I interviewed Mario Buckley who discussed Supply Chain Risk Management.
Can you provide us with a brief background of yourself?
Absolutely, and thanks for the opportunity to talk to you, Dustin. My name is Mario Buckley. I am Halliburton’s Eastern Hemisphere supply chain attorney. I cover a span of 90-plus countries, anywhere between London and Japan. My job consists of negotiating, reviewing, and giving the company business and legal advice regarding supply chain contracts at its various levels. I have been in this role for a little over six months now however my overall legal experience is over 12 years.
With regards to the topic, of supply chain risk management, there are three major buckets, as to how I look at this.
The first bucket is what I call the compliance risk management. This applies when working with suppliers that, for example, might represent a company before a governmental entity. We take particular measures to vet them and perform due diligence to make sure that these vendors will not do anything wrong in terms of bribes or kickbacks with regards to government employees, because of FCPA and UK Bribery Act potential violations. So if we know that a particular vendor or subcontractor will be dealing with a government entity on our behalf, we undertake due diligence measures to make sure that the companies that we're hiring are legitimate, that the principals are not related to government employees either by marriage or blood. There are a number of issues on due diligence that we perform in order to make sure that everything has been done above board.
The second bucket is the legal risk management. We are basically looking at the contractual risks — the indemnities, liabilities, warranties and obligations. That is where a big chunk of my job falls into, which is looking at the contract and looking at the jobs or the scope of work of each vendor or subcontractor and trying to align that with our operations.
For example, if I am going to sign up a vendor to do gardening services, the risk structure there is much, much lower than a subcontractor that is going to be performing work at a well site along working with our people. Those are two completely different extremes, but it gives you an idea of how to approach a contract vis-à-vis the risk a particular job.
I try to look at the risk management from the contractual side — what the paper says versus what is actually being done on the ground. If we have a contract for gardening, for example, I am not going to be really worried about what are the indemnities and liabilities in the contract, because the risk is minimum from an operational perspective. However, If I am looking a contract for somebody subcontractor that is going to be working with us on the field, then obviously the concern is a lot greater in terms of indemnities and liabilities because the risk of exposure is much higher.
The third bucket is the insurance aspect. When we hire vendors and subcontractors, you must have indemnities and liabilities, and these companies — even Haliburton, for example — must have insurance to provide the financial guarantee for those indemnities and liabilities.
In my experience in this role that I am in now, many times the vendors will have a hard time understanding why they need to buy insurance, explaining to them the insurance is for everyone's benefits because it provides the financial backup for the indemnities agreed under the contract. And many times, these vendors will say, "Okay, we will agree to acquire or purchase the insurance as mandated by law in our country." And that's very common in Russia, in the CIS countries. But many times, the mandatory insurance required by law is not necessarily aligned with the risks of the contracts. So you still might end up with a gap with regards to the insurance that’s provided by law — which the vendors are happy to provide — versus the risk of the contract that might require additional insurance.
It is a tricky conversation and try to educate the vendors of why it is advisable for them to purchase insurance versus not. Many times, either they don't want to understand or they simply do not care. It is an uphill battle all the time.
That is how I try to look at risk management on these different levels. On a day-to-day basis, I deal with one or all three of them at a time. It is a challenging environment, depending on which country and level of sophistication you are dealing with a particular country or a particular vendor. It is an interesting experience because you are also on your toes. Obviously, your more sophisticated vendors will understand where you're coming from, and so the discussion is a lot more straight forward, and it's a lot more objective. Whereas, if you're dealing with a small vendor in a not-as-sophisticated country, you have to go through the whole educating process, and that's where the challenges come up because a lot of times, they just don't really get what is the practice in the business world versus what they're used to in their particular geography. So there's a lot of discussions and a lot of educating and not necessarily a simple process. Nonetheless, it's fun. Like always there are good days and bad days but that is just part of the game.
That is how I try to structure the contract reviews in these three big buckets that I just explained.
Can you talk about how you overcome some of these challenges? How is it done effectively, the supply chain risk management?
At the end of the day, as an attorney, we are in an advisory capacity. All I can do is try to get the parties to reach a middle ground that is as closely aligned as possible with the policies of my company. I try to bring everybody together. And whenever there is a gap or we cannot reach an agreement, at the end of the day, my function is to advise management of the risks.
I will give you an example. A lot of times, a vendor will request an overall liability cap limited to the amount of the contract which might sound fair, but the liability cap does not necessarily reflect the consequences of a faulty job so you might have a contract for $100,000, for example, but this particular vendor, if he does not do his job well, can cause a $10-million exposure. So you have $100,000 versus $10 million. So that causes a big gap, and it's my job to bring that as close as possible where there is a match. When that doesn't happen, I advise management, "This is the risk. This is what we can get out of the vendor. Ultimately, the business needs to decide whether they are willing to take that risk or not."
All I can do is advise and explain the risk versus the reward and what are the consequences so my business folks can make a decision. At the end of the day, the decision to move forward or not is no longer a legal decision but a commercial point for the business to decide.So my job is to get them as close as possible to the point where they can make a decision whether to do something or not.
Do you have any final recommendations ?
I think that the only recommendation I can think of right now is to, anybody that is reviewing a contract and trying to bridge gaps is try to keep in mind what is the actual work being done versus what the contract says. Because as bad as a contract might look on paper if you look at the actual performance, at the actual job, the risk might not be as bad as what the contract reflects.
Always try to keep that in mind. Even though a contract might look terrible on paper, the actual execution and performance is not as risky as what the contract says. So that's the biggest recommendation I have. Try to keep an eye on both. The more you understand about the business, about what's being done, the more comfortable a lawyer is confident to give the advice as to accept the risk or not based on his or her knowledge of the actual operation.Having as much knowledge, asking as many questions as possible to the folks that are going to be managing this particular subcontractor or vendor, will help you understand the risk and translate that into the contract, either by negotiating the contract or by simply saying, “the risk of execution is very low". I know the contract does not look very good, but reality is that the execution is low. Therefore the exposure is limited as well.”
Try to keep an eye on both and try to learn as much as possible from the particular service so that you can advise your customer in a more effective way.
Thanks for sharing today, Mario.
About Mario Buckley
Attorney, Supply Chain and Real Estate, Eastern Hemisphere