How to remedy quality and service issues in supplier contracts

Lee Plotkin

Most of my clients that have a great supplier representative and a really good regional supply distribution center enjoy a great partnership.

But sometimes that is not the case, for myriad reasons. When that happens, understanding how to “cure” those issues—or, as a last resort, terminate the partnership—can be critical to the success of your operation.

It is important to share that I am not a lawyer, nor do I make any promise of legal expertise. But I have seen my share of supplier contracts and have a very basic understanding of how restaurant operators can protect themselves.

I always believe that reasonable issues and concerns are part of any program. How the supplier addresses and resolves them in a timely fashion solidifies the partnership.

Supplier contracts generally fall into two categories:

• Open contracts, where the contract may include a time frame or term, but there is an out clause for either party.

• Closed contracts, which include a specific term but contain an out for cause with the supplier having an option to “cure” the issue within a specified time.

Open contracts are primarily used by suppliers of food and nonfood items like paper and disposables. Typically they contain an out clause for either party for any reason, often 30-60 days. Broad-line, meat, produce and other food distributors can have this in place (or often it can be negotiated upfront). If the issues aren’t cured within a reasonable time, then the customer can opt out with reasonable notice. The customer would bear responsibility for helping ensure any proprietary inventory is transitioned to the new supply partner at the termination date, though.

Closed contracts are typically favored by suppliers that will need to bring in inventory or have equipment expenses, such as rental agreements for linen and waste disposal, chemicals or soft drink programs.  

Taking issues up the chain of management in the event that resolution becomes difficult provides the supplier with ample opportunity to correct issues.

For either style of contract, it is important to have a thorough understanding upfront of what the “cure” period for the supplier will be and how that is implemented. Many suppliers in the closed-contract category mandate in the contract that their general manager must receive written notice by certified or registered mail of the specific deficiencies in their performance.  

I believe the vast majority of long-term supplier programs are handled very effectively and proactively. However, an up-front understanding of your contract rights regarding how to manage ongoing supply issues can help alleviate any ongoing issues and concerns not resolved down the road.