Management of fines and disputes with suppliers

In the context of public procurement and contractual relations with suppliers, the management of penalties and disputes is an inescapable reality. Whether it's a question of late delivery, non-conformity of services or contractual non-performance, it's essential to adopt a proactive approach to minimise risks and maintain a constructive relationship with suppliers.

Preventing penalties and disputes upstream

The best way to manage disputes is to prevent them. Even before signing a contract, it is essential to : 

• Clearly define obligations and expectations: Detailed specifications and precise contractual clauses avoid any ambiguity.
• Set realistic penalty clauses: A penalty must be proportionate to the loss suffered and comply with legal provisions to avoid any disputes.
• Establish monitoring indicators (KPIs): This enables you to assess the supplier's performance and anticipate any shortcomings.
• Maintain an open dialogue with suppliers: Fluid communication means that discrepancies can be flagged up quickly and action taken before they reach the point of dispute.

Identifying and managing breaches of contract

When a supplier fails to meet its commitments, it is crucial to react quickly:

• Formal notification: As soon as a breach appears, send a formal notice of default outlining the contractual clauses concerned.
• Analysis of the situation: Check whether the delay or non-compliance is justifiable (force majeure, exceptional circumstances).
• Impact assessment: Determine the consequences for the project and quantify any losses.
• Implementation of a corrective plan: Working with the supplier to identify alternative solutions and minimise the impact on operations.

Applying penalties and managing disputes

If negotiations fail and the supplier does not remedy the situation, stronger action should be considered:

• Application of contractual penalties: Automatic invoicing or deduction from payment under the terms of the contract.
• Mediation: An effective way of avoiding escalation through the courts and reaching a satisfactory compromise.
• Termination of the contract as a last resort: When defaults persist, it may be necessary to activate the termination clauses.

Feedback and continuous improvement

Every dispute is an opportunity to improve supplier management:

• Analyse the recurring causes of penalties in order to adjust contracts and internal processes.
• Set up regular supplier performance reviews.
• Training internal teams in contract management and negotiation techniques.

Conclusion

The management of penalties and disputes should not be seen simply as a means of coercion, but as a contractual management tool designed to guarantee supplier performance while maintaining balanced business relations. Rigorous monitoring, proactive communication and well-drafted contractual clauses help to avoid the escalation of conflicts and promote a lasting and effective partnership.

• Source: European Union - Guide to Best Practices in Public Procurement
• Source: Belgian Federal Public Service - Regulations on Contractual Penalties
• Source: Organisation for Economic Co-operation and Development (OECD) - Mediation and Dispute Resolution in Public Procurement