Effective contract and supplier management involves a number of facets. At its core, though, are two fundamental points:
- Define and maintain a clear purpose with your strategic contractor/supplier, so that roles and responsibilities between you remain aligned to the business outcomes you have agreed to.
- Don’t inadvertently undermine your contractual position by getting involved in telling your supplier ‘how’ to do their job.
Daily disciplines for effective contract and supplier management
One of the most challenging aspects of managing most supplier/contractor relationships for complex service delivery is keeping the daily disciplines in place – those which support a best practice approach to procurement, contracting, relationship management and benefits realisation.
These daily disciplines should capture:
- the good (and not-so-good) delivery issues that will arise;
- where your internal client team has delivered good (and not-so-good) value;
- where the supplier/contractor has delivered good (and not-so-good) value; and
- what each team has delivered that provides good (and not-so-good) added value.
These may seem self-evident; however, when monitoring supplier outcomes as part and parcel of good relationship management, it is more usual for everyone to focus only on the bad outcomes, rather than providing a balance with the good ones.
Develop performance KPIs
We find that many legal and contract management teams develop performance KPIs that are built for monitoring compliance and failure, rather than for driving stronger collaborative behaviours between a client and their supplier/contractor.
Best practice dictates that when a client is managing the outcomes of performance from its strategic partner, it is important for that client to avoid trying to manage the supplier’s service itself. It must only look to impress on its supplier/contractor the importance of maintaining the right trajectory to achieve the agreed outcomes from the service. Too much involvement in the way a supplier delivers its services is likely to breach the ‘expert responsibilities’ obligations your supplier has with you. In other words, your own client team should be clear that it must not get in the way of the supplier in terms of how it delivers its service to you.
The only exception to this rule is if the supplier materially and consistently fails to deliver to agreed business objectives. In these circumstances it’s important that, (a) the escalation process in your written agreement is followed in order that you do not inadvertently breach the contract, and (b) you do not inadvertently breach the ‘expert’ responsibilities of your supplier(s), thus exposing you legally.
The client should focus on the ‘what’, not the ‘how’
If a supplier is having performance challenges, it would not be unusual for a client’s own in-house domain expert(s) to feel that they have to tell the supplier how it should be delivering the service, rather than managing the outcome. This is often a case of your internal team member(s) perceiving that they are being diligent and conscientious rather than, in reality, potentially creating issues in both a practical and legal sense.
With that in mind, it is important to ensure that your team does not undermine the supplier’s ‘expert responsibilities’. Contractually, if your team starts to tell the supplier how to do its job, your own team’s behaviour will start to erode those expert responsibilities.
Note that if you procured and contracted for the expectation that you will be reliant upon your supplier understanding your business objectives, and how its proposed services will help you achieve those objectives, then the supplier will now be accountable for both the service and delivery strategy. It will be using its expert responsibilities to advise you on how to improve the value in your BAU services, and you will be correctly reliant on that expertise. As a result, it is the supplier and the supplier alone that is responsible for how its own service delivery is to be aligned to the business objectives of its client.
Supplier expert responsibilities outline the specifics of what your supplier is (or should be) responsible for. When you are contracting with your supplier in a fit-for-purpose manner, having clarity over who is doing what and why (it is the ‘why’ that is key – without the ‘why’, it leaves the ‘what’ open to misinterpretation), will help both you and the supplier (a) drive much better, more cost-effective and collaborative behaviours and (b) reduce both of your respective risks – perceived and real. In turn, you will have stronger ‘intelligence’ in your working relationship.
Contract and supplier management – communication is key
Communication to and from your supplier should actively encourage transparency across the areas set out below. In this way, you will be able to more accurately define, and keep alignment to, the roles and responsibilities in the ongoing service delivery process.
Your management of the roles and responsibilities in the relationship should include:
- Clarity over business outcomes. Ensuring that your supplier retains a clear understanding of what your organisation is trying to achieve and why.
- Realignment. Appreciating what business objectives you are aiming to achieve from this engagement/relationship with the supplier and identifying those that may need some realignment, and why they may need realigning.
- Behavioural observations. Recording, assessing and learning from the behaviours you are experiencing from the supplier, your own team, and why they are happening.
- Delivery alignment. Assessing how effective your supplier’s service delivery approach is and the degree to which the results achieved are effective at meeting your business outcomes.
From this, both supplier and client can determine what should be maintained and what should be realigned, in terms of specific roles and responsibilities on both sides, in the service delivery process.
What role should the client undertake?
Assumptions should not be made: all parties should be clear on the role they play. An analogy is that if you simply want the supplier to ‘act’ as an additional in-house resource (although they are an external organisation), and merely provide ‘extra arms and legs’ to deliver a service you are already happy with the design and delivery strategy of, then it is reasonable that you as the client should be responsible for the design of the service and how reasonable the objectives are that you wish to achieve from its delivery. Naturally, if members of the supplier’s team don’t turn up at specific days and times, then you would hold them to account for that.
However, as you are most likely to have contracted your strategic supplier to utilise its expertise in achieving your specific business objectives and outcomes, you may be interested in the table below which identifies who should take on key roles and responsibilities in the relationship:
|Item||Action in managing the relationship||Suggested Client Role||Role in law of an ‘Expert Supplier’|
|1.||Acting on the supplier’s advice||• Clients must appreciate that their supplier is under a legal duty (even if not documented in the contract terms) to, on balance, act in the client’s best interests. Therefore, unless there is clear evidence that the supplier behaviours are operating to the contrary, the client should take on board their supplier’s advice and act accordingly.||• A supplier must not restrict itself to its own commercial interests. It must provide appropriate ‘duty to warn’ advice to its client to ensure that what it is advocating is in the client’s best interests. It is also important to make it clear, in layman’s terms, if there is the potential for any adverse impact as a result of following that advice.|
|2.||Managing the ‘what’ not the ‘how’||• Clients take the lead on the question of ‘what’ the supplier needs to deliver. If the supplier is accountable to achieve business objectives, then it must be given the airspace by a client to optimise ‘how’ it delivers those services.||• A supplier needs to take the lead on ‘how’ it delivers its services and to optimise the value for money strategies it employs to achieve its client’s objectives.|
|3.||Operating Project Management frameworks, such as PRINCE2 and others||• Vanilla project management frameworks, such as PRINCE2, can inadvertently undermine the ‘expert responsibilities’ of a supplier and in turn, can undermine your contractual position. It is important to work with the supplier to agree how any project management frameworks specifically align to the supplier’s ‘expert responsibilities’ in the services it is delivering and its ‘duty to warn’ responsibilities to its client.||• A supplier must ensure that its responsibilities on project work include undertaking appropriate due diligence on the project in advance of any implementation/mobilisation and that it warns the client of any adverse impact of its own, or potential client, actions in its implementation.|
|4.||Driving the ‘right’ behaviours||• As ‘unusual’ situations arise during the operation of the relationship, keep up the development of Use Cases to capture both good and not-so-good outcomes and the behaviour from both client and supplier that drove them. Learn appropriate lessons from them and then during the 6-monthly reshaping process, reverse engineer these lessons learned into realigning the contractual terms to ensure ‘enabling behaviours’ remain aligned to the business outcomes to be achieved.||• Suppliers should collaborate with their clients to propose solutions to improving (a) how the services are being delivered and (b) how it will optimise value for money on an ongoing basis.|
|5.||Critical friend – you to the supplier and the supplier to you||• A client should critical friend challenge changes and solutions/deliverables from its supplier, but always in a constructive manner – hence why technical expertise is important in your in-house team. Ensure pre-contractual due diligence is undertaken/completed before any sizeable project is undertaken by your supplier.||• A supplier should acknowledge that its client is expected to challenge its service delivery outcomes/objectives. Suppliers have a legal responsibility to genuinely consider their client’s suggestions. Note that if a supplier does not take on board its client’s challenge of its service, and the service does not deliver ongoing improvements in value for money, then the client can often legitimately escalate this lack of value for money, ultimately ending the relationship in premature termination for breach.|
|6.||Maintaining governance||• A client is responsible for managing the governance in place and realigning it regularly where more appropriate and positive behaviour is required from both supplier and from their own side.||• A supplier should keep its client informed of where governance is helping it to behave in a highly collaborative manner and where it perceives the governance is not promoting enabling behaviour (on either side). The supplier is also responsible for suggesting where the governance should be realigned (as an expert in its field).|
|7.||Managing performance separately to the relationship||• A client should have two separate individuals and/or teams operating performance management and relationship management independently. The internal client team can and should overlap these two disciplines, but the client’s interfaces with its supplier should keep them totally separate. This is to ensure that both good and less good performance behaviours from both supplier and client teams can be recorded, reviewed and discussed by the relationship management teams and steps can be taken to realign behaviours accordingly.||• A supplier’s internal teams should mirror the client teams in having separate individuals manage the relationship and performance for the same reasons stated.|
|8.||Pre-change supplier due diligence; Reshaping/innovation||• If a client has internal domain expertise, then it should use this expertise to critical friend challenge the supplier’s suggested solutions – not to impose different working practices on the supplier. |
• The client should recognise that its supplier is the ‘expert’. However, if a supplier is not acting in an expert capacity, then it’s important to escalate their lack of diligence in line with the contract. Ultimately, you either support them to change their behaviour, or you change your supplier through termination ‘for cause’ if they remain incapable of delivering to your expectations, or terminate ‘for convenience’ if they are delivering, but are just unable to align themselves to your changing expectations.
|• As an ‘expert supplier’, they are often obligated by law (even if not stated in the written contract) to undertake appropriate due diligence under an agreed terms of reference for any material change under the reshaping process. Note that each material change should be subject to a ‘value for money’ test via an external expert so that independent validation is conducted. The external value for money test in service reshaping should be conducted every 12 months or ‘at the client’s will’.|
In a complex service delivery relationship where the client is reliant on the supplier to achieve specific business objectives, it is the responsibility of the supplier to allocate appropriate roles and responsibilities in its team for the tasks to be undertaken. In turn, it is the senior management within the supplier who are accountable to ensure that whatever objectives have been contracted for from the client, are achieved within the scope, time and cost agreed.