Sanctions

Sanctions are the ‘sticks’ that can be used to motivate performance of suppliers; they are the opposite of incentives, the ‘carrots’. Examples of sanctions include penalty clauses, claims for damages, litigation and termination, or at least the issue of a ‘default’ notice or ‘show cause’ notice. If there is a performance bond, exercising the right to claim the bond is an example of a sanction. All of these examples are contractual sanctions. They may be express terms within the contract, allowing the buyer to act in defined circumstances. Commercial sanctions include the introduction of another supplier, for example through dual sourcing, or the suspension of a supplier from future bids for similar work scopes. When there is a payment profile agreed in the contract, including retention, the buyer may legitimately withhold payment if work is not completed satisfactorily. However, in some circumstances buyers may refuse to pay for work that has been completed, but not to the satisfaction of the buyer. The most common sanctions are to simply raise the performance issue with the supplier at a regular feedback session, or to issue a corrective action notice so that the performance issue is recorded. See also Contract, Termination of, Incentives and Performance Regime.