Working with a supplier’s supplier may sometimes be necessary, but it is not always easy. It is simple, however, to forget to discuss if a portion of your order requirement is going to be subcontracted. One way to help minimize this risk is to include a provision in your contract or in the boilerplate of your purchase order form that prohibits subcontracting without first obtaining the buyer’s written permission.

Suppliers may not indicate that they intend to subcontract a portion of your requirements when they submit a bid. You may even find that a supplier has very little, if any, equipment or employees to produce the product or service that is offered for sale. More frequently, a supplier will do most of the work with his own people and only go to another supplier for something he does not do well or because he does not have the equipment necessary to handle that portion of the job.

The buyer may never even realize that some part of his order is being produced by an unknown supplier. Not know, that is, until a quality or delivery problem develops and the primary supplier indicates that the problem is all the fault of the subcontractor. After several attempts to obtain a quick solution from the primary, an aggressive buyer may call the subcontractor who has never had a direct relationship with the buyer. After explaining the problem to the subcontractor he is told that the fault was not caused by his company, it resulted from the primary’s errors. Thus the buyer is caught in the middle. He has difficulty finding out who to believe or who is responsible for the problem.

Most buyers will hold the primary responsible, but the problem can be avoided in one of two ways. Either prohibit subcontracting entirely and insist that your supplier have all the equipment to do the job or contract with the secondary source yourself.