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WHEN APPOINTING a new supplier there is often a dilemma over the issue of confidentiality. How do you strike the balance between sharing enough information to obtain the best deal without jeopardising confidential business information?
“It is imperative that business owners treat their confidential information with the utmost importance when appointing new suppliers,” says Tom Bodkin, a partner at law firm Borneo Martell Turner Coulston in Northampton. “For example, sharing designs and recipes with other businesses can be risky if the process is not managed carefully with appropriate legal safeguards.”
How to mitigate the risks of a confidentiality leak
Counterfeiters and copycats often obtain information via the existing supply chain, so one of your earliest considerations when appointing a new supplier should be the matter of confidentiality.
The two main options are limiting disclosure and the use of a Non-Disclosure Agreement. However, it is usually prudent to use a combination of both.
- Limiting disclosure By taking extreme care with precisely what confidential or commercially sensitive information is revealed, to whom and at what stage, you can go some way towards mitigating the risk of leaks.
Think of this like the ‘dripping tap’ approach, whereby at each stage just enough information is shared with the right people to take the appointment process to the next stage without oversharing at any time.
The key advantage of the dripping tap approach to disclosure is that you limit the risks at source. Put simply, if information is not released in the first place then it cannot get into the wrong hands.
- A Non-Disclosure Agreement Here, a contractual agreement is entered into with proposed suppliers at a very early stage. The NDA contains confidentiality clauses that protect the information from being shared further or used other than for the purposes of this disclosure. If the supplier is then formally engaged, there is likely to be additional confidentiality clauses embedded in the supplier agreement.
A NDA can be an excellent tool and is becoming an accepted part of modern business practice. Courts have shown a willingness to enforce them, either by way of an injunction, damages or both, depending on the circumstances of the case.
Trust and risk management
Clearly, you should adopt a tiered risk management approach to any supplier engagement, taking a practical approach to each appointment depending on the circumstances. Over time, the nature and extent of the business relationship may evolve and their access to confidential information may increase. Where this is the case, great care should be taken to ensure that the confidentiality terms are reviewed regularly.
How we can help
If you are appointing a new supplier and are looking to address confidentiality risks, then get in touch with our team of commercial solicitors without delay.
Please contact Tom Bodkin in the corporate and commercial team on 01604 622101 or email
This article is for general information only and does not constitute legal or professional advice.
Please note that the law may have changed since this article was published.