractors and vendors.

We are pessimistic for SMEs gaining a much greater share of public sector contracts.

The proof of financial capacity is materially changed in the new Directives. To encourage the participation of SMEs, the maximum yearly turnover that economic operators are required to have, shall, in future, not exceed two times the estimated contract value, except in duly justified cases, such as where there are special risks. A scrutiny of this language leaves no doubt that there will be many such duly justified cases. The role of credit agencies is not mentioned, but warrants comment here. The robustness of financial credit checks is in some cases less than robust. We are aware of one situation where the financial basis of the credit score was four years out of date.

The price of goods and services has always been a contentious matter in public sector procurement. There has been a provision to award contracts purely on a ‘price’ basis or ‘Most Economically Advantageous Tender’ (MEAT). Typically, MEAT has been evaluated on the basis of price and quality. In one situation a Local Authority gave price 90% of the evaluation weighting. The new Directives introduce the concept of life cycle costing. We confidently predict that the Remedies Directive will be used by economic operators to appeal decisions to award contracts when life cycle costing was misapplied in tender evaluations.

The draft Directives include the following statement,

“Qualitative criteria should therefore be accompanied by a cost criterion that could, at the choice of the contracting authority, be either the price or a cost-effectiveness approach such as life cycle costing.??

Therein lies the potential for future disputes over contract awards.

There is a huge difference between knowing a Lump Sum price and understanding the cost drivers behind the price. This latter approach would require declaration of labour costs, material costs, overhead recovery, contingency provision to cover the risks inherent in the purchase, profit, environmental, social, disposal of goods and/or recycling. The public sector has a track record of not developing cost models to expose all these cost drivers.

The implications for the private sector are profound. They need to acquire the skill of disclosing this layer of detail, and in future, be competent to handle strategic negotiations where the cost drivers are scrutinised.

Legal compliance and governance. In respect of legal compliance and governance, there is now a requirement for member states to take ‘appropriate measures’ to ensure that in the performance of public contracts economic operators comply with applicable obligations in the field of environmental, social and labour law established by Union law, national law, collective agreements or by the international environmental, social and labour law provisions. It may be noted that a failure to comply with these obligations will be grounds for exclusion from a tender.

Finally, the draft Directive states:

“Traceability and transparency of decision  making in procurement procedures is essential for ensuring sound procedures, including efficiently fighting corruption and fraud??.

Risk modelling for procurement decisions is in its infancy. For free access, until 30 June 2014, to our risk modelling solution Procurisk® ideally suited to identifying risks in procurement and supply chain please contact Steve Ashcroft s.ashcroft@brianfarrington.com or call 01744 20698.

 

For useful insights on procurement, risk and negotiation scroll down this page to sign up to our newsletter.

 
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3 questions you should ask at the Festival
Here at Brian Farrington (one of the world’s first procurement consultancies :) ) we’ve been thinking about the International Festival for Business and how to make it truly a valuable event for visitors and buyers.

Our focus is buying, and we thought asking the following three questions would be helpful to you when meeting potential suppliers, vendors contractors and partners (let’s call them “IFB-ers??).

The Festival is aspiring to be a fast-paced, dynamic environment to establish and develop trading relationships. You want to gather information – fast - and you want to analyse whether to take the discussions to another level.

So how do you ask the right questions to filter out those people who really ‘get’ what you want and will be ‘right’ for you?

Remember this isn’t the time for a PQQ type of interrogation, you want them to open up to you – let’s get the basic (and understandably necessary) information later.  You want to find out what doing business with them will really be like.  So leave the Quality, Finance, Sustainability, etc pop-quiz for later.

Here’s three questions that get the IFB-ers you meet talking about themselves – and give you a better chance of taking discussions to the next level.

Question 1:  Why did you think I was the right kind of buyer to approach?

I'm not saying you jump right in and say this, don't be off -putting but let's' remember there's a lot of people to meet. You want to be approached - but not sold to, surely? Apparently there’s going to 200,000 people attending the Festival and some (many?) will approach everyone they can!  But they may give little thought as to why they are doing it. That can’t be good news for buyers.

Do you want to be just another standard buyer?  Or  part of a market sector that an IFB-er is focusing on. Your time is valuable!

You want to be opening a dialogue with IFB-ers that have market knowledge of your sector or shared professional interest.  Or where you fit a buyer profile that the IFB-er is actively looking for. There’s a better chance of establishing a better and more professional relationship that way.  One where the IFB-er will want to continue to develop a partnership with you.

Let's have a look at question 2:

Question 2:  What do you think makes you different?

Please tell me, you’re going to walk away if they respond by saying price, service and quality?  Okay, maybe not; these facets are important, but how do you get that 1 to 10% of IFB-ers that have thought about the innovative, unique(?) and genuinely useful propositions for your business?  Here’s their chance to tell you what is different about them that aligns with your own issues and aspirations.  Now, a positive answer to this question really can deliver on all that good marketing and vibe we’ve been hearing about the Festival.

Last but not least, the third question. You are kind of narrowing our eyes at this stage. You’re (quietly) impressed with the responses to questions 1 and 2, and here is to the topper that, fingers crossed, means you’ve found an IFB-er that is in that top 1-10% that can materially be of help to you and your organisation:

Question 3:  What added value can you bring to my organisation?

The ideal IFB-er will love the opportunity to answer this question.  An IFB-er that’s let’s say sub-optimal or a run of the mill salesman-type will no doubt focus on cheap prices.  Maybe that’s what you want, I don’t know, I’m just thinking there is more on offer.  Your ideal IFB-ers added value emanates from their knowledge and skills in their total offering. Their value isn’t just their track record; although a relevant case study/example would be welcome. Their added value includes the qualities of perseverance, vision, commitment and flexibility (backed up by real-life evidence). Their knowledge, skills and behaviours matched with an openness to share their expertise with you, will, we believe, be a valuable asset of the ideal IFB-er.

Three good questions to start you off, though a checklist of other pertinent question are needed as follow ups.

If you need some ideas get in touch – we’d love to help. During the IFB we are offering free consultations to buyers visiting the International Festival for Business who are looking to engage with suppliers, vendors, contractors and partners. Our team of procurement specialists will be on hand to offer advice on how to establish and develop trading relationships efficiently and effectively. For more information or to arrange an appointment please contact Steve Ashcroft (or call me on 01744 20698).

So, three questions you should ask at the Festival - try them out,  I'd love to hear how you get on - and have a great Festival!

 

More details on the Festival here - and for useful insights on procurement, risk and negotiation scroll down this page to sign up to our newsletter
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4 ways to approach profit, innovation and risk
No doubt you'll have had a zillion notifications that the International Festival for Business kicks off next month and we've put a programme together for a what IFB2014 are calling "a different type of business trip" - hope you can save the dates?

In developing our programme we gave a lot of thought about *who* exactly would be interested in our advice during the IFB - and *how* could we add value? We'd like to think you'd find our IFB events useful and hope you can join us.

We've teamed up with the Liverpool Law Society for a couple of them and the great and the good from accountancy, IP, legal and business schools for t'other two, which is nice.

Four ways to approach to profit, innovation and risk. So here goes:
#1 This is a short, sharp half-day on 19 June: Managing a client’s contractual risks pretty much designed for you if your interested in contracts (which we are) or if your a legal eagle :)

Mitigating a client’s contractual risks requires a robust approach to understand the nature of the risk and the consequences of them arising. We are going to highlight how contractual risks relate to the wider corporate risk register using real life examples from a range of sectors. It's held at the esteemed, Liverpool Law Society, established in 1827. Booking details are here.

#2 The second one is a breakfast session on 2 July (surely the bacon rolls will make it worthwhile?) in the amazing location of the Hub. The event title is rather impressive too:  60 Minute Business Boost: Energise, Fortify and Flourish, here we will emphasise the opportunity to reduce purchase prices (without reducing quality). This event is presented with our good friends from ICAEW and Mitchell Charlesworth. Booking details are here (no charge!)

Not only does this improve bottom line it doesn’t need capital investment!  If your grappling with the joys of bringing costs down we're also providing a recommended implementation plan - so be sure you join us.

#3 This half day on 9 July is definitely aimed at hungry (but humble) legal-types and the wider professional services: Commercial Acumen in a Legal Context.

An ability to apply rational, practical, long-term business solutions as opposed to a single focussed legal solution is a quality sought after by discerning clients. Commercial acumen requires expert knowledge of financial, pricing, negotiation in a legal context and how real life problems arise. Success in business is built on fine margins, let's see how we can enhance your knowledge, skills and behaviours at our Liverpool Law Society hosted event.  Booking details are here.

#4 Our fourth event, on 16 July, is a full-dayer: Innovators' Day 2014: Innovate, Protect and Prosper at the imposingly modern Central Library taking a deep dive exploring Why your innovation needs your courage.

We - in collaboration with a host of other specialists - will explain (using 'real-life' example) the commercial, financial, procurement and legal considerations, all designed to protect your long-term interests and to take advantage of your innovation. The emphasis here will be on pragmatic advice on avoiding third parties taking advantage of your innovation, without rewarding you for your efforts. There's also an opportunity for a one-on-one advice surgery. Booking details are here. (no charge!)

That's it!

Four ways to approach to profit, innovation and risk; solid, practical advice you can apply straight back at the office. Please join, click on the booking links  - or give me a call on 01744 20698, I'll save you a seat (for either one or more events) and send you all the details.

Thanks

Steve

PS Please Enter your Name and Email Address, below to get free, instant access to Simple Procurement Tweaks to help you with Profit, Innovation and Risk.

 
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A refresher on Performance Bonds
Authoritative comment is vital when studying any area of law. Brian Farrington Ltd have extensively researched the broad subject of bonds. Here we provide a refresher on Performance Bonds.

A requirement of a performance bond is not an uncommon occurrence on large projects and construction projects. Procurement specialists are usually presented with wording for the bond and often the bond is put in place without any discussion on negotiation.

Keating Chambers (Barristers) offer this thought.

‘The word “bond?? conjures up a mediaeval or Shakespearian image of usuary and of Shylock rubbing his hands at the prospect of his entitlement to the pound of flesh, only to have his hopes dashed on being told that he may  indeed have that flesh as provided, by the terms of the bond are so limited and do not extend to a right to spill a drop of blood. Further the terminology still used in some bonds would not have been out of place 400 years ago’.

A good place to start in exploring the different dimensions of bonds is to access the judgement of Sir William Blackburne (sitting as a judge of the high court) in the case of Vossloh Aktiengesellschaft and Alpha Trains (UK) Ltd [2010] EWHC 2443 (Ch). This case judgement is dated 5th October 2010. At para 21 it states:

 ‘A contract of suretyship is in essence a contact by which one person, the surety, agrees to answer for some existing or future liability of another, the principal (or principal debtor), to a third party, the creditor, and by which the surety’s liability is in addition to, and not in substitution for, the liability of the principal.’

Contracts of suretyship fall into two main categories: contracts of guarantee and contacts of indemnity.

  • A contract of guarantee is a contract whereby the guarantor promises the creditor to be responsible for the due performance by the principal of his existing or future obligations to the creditor if the principal fails to perform them or any of them.

  • A contract of indemnity denotes a contact where the person who gives the indemnity undertakes his indemnity obligations by way of security for the performance of an obligation by another.


Returning to the Vossloh case, para 28 the judge started:

‘ This brings me to the so –called ‘ performance bond’, sometimes known as a ‘performance guarantee’,  often as a ‘demand bond’ or ‘demanding guarantee’ or even as a ‘first demand guarantee’ . In the context of the present dispute I prefer the expression ‘demand bond’. In essence it is a particularly stringent contract of indemnity. It is a contractual undertaking by a person, usually a bank, to pay a specified amount of money to a third party on the occurrence of a stated event, usually the non-fulfilment of a contractual obligation by the principal to that third party. Sometimes the wording of the contract has the result that the liability of the person who has given the bond arises on mere demand by the creditor, notwithstanding that it may be evident that the principal is not in any way in default or even that creditor himself is in default under his contract with the principal. IT ALL DEPENDS ON THE WORDING OF THE INSTRUMENT (Our emphasis)’. 

Keating Chambers point out that:

 ‘The simple, or single, bond merely required payment on the due day but historically it became accompanied by a condition which, upon its performance, defeated the bond, and so rendered it not payable. So it came to be called the “conditional bond??. The bank’s undertaking on a first demand bond will ordinarily be to pay on demand without proof or conditions. As between the banks and the employer beneficially such a bond is tantamount to cash in the hand of the employer.’

An on-demand bond clearly presents risks for contractors, especially if they are in dispute with their employer (the contracting organisation).

There have been cases where the parties have been in dispute and the contactors has sought an injunction against the surety bank to prevent them paying out the bond. On numerous occasions such injunction applications have been denied by the courts. The courts will look at the substance (rather than the label) of these clauses, in other words the courts examine the ‘true construction’ of the clause.

The Association of British Insurers (ABI) have produced an ‘ABI Model Form of Guarantee Bond’ (April 2004). It is accompanied by an explanatory guide. It is an excellent briefly document, answering a number of pertinent questions, including

  • ‘How is the amount payable under the Bond calculated?’,

  • ‘Can the form of Bond be amended?’,

  • ‘What happens where the contractor becomes insolvent?’ and

  • ‘Following insolvency, when will payments be made?’


The complexity of on-demand bonds is further illustrated in 3C Maritza East 1 EOOD v (1) Credit Agricole Corporate and Investment Bank and (2) Alstom Power Systems GmbH [2011] EWHC 123 (TCC).

The bond was provided for a power station project in Galabovo, Bulgaria.  The sum was not insignificant £96,604,166.83!

The bond was provided by Calyon, a French Bank from its head of office in Paris. The bond was governed by English law and the courts of England had non-exclusive jurisdiction to settle any dispute connected with it.

To find out what happened in Galabovo contact s.ashcroft@brianfarrington.com

Small print: This article "A refresher on Performance Bonds" contains general comments only and, in consequence, legal advice should be taken before reliance is placed upon it in any particular circumstances. 

 

Why people with procurement risk, tendering and negotiation issues want to work with the people at Brian Farrington.

There are three themes that clients tell us over and over again.

First, they tell us they believe they are making a smarter investment working with Brian Farrington — bringing a thorough understanding of their procurement risk, tendering and negotiation issues and a proven track record of enabling excellent returns on their investment.

Second, clients are confident that they are working with specialists that bring experience, expertise and stay focused on client success.

Finally, people tell us they actually like working with us. They find us easy to work with and collaborative in solving issues that inevitably arise in procurement risk, tendering and negotiation.

Established in 1978

Brian Farrington is one of the world’s longest established procurement and supply chain consultancy and executive training specialists. 33 of the current FTSE100 have retained our services, as well as leading technology, manufacturing, aerospace and defence organisations in the UK, North America, southern Africa and Asia. Established in 1978, we have proven expertise and experience in identifying and managing procurement risk.

Where there is no conflict of interest, we advise professional services (including lawyers, accountants and architects), creative, digital and media bidders to enhance their approach and proposition, through ‘buyers-eyes’.  Our services have been recognised with awards including the London Olympic Games and most importantly clients’ winning their contracts.

Brian Farrington solutions and services are formed through a personal approach to consultancy, training & development and coaching – all underpinned by Procurisk® our proprietary technology to identifying procurement risk.

Our four core areas of procurement capability are:

• Strategic review and risk governance

• Contract and dispute negotiation

• Major project support including bid management

• Learning & development in support of organisational aims.

Our newsletter provides exclusive insight and advice on procurement, risk and negotiation. Sign-up details below  
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