Feature
PRACTICE
Buyer beware Contracts are at the heart of all supply chain arrangements, but the risks associated with them can be large, complex and hard to detect and manage BY CHRISTOPHER KELLY
M
ulti-million-pound contracts for construction of new assets, IT system implementations or major consultancy projects can entail complex supply chains with career-busting risks including budget blowouts, timetable slippages, supplier bankruptcies and fraud. Risk managers have a vital role to play in identifying those risks and in working with the organisation’s other assurance functions to eliminate them. Commercial pressures in supplier–buyer dynamics may encourage inducements to either secure a new contract relationship or maintain or expand an existing one. Supplier sales personnel anxious to meet targets and achieve bonuses may offer gifts, entertainment and other kickbacks to win new work. The buying organisation’s managers in turn know these pressures exist and are sometimes willing to accept and even solicit benefits in exchange for awarding large contracts.
The problem for the risk manager is that kickbacks usually sit outside the accounting system making them hard to detect
Checking behaviour The problem for the risk manager is that these kickbacks usually sit outside the accounting system making them hard to detect. Longstanding or exclusive relationships between management and contractors, multiple contract extensions, repetitive requisitioning or invoice approvals by the same manager can all be tell-tale signs. While
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Enterprise Risk
