Vendors = Hidden Risks

Vendors, suppliers, service providers, and consultants have become indispensable to many businesses. “Vendor” is a generic term for many sales and service providers, such as couriers, cleaners, accountants, bookkeepers, strategy or insurance consultants, lawyers, insurance brokers, outsourced HR, IT gurus, engineers, architects, contractors, handymen, and etc.

Not only does outsourcing move costs from “fixed” to “variable” and add financial flexibility to many organizations, it can also provide important, and sometimes critical, just-in-time contributors.

Unfortunately, outsourcing also creates new liabilities, and the risks vendors bring along, somewhat like flu viruses, are often not recognized, or ignored, until it’s too late.

What can go wrong?

From my experience with hundreds of organizations, large and small, here are several misunderstandings and uncertainties that can ambush you.

  • Bodily Injury or Property Damage: Can an injured consultant claim under your workers’ comp or other benefits? If a supplier injures your employee or fries your computer server, who’s responsible to fix the problem?
  • Harassment: If your employee claims harassment by a vendor, who’s at risk?
  • Theft: Vendors can steal property, inventory, data, trade secrets private client information, and even key employees. How can you limit your vulnerability?
  • Errors & Omissions: How can you prevent a consultant’s error or late project delivery – and any resultant dispute – from impacting your reputation and client relationships?
  • Penalties and fines: How nasty can the IRS, Workers’ Comp, and OSHA get if a contract worker is really doing an employee’s job? Bureaucratic hassle, anyone?

You can prevent this

Contracts and non-disclosure agreements (NDAs) are your best prevention and defense in clarifying the above uncertainties. They don’t need to be long or complex. However, they must:

  • Be clear and fair – carefully spelling out the responsibilities, expectations and relationships of each party.
  • Apply specifically to your business and situation – not some generic copy found on the internet, or cobbled together from several past agreements.
  • Address “independent” contractor status, how disputes will be resolved, which state laws and courts will be used, confidentiality, and hold harmless agreements for errors, omissions or damages caused.

Safeguard all vendor promises and agreements with suitable insurance – general liability, auto liability, workers’ comp, and perhaps others, like errors and omissions liability, or cyber liability. Make sure you get current certificates and endorsements to document coverage.

Finally, communicate your internal procedures in writing to all staff.

  • Be clear about which vendors can be hired, under what terms, with what kinds of agreements and/or insurance in place, and so on.
  • Establish clear authority for signing or changing contracts.
  • Keep all signed documents, insurance certificates and pertinent correspondence in your vendor files. And archive them for the complete statute of limitations period.

These are, of course, the basics. If you have questions or more complex circumstances, don’t hesitate to click reply or give me a call –

510-685-3883. There’s never a charge for brainstorming!


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One Comment

  1. Charles August 15, 2017 at 4:52 pm - Reply

    Corri DiBagno, a long time friend and colleague,. left me this message:
    Vendors indeed can create a multitude of problems. You mentioned theft … here’s an example that seems “small” by nature.

    A cleaning service contractor handling multiple floors in a high rise office building had several employees “on the take”… a most simple scam … opening unlocked desks and taking change used for coffee purchases, snacks, etc. Wells this particular scam,over time and many different clients, accumulated nearly $100k … yes $100k in change!! No cameras were activated & these guys basically lived off pennies for quite some time!! They were not real smart as they got caught turning in large amounts of change to a bank located in the very building they were “cleaning”!! DUH.

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