In the mid-nineties, a large UK-based utilities company providing drinking water and waste-water services entered into a contract for the supply of a customer information and billing system with a large British computer hardware, software, and services business. Central to the computer services business solution was a billing system to be provided by a 3rd party organisation (4th party to the utilities company). The computer services business signed a contract with the utilities company to deliver the solution within a fixed period of time to the customer’s specified requirements. Furthermore, the services business assured their customer that it would enter into a back to back contract with the 3rd party billing organisation but had not done so by the time the contract with the utilities company was signed…oh dear.
The 3rd party organisation providing the billing system had been kept in the dark about the contractual commitments the services business had made to its customer, including timescales and requirements, and when these were finally shared – in an attempt to form a back to back contract – they refused to agree to those terms in their contract. In the opinion of the 3rd party billing software organisation, it was simply impossible to deliver the system to meet the utilities company’s requirements in the timescales set out.
Subsequently, the computer services business failed to deliver the solution to their customer who promptly took them to court and ultimately won the case, as it was judged that the computer services business had fraudulently misrepresented their ability to deliver such a system without a back to back contract in place with the 3rd party billing software organisation. The computer services business was subsequently ordered to pay the utilities company circa £2m, essentially the full value of the contract minus some adjustments. Victory for the utilities services company you might think…? Well not really.
Almost 5 years after the original contract was signed the utilities company did not have the new billing system it required and had to make do with all the inherent limitations and inefficiencies of their old system. The utilities company lost out and perhaps more importantly, so did its customers. There was no winner here.
Lesson Learned : The failure of the utilities company to undertake a Supply Chain Risk Assessment of the 3rd party computer services business, let alone the 4th party billing software organisation, meant they blindly accepted the assurances of the computer services business with no actual commercial basis to do so. Some due diligence on the supply chain or even a condition precedent clause in the contract – if time was of the essence – would have mitigated the 3rd party and 4th party supply chain risk. Sin in haste, repent at leisure.
At Peru Consulting we have developed one of the most sophisticated approaches to Supply Chain Risk Assessment available in the marketplace. By allying our advanced risk assessment playbook with the decades of experience our advisors bring, organisations can rapidly take a fresh look at the inherent risks in their supply chain to enable them to put the right mitigation strategies in place.
