Vendor Disincentives: Put Teeth Into Your Contracts
Vendors will promise you the world. And while most are are extremely competent at what they do, what happens in the scenario where a vendor promises certain terms like lead times, project completion or certain quality levels, then, leaves their half of the contract unfulfilled?
First, of course, you have the option of not paying the invoices. This is not a very highly recommended option because it is really difficult to get product support or project completion when you stop paying the bill. Additionally, this all but ensures that you'll encounter unnecessary lawsuits.
Second, you can provide a payment of thirds. A third of the project up front, a third at project completion or order fulfillment and the final third after your inspection is satisfactory. However, this may not be enough teeth to get the project done.
Basically, at this point the vendor could choose not to finish your project or schedule completion on their timeline, not yours. After all, they are just losing a third of the project revenue, which they can claim anytime they finish. This is similar to over paying your taxes; you know you are getting a refund whenever you get the gumption to finish filing.
Lastly, consider creating financial disincentives for your vendor not performing. A disincentive could be your vendor providing free project support for so many days past agreed upon project completion date.
Another disincentive could be charge-backs. I once worked for a material handling company that missed their deadline on a construction project. Unfortunately, the way the charge-back worked was the project manager could hire our competitor and charge us to pay them to finish the installation along side of us.
If you are creative, you can put disincentives that are easy to implement as well as reasonable for vendor completion and support.
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