There is something to consider when engaging a contractor to perform a critical service for your organisation; you can outsource the process but not the accountability.
You will always be accountable for outcomes in an outsourcing relationship, even if you are able to pass on 100% of the risk and liability. This means that you have to pro-actively manage the contract lifecycle. This is contract lifecycle management.
People tell me all the time that contractors do this and contractors do that, "it's not us," well I'm sorry, it is still you. I'm buying from you, and I expect you to manage the process from order to delivery. "If the contractor does not deliver he'll be in breach of contract." This is a risky attitude, because the first time they hear about non-delivery it is too late, they've already got a problem. Suddenly they're putting out fires and trying to rectify errors that should never have occurred. This is re-active contract management. Let's look at an example.
ACME Food Services are a global supermarket chain who outsource customer deliveries to contractors. BeeQuick is one such contractor that delivers orders to ACME's customers on behalf of ACME. ACME Food Services has set-up SLAs that include contractor penalties for late and non-deliveries, so if the contractor is late or the food spoils in transit BeeQuick is financially penalised in some way. This acts as an incentive to provide the correct service as per the specification.
But, SLAs and penalties cannot compensate ACME Food Services for loss of goodwill when something goes wrong. They will suffer dissatisfied customers, negative word of mouth, and ongoing loss of revenue due to poor contractor performance. ACME Food Services must implement a systems approach to contract lifecycle management, and put processes in place that increase the likelihood that SLAs will be met. For example, training of contractors, re-training, spot-checks, checklists for drivers, inspections, and even positive incentives for meeting SLAs or exceeding expectations. All these initiatives are much better than just penalising contractors for poor performance. ACME Food Services will be blamed if something goes wrong so they have to do everything that they can to make sure that it does not go wrong.
BeeQuick forgot to renew their insurance policy. ACME Food Services checks insurance currency certificates when they engage a contractor but does not always think to check if contractors have renewed their policies into the second year. This is because they do not have good systems in place notifying contract managers as key dates approach.
One of the BeeQuick's drivers forgot to apply the handbrake and his van collided with a customer's fence. The customer blamed ACME Food Services, of course. The contractor was uninsured and ACME Food Services had to settle the claim. Being pro-active about ensuring that all contractors had current insurance policies would have been cheaper and easier.
You will always be accountable for outcomes in an outsourcing relationship, even if you are able to pass on 100% of the risk and liability. This means that you have to pro-actively manage the contract lifecycle. This is contract lifecycle management.
People tell me all the time that contractors do this and contractors do that, "it's not us," well I'm sorry, it is still you. I'm buying from you, and I expect you to manage the process from order to delivery. "If the contractor does not deliver he'll be in breach of contract." This is a risky attitude, because the first time they hear about non-delivery it is too late, they've already got a problem. Suddenly they're putting out fires and trying to rectify errors that should never have occurred. This is re-active contract management. Let's look at an example.
ACME Food Services are a global supermarket chain who outsource customer deliveries to contractors. BeeQuick is one such contractor that delivers orders to ACME's customers on behalf of ACME. ACME Food Services has set-up SLAs that include contractor penalties for late and non-deliveries, so if the contractor is late or the food spoils in transit BeeQuick is financially penalised in some way. This acts as an incentive to provide the correct service as per the specification.
But, SLAs and penalties cannot compensate ACME Food Services for loss of goodwill when something goes wrong. They will suffer dissatisfied customers, negative word of mouth, and ongoing loss of revenue due to poor contractor performance. ACME Food Services must implement a systems approach to contract lifecycle management, and put processes in place that increase the likelihood that SLAs will be met. For example, training of contractors, re-training, spot-checks, checklists for drivers, inspections, and even positive incentives for meeting SLAs or exceeding expectations. All these initiatives are much better than just penalising contractors for poor performance. ACME Food Services will be blamed if something goes wrong so they have to do everything that they can to make sure that it does not go wrong.
BeeQuick forgot to renew their insurance policy. ACME Food Services checks insurance currency certificates when they engage a contractor but does not always think to check if contractors have renewed their policies into the second year. This is because they do not have good systems in place notifying contract managers as key dates approach.
One of the BeeQuick's drivers forgot to apply the handbrake and his van collided with a customer's fence. The customer blamed ACME Food Services, of course. The contractor was uninsured and ACME Food Services had to settle the claim. Being pro-active about ensuring that all contractors had current insurance policies would have been cheaper and easier.
About the Author:
Adam McInnes is the Managing Director of Open Windows Contracts, a leader in contract management software. Open Windows offers a trial of their contract lifecycle management software and further material that you may be interested in.
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