18 Jun 18

Are you a contract management hypocrite?

Are you a contract management hypocrite?

We all think we know what good contract management looks like, at least from a procurement perspective. We believe it to be fair, agreed and objective. Above all, it should ensure  we get the service, or product, described in the contract. At least that’s, what we, in procurement, think.

But what do suppliers think? They look at the very same contract from the other end of the telescope. They have a different perspective that if not managed responsibly by both parties can be destructive.

It’s still very common for procurement people to view contract management from a defensive ‘risk management’ position. A good contract will be well structured; scope and baselines defined and  understood by both parties; and suppliers will understand the service they are required to deliver. Common aspects of contract management include:

  • a performance management framework. It is comprehensive, objective and provides incentives for the supplier to meet or exceed agreed performance standards
  • service levels agreements. They are linked to business needs and understood by the supplier
  • supplier performance assessment, using clear, objective and meaningful metrics
  • reporting that is effective, efficient and able to alert the customer to problems before they occur
  • a clear process to resolve operational problems
  • a feedback mechanism, so suppliers understand their performance
  • a process to capture changes in user requirements as part of formal management processes
  • formal performance reviews with suppliers, with documented improvement plans covering both operational issues and adherence to key contractual requirements

Anyone in procurement working to this standard probably thinks they’re doing a good job. Why not? It’s what everyone else does. But look at it from the suppliers’ perspective.

It is perfectly reasonable for them to also adopt a defensive ‘risk management’ approach where they are likely to:

  • question if the work being requested is within the scope of the contract
  • suggest that the buyer should adhere to KPIs that are important to them
  • believe that negative business feedback could be the result of ambiguous or changed requirements rather than poor performance
  • want proper problem resolution addressing the root cause
  • request a contract change when user requirements have changed
  • want the buyer to sign up to an improvement plan that requires them (the buyer) to make changes
  • want the buyer to honour contractual obligations
  • want to be paid for extra work

It is not unreasonable for either party to safeguard its interests in these ways. However this is where deeply embedded behaviours based on an out dated notion of master and servant seem to surface. The procurement teams’ instinct is often to resist a supplier approaching contract management in this way. They might accuse the supplier of being transactional. They could suggest that the supplier is not acting strategically. These reactions are all too common when all the supplier is doing, from their perspective, is applying good-practice contract management. To criticise or penalise a supplier for simply mirroring the good practice buyers look to implement is at best disingenuous and at worst hypocritical. It will undermine trust in the relationship and could ultimately lead to poor performance and wasteful conflict.

Effective supplier relationship management is built on trust and a recognition of the importance of mutuality. That means sharing of a feeling, action, or relationship between two or more parties. In contacts, you might find it expressed as “co-operation based on the principle of mutuality”.

For the past 14 years, State of Flux worked with hundreds of businesses, including some of the world’s best-known global brands, to develop good practice Supplier Relationship Management. Over this time, we have come to realise that the behaviours exhibited in relationships and interactions with suppliers are deep rooted… and need to change. Our leading SRM training curriculum includes a module specifically to help SRM practitioners responsible for strategic supplier relationships to develop collaborative, valuable business relationships with key suppliers through joint account planning. This module helps students understand and develop increased empathy with the sell side of the relationship including what they need to do to manage contracts effectively. In this way, businesses create value through collaborative working, rather than wasting their time in conflict over the same contract. That’s got to good, whatever your perspective.

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