Supplier's Corner #5 - A Gift With Strings Attached

Customer's design, customer's contract documents, customer provided items and customer nominated sub-contractors. The customer often comes bearing such "gifts" to the project. But he wants you to be responsible for the consequences of these gifts and assume liability if they are not up to standard. It's advisable to put up your guard and it's not rude to be skeptical.

As a starting point it is never advisable to accept liability related to customer design and provided contract documents. But, in real life that is normally close to impossible to achieve. If you are the expert with an overall responsibility to deliver the project, and that's of course why the customer came to you in the first place, you will usually end up having to carry a certain level of responsibility and liability. However, there are ways to handle this and there should be limits to what you should accept.

A sensible approach is to avoid a full out endorsement and rather formulate an obligation to review the provided design and documents. Upon a thorough review it may be acceptable to assume responsibility for the gifts. However, you should simultaneously remember to include language limiting any liability to errors that you have actually discovered and, depending on the circumstances, maybe errors that you should have discovered in accordance with good engineering practice. It's also prudent to exclude information contained in the design and contract documents that I am guessing you typically will not be able to control, such as data related to reservoir, soil, subsoil or specific climate conditions. Any liability you do take on should of course be subject to the total cap of the contract. Which is a broader topic for a future Supplier's Corner.

Customer provided item are goods, i.e., parts that are designated to be incorporated in the final product. You are not and should not be responsible for the timely and correct delivery and/or performance of such items and their actual performance. These items will be produced by the customer or by a third party under terms and conditions that you don't know and have no control over. Since you are not responsible you should also exclude any liability for damage or loss to the same customer provided items. If you don't obtain a separate exclusion clause, adjust the language in the total cap clause so that it explicitly includes such liability. Lastly, remember that delays and defects related to customer provided items will most likely have an effect on your deliveries under the contract and the overall progress of the project. Hence, you may want to take a close look at your variation rights to make sure that you will be sufficiently compensated for cost and schedule impact.

The cuckoo may leave a third egg in your nest that you should consider. As a contractor you will normally be responsible and liable for sub-contractors contributing to the project. However, from time to time a different bird will come flying. Customer nominated sub-contractors and assigned sub-contracts may shift the risk picture considerably. You do not want to assume liability for someone or something that was not your choice. If you want to sleep well at night you should also include a hold harmless clause related to all consequences of such nomination or assignment. Oh, and do take a look at those variation rights one more time.