What is the risk of "Equipment delivered does not meet specification" and how do buyers mitigate it?

Severity High, likelihood Medium. Impact: Rework, retrofit cost, warranty disputes, extended commissioning Recommended mitigations: Require a documented Factory Acceptance Test (FAT) before shipment with buyer or buyer's inspector present or witnessed by third-party inspection agency (SGS / BV / Intertek); Attach detailed technical specification as contract annex; ambiguity is resolved in buyer's favour; Retain 10% of contract value as retention against Site Acceptance. Suggested RFQ / contract clause: 10% retention shall be held until successful Site Acceptance Test and shall be released against a Performance Bond of equivalent value, valid for the full warranty period.

All risk guides Procurement & contract

Supplier Default & Non-Performance

Q: What is the risk of "Supplier accepts advance payment then delays or disappears" and how do buyers mitigate it?

Severity Critical, likelihood Medium. Impact: Cash locked, project stalled, replacement supplier lead time restarts the clock Recommended mitigations: Cap advance payment at 30% and require an unconditional Advance Payment Guarantee (APG) from an acceptable bank; Structure payments against verifiable milestones (drawings approved, factory acceptance test, shipment, site acceptance); Verify supplier as legal entity: registration certificate, VAT number, audited accounts for last 2 years, 3 reference sites contactable. Suggested RFQ / contract clause: Advance payment shall not exceed 30% of contract value and shall be covered by an unconditional, on-demand Advance Payment Guarantee from a bank rated minimum BBB (S&P) or equivalent, valid until Site Acceptance.

Q: What is the risk of "Supplier lacks aftersales capacity in the target country" and how do buyers mitigate it?

Severity High, likelihood High. Impact: Long downtime, imported spare parts, no field service Recommended mitigations: Require a named local service partner with 24/48h response SLA in writing; Include a Recommended Spare Parts List priced at contract for 2 years of operation; Training of buyer's technicians included in scope (min. 5 working days on-site). Suggested RFQ / contract clause: Supplier shall nominate a local service partner within the buyer's country, with a written 48-hour on-site response SLA for the duration of the warranty period.

Risk that an equipment supplier or contractor fails to deliver on time, to spec, or at all after receiving advance payment.

Audience: Buyer · EPC · Lender

When this guide applies

Any RFQ over USD $150,000 with milestone payments, or where an advance payment is required before shipment.

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Coverage is severity-weighted, so covering a Critical risk moves the score more than a Low one.

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0 of 9 mitigations · weighted 0/30

Supplier accepts advance payment then delays or disappears Critical · Medium

Cap advance payment at 30% and require an unconditional Advance Payment Guarantee (APG) from an acceptable bank
Structure payments against verifiable milestones (drawings approved, factory acceptance test, shipment, site acceptance)
Verify supplier as legal entity: registration certificate, VAT number, audited accounts for last 2 years, 3 reference sites contactable

Equipment delivered does not meet specification High · Medium

Require a documented Factory Acceptance Test (FAT) before shipment with buyer or buyer's inspector present or witnessed by third-party inspection agency (SGS / BV / Intertek)
Attach detailed technical specification as contract annex; ambiguity is resolved in buyer's favour
Retain 10% of contract value as retention against Site Acceptance

Supplier lacks aftersales capacity in the target country High · High

Require a named local service partner with 24/48h response SLA in writing
Include a Recommended Spare Parts List priced at contract for 2 years of operation
Training of buyer's technicians included in scope (min. 5 working days on-site)

Supplier accepts advance payment then delays or disappears

Severity: CriticalLikelihood: Medium

Impact: Cash locked, project stalled, replacement supplier lead time restarts the clock

Mitigations

Cap advance payment at 30% and require an unconditional Advance Payment Guarantee (APG) from an acceptable bank
Structure payments against verifiable milestones (drawings approved, factory acceptance test, shipment, site acceptance)
Verify supplier as legal entity: registration certificate, VAT number, audited accounts for last 2 years, 3 reference sites contactable

RFQ / contract clause

"Advance payment shall not exceed 30% of contract value and shall be covered by an unconditional, on-demand Advance Payment Guarantee from a bank rated minimum BBB (S&P) or equivalent, valid until Site Acceptance."

Equipment delivered does not meet specification

Severity: HighLikelihood: Medium

Impact: Rework, retrofit cost, warranty disputes, extended commissioning

Mitigations

Require a documented Factory Acceptance Test (FAT) before shipment with buyer or buyer's inspector present or witnessed by third-party inspection agency (SGS / BV / Intertek)
Attach detailed technical specification as contract annex; ambiguity is resolved in buyer's favour
Retain 10% of contract value as retention against Site Acceptance

RFQ / contract clause

"10% retention shall be held until successful Site Acceptance Test and shall be released against a Performance Bond of equivalent value, valid for the full warranty period."

Supplier lacks aftersales capacity in the target country

Severity: HighLikelihood: High

Impact: Long downtime, imported spare parts, no field service

Mitigations

Require a named local service partner with 24/48h response SLA in writing
Include a Recommended Spare Parts List priced at contract for 2 years of operation
Training of buyer's technicians included in scope (min. 5 working days on-site)

RFQ / contract clause

"Supplier shall nominate a local service partner within the buyer's country, with a written 48-hour on-site response SLA for the duration of the warranty period."

Related references

→ Standard: iso-9001

Other risk guides

Construction & EPC

Construction & EPC Delay

Biosecurity & health

Biosecurity & Disease Outbreak

Market & commercial

Market & Off-Take

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