While the private sector has greater opportunities to leverage supplier relationships through contracts, the public sector has many levers to pull here as well. The basic premise with relationships is to be honest as to how well the contract is meeting the expectations of all parties.
Procurement should not take a passive approach and hope that no news is good news. When the contract is inked, the relationship builds.
Kickoff meetings
Seldom will any supplier be rated 100% on their evaluation which led to the award. At the kickoff meeting, procurement and the end users, can reiterate where improvements can be made to service delivery. Draw from the specific criteria which was weighted in the bid documents. The contractor now knows, as the incumbent, if they can close any performance gaps during the performance of the contract, they have a good chance for an extension or a renewal; or a great reference for future clients. The relationship between the Owners’ representatives and the contractor contributes to the success of a contract.
Milestones
With new suppliers or contractors, early milestone follow-up dates send a message that performance matters. Objective information exchanged between the parties clarifies expectations and encourages decision-making for mutual benefits. Without constructive feedback, a service provider must assume that they are doing a good job. They rely on no news being good news. As can happen, when the contract comes to closure, the perceived deficiencies by the Owner can taint the relationship. With short term service agreements, it’s difficult for the Owner to make responsive feedback in a timely manner. Looking at longer term contracts, there should be no excuses for poor performance by a contractor, as they will have had a heads up throughout the contract period.
Nothing is more disappointing to a contractor to find out at the end of the contract, that the Owner had reservations about the performance. If issues are not shared during the contract period, that can be an indicator of a poor working relationship. Now we dig deeper. Is it personal bias based on previous relationships or an outright failure to perform satisfactorily? At a minimum, scheduling regular meetings to discuss the performance will identify options before relationships are skewed.
Performance evaluations
The essence of a supplier/contractor performance evaluation is to identify what worked well, where improvements could be made, and / or find the nuances to make future contracts more effective. Relationships are built on the trust between the parties. Ongoing feedback goes two ways. Often a contractor will know where efficiencies could be achieved if the Owner is willing to consider suggestions during a contract. A poor relationship does not reveal better ideas, it deters them. The Owners’ representatives should develop relationships which invite open discussions around the value of the services.
We see more bid evaluations using past performance of a supplier/contractor as a meaningful criterion to score. The better the relationship based on the perceived value from other contracts, the greater the incentive to score the leading proponents accordingly. Trust and reliability are implicit in relationships and can be quantified in the evaluation process. Public sector relationships must be void of bias or unstated preferences, objective evaluations are a means of rewarding good performing contractors. Conversely, past performance should dissuade poor performing low bidders.
Service Level Agreements
SLAs are drafted by both parties with the intent that during the performance of a contract, both parties will benefit from the positively accelerating learning curve. The initial price quoted to perform a service contract is based upon experiential knowledge, assumptions on unknown conditions, and the need to cover contingency costs. As the parties during a contract can see that the project is meeting or exceeding expectations, the professional relationships between the parties becomes the X factor. The better the relationship, the better the perceived value of the outcome of the contract. The SLA allows for amendments during a contract to take advantage of productivity improvements. These could include formulas for shared cost savings; expedited completion dates; improved safety records; or other criteria important to the parties. Strong relationships invite critiques of the input from all parties to identify where improvements can be made.
Key Performance Indicators
At the outset of a contract, there must be clarity as to how satisfactory performance will be defined. The use of KPIs informs all parties as to what the focus for delivery should address and how it can be quantified. Setting a minimum level of satisfaction sets a target, which both parties agree to. With a good working relationship, there is an incentive for both parties to contribute to achieving the target KPIs. In the absence of KPIs, is the hope that the contractor/supplier’s performance will meet expectations. When the parties mutually agree that the contract was performed well, that reinforces the relationship. Where the contract was less than satisfactory, the relationship is tenuous at best.
The SMART acronym serves well with KPIs. Performance is assessed within the context of being specific, measurable, achievable, results-based, and time-bound. SMART works for all parties and when the KPIs are being met, there is usually a strong correlation to the positive relationships between the parties.
Vested outsourcing
Supplier reward programs are very common in the private sector and absent for the most part in the public sector. Vested outsourcing contracts are being used in the public sector. An example would be where front-line staff receive incremental financial incentives for achieving critical service outcomes, based on a prescribed formula. Health care facilities have used VOs for custodial agreements. It would be hard to imagine a VO working without good working relationships during the contract.
Relationships are based on people; not the paper.
Written by: Larry Berglund