Published on: Friday 21 November 2008 by Administrator
Damage Limitation
Director of Contract Management Direct Paul Carter Hemlin was invited to be one of 3 contract experts to respond to a question on calculating Liquidated Damages for Service Contracts in the premier procurement periodical, Supply Management, published on 30 October 2008.
Paul who is a renowned expert in drafting Service Level Agreement having presented on the subject in numerous countries was quoted as saying “the key to quantifying LDs for failing service level agreements (SLAs) is to assess the business impact of a failure. This is easier said than done, especially if you are in the public sector. In reality LDs will probably not be scientifically calculated and will be dictated by industry norms or historical precedent. Suppliers will allocate an element of their charges as “at risk” of being deducted. Typically, there will be several SLAs and the “at risk” amount will need to be apportioned across them, weighted in order of significance. If you manufacture ejector seats for fighter-planes, any performance failure would be unacceptable, whereas if the office phones go down for 20 minutes it is probably not catastrophic.
Therefore, depending on the service in question, you can either say any failure results in all or most of the at risk amount being deducted, or have a two-tier compensation regime where “near-misses” are deducted at a lesser value than a worse failure with an actual impact to your business.”
To view the feature or for more information on Supply Management magazine go to www.supplymanagement.com
« Previous Article | Next Article »
