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Building Operating Management

Fair, Flexible Contract Can Foster Cooperative Relationship





By Michel Theriault   Outsourcing

OTHER PARTS OF THIS ARTICLEPt. 1: Outsourcing May Not Equal Partnership for Facility Managers, Service ProvidersPt. 2: This Page

Without a fair, balanced and flexible contract, you aren’t likely to get the cooperative relationship that a partnership relies on.

An outsourcing service contract includes provisions designed to divide risk between the parties as well as clauses designed to make decisions easier to reach and disputes easier to resolve — in other words, to manage the grey areas that surface. Be sure the contract specifies what will happen when the scope changes, the portfolio changes, specifications change, legislative requirements change or other unknown pressures arise. A partnership is built on clarity and fairness about how issues like these are dealt with. By eliminating uncertainty, you also enable the bidders to provide a more accurate price.

While there are many contract models, a complex outsourcing arrangement with many subcontracted services is typically best handled with a management fee and a flow-through arrangement for most of the costs. This provides flexibility, visibility, and control over the resources, costs, and specifications of the subcontracted service while eliminating some of the issues involved with a fully included fixed price. You can build in a sharing arrangement for savings, but continuous savings simply won’t be sustainable if you want to maintain the same service levels. This shouldn’t be the way the service provider expects to make its profits.

The contract model can also stifle innovation, continuous improvement and the introduction of new techniques and technologies. These are areas where a service provider can provide some of the best value as a partner. A flexible approach to implementing the service provider’s ideas can provide incentive for both parties. For instance, if the service provider can implement innovations that improve your results or save you money, yet the financial model means related costs must be absorbed by the service provider, the provider is not likely to implement these innovations. It’s better to have your contract include a cost/benefit sharing mechanism or a way to fund these types of incremental costs to provide flexibility.

The length of the contract also affects the chances a partnership will succeed. A contract that’s re-bid every two years doesn’t suggest that a long-term relationship is being created. A longer contract with extended renewal options is more likely to foster a partnership, simply because of the longer time horizon. By building in some renewal periods, you can extend the contract easily if things are going well and renegotiate pricing instead of re-bidding the service.

Finally, progressive outsourcing agreements don’t constrain the service provider with detailed specifications or procedures; they focus on the end result and let the service provider achieve the goals using their experience and abilities. A flexible contractual arrangement provides more opportunity for a partnership while also meeting overall goals and reducing costs.

Are You Treating Your Partner Like a Partner?

Of course, not everything can be reflected in the contract. The relationship between the service provider and stay-back team has to be flexible enough to enable changes as the relationship progresses. A narrow adherence to the contract will be detrimental to the relationship. But be sure to document agreements and changes so that, when you move on, your replacement understands why things are the way they are.

There will always be problems, and sometimes the service provider will make mistakes. In a partnership, the service provider is given a chance to fix the mistake and make sure it doesn’t happen again. How they recover is almost more important than being perfect in the first place. Blaming and punishing the service provider won’t foster a strong working relationship and may cause them to hide things or stop communicating about important issues.

When you deal with issues, consider what you would have done when you were managing the service yourself, probably with fewer constraints, and manage the provider accordingly. Flexibility is probably what enabled you to manage successfully. It’s the same flexibility your service provider needs to be successful with a working partnership.

Of course, for this to happen there should be trust between the service provider and stay-back team. Establish this early through regular and open communication. Both sides should be open and honest to build a relationship; even a hint of mistrust can poison the dynamic. If possible, co-locate their key staff with yours to foster a more integrated working relationship and ensure that your issues, goals and problems are communicated. Include the service provider in meetings so they hear information directly and can use their experience to help you with issues.

Outsourcing isn’t a “set it and forget it” proposition. It requires effort to make it work the way it should. That’s all the more true with a partnership.

To get the full value of a partnership, which is more than simply shifting the risk and responsibility to someone else at the lowest possible cost, you have to actively manage the relationship. While outsourcing is often a way to reduce headcount, you should continue to use progressive performance management approaches similar to the ones you use with valuable employees.

COMMUNICATION
Don’t Rely on
SLAs and KPIs

Tools developed to manage outsourcing relationships, including service levels agreements and KPIs, are meant to ensure that service provider outcomes are aligned with the goals of the client organization.

However, it’s too easy to simply depend on service levels and KPIs as tools to communicate with and manage the service provider. A rigid measurement and reward/penalty system that tracks intermediate results, reports on them after the fact, and delivers a financial penalty or reward based on those results focuses both parties on those specific issues with less regard for the bigger picture. A dependency on measures and a reward/penalty system can also drive bad behavior even in people with the best intentions.

A true partnership goes beyond KPIs and uses a progressive, ongoing performance communication process, including less formal performance and service assessment tools, regular meetings, and cooperative discussions about problems and solutions. Be flexible, adjust targets, add new measures and let some slide when other issues become more important. A partnership moves toward managing and improving results while delivering the required services. — Michel Theriault

 

Michel Theriault is an independent consultant providing strategic and management solutions for facility managers. He has many years of experience in all areas of FM, including operations, performance management, change management, customer service, service level definitions, outsourcing and RFPs. He welcomes your comments and feedback at michel@strategicadvisor.ca or www.strategicadvisor.ca.


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Outsourcing May Not Equal Partnership for Facility Managers, Service Providers

Fair, Flexible Contract Can Foster Cooperative Relationship

posted on 5/1/2010

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