Episode 19 - Supplier Risk Why the Contract Isn’t Your Safety Net

In this episode, we explore why contracts create structure and accountability, but do not by themselves protect complex programmes from supplier failure. In high-consequence environments, supplier risk often emerges through misaligned incentives, limited visibility, and weak governance rather than obvious contractual breach. The discussion explains why a supplier can appear compliant on paper while still damaging programme outcomes through immature deliverables, hidden fragility, or poor integration readiness. Using a defence-style programme example, the episode shows how governance, shared risk ownership, supplier health indicators, and timely escalation provide far more protection than contractual clauses alone. The core message is clear: contracts define recourse, but governance protects delivery.Key references:Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics.Eisenhardt, K. M. (1989). Agency Theory: An Assessment and Review. Academy of Management Review.Williamson, O. E. (1985). The Economic Institutions of Capitalism.Hart, O. (2016). Incomplete Contracts and Control (Nobel Prize lecture).Matinheikki, J., et al. (2022). Making agency theory work for supply chain relationships. International Journal of Production Economics.Kauppi, K. et al. (2024). “If only we’d known”: Theory of supply failure under two-party outsourcing arrangements. Journal of Supply Chain Management.Project Management Institute. Managing a procurement and the associated risks.Project Management Institute. Troublesome Suppliers, Issues, and their Management.Association for Project Management. A systems-based approach can improve outsourcing in government projects.