There is an old cliche (which is nonetheless very true), to the effect that whilst a “good” contract will not – in the end – counterbalance the impact of a bad relationship, a “good” relationship can help ensure that a project succeeds, even if the contract itself is “bad” (ie in the sense of being poorly thought through or drafted). So how do these “good” relationships come about?
The obvious answer is that it is not a product of just one thing, nor is it necessarily easy….after all, if it was then everyone would be doing it and the outsourcing world would be a happier place! However, from my own experience of over 30 years now in the market, I can at least offer some observations as to some things which are likely to have an impact:
Customers who hide issues
If an RFP (and any associated due diligence) paints an overly rosy picture or hides known issues, the seeds for future dispute will be laid. The reality is that service providers do not have magic wands which can be waved to make things resolve themselves…..it will likely take time and investment. That is not to say that they will not be capable of achieving step change improvements (either as to cost or service quality), but it may require time and collaborative effort which will need to be planned for
Service Providers who over promise
There is an obvious imperative to “sell”, especially in the context of a competitive procurement process. However, making contractual commitments in order to win the initial contract award will come back to bite once the memories of champagne corks popping has long worn off, with the risk of disappointed customer representatives facing questions internally and therefore being pressured into insisting upon contract performance (even if they might personally have been more willing to find compromises).
Representatives who live by the contract
It may sound odd coming from a lawyer (!), but I would always advise that the contract be the GUIDE for the parties as to how they want to proceed, rather than a manual to dictate end results. Now, that obviously doesn’t mean that the contract should be metaphorically placed into a bottom draw and forgotten about, but a party can make a deliberate decision NOT to insist upon a right that it might otherwise have had. To take a past example of my own, I had a buy side client who had a service provider who was delayed in meeting some transformation milestones, which – according to the letter of the contract – triggered certain liquidated damages payments. However, the service provider was otherwise performing well and the customer wanted to recognise the efforts being made. Accordingly, whilst it did not simply waive the right to receive the liquidated damages, the customer made clear that it would not enforce their payment for so long as the relationship remained on track. Happily this proved to be the case, and in the annual review meeting that followed, the parties agreed to transform the entitlement into a (smaller) contribution to a joint innovation fund.
Representatives who forget about the contract
The flip side is also true! If the parties forget about the contract initially but then belatedly return to its provisions to seek to enforce them, the picture is likely to be clouded and entitlements will be in doubt, which will push the parties into more adversarial positions from the outset. Better instead to ensure that whatever processes the contract may have laid down for such things as change control, relief events etc have been followed, so that both parties know where they stand and relationship conversations can then be undertaken with full transparency. On the service provider side, for example, there is an unfortunate tendency to fail to follow through with contract processes which require written notifications to be given to customers when customer dependencies have not been met, whilst customers are often far from blameless in terms of properly managing changes in scope.
Lack of EQ
Dealing with human individuals is obviously a very personal thing. Not everyone reacts in the same way when faced with a particular set of circumstances, but creating a genuine relationship with a counter part on the other side of the table can make the difference between the parties looking to work together to surmount challenges as opposed to descending into finger pointing and blame games. I recall one transformation project in particular where the lead representatives from the customer and supplier side respectively appeared to start the project on a genuinely friendly basis, but then quickly fell out and started to look for opportunities to “get one over” eachother, as opposed to working together to resolve issues. Their respective parent organisations were unfortunately blind to what was going on until it was too late and the project had descended into a full on dispute.
Good Governance Structures
There is a balance to be struck here between ensuring there is enough communication and information to provide transparency, and getting lost in a snowstorm of largely irrelevant data and duplicative sessions. Equally, the right people need to be involved (not just in terms of subject matter expertise but also in terms of seniority and sometimes in terms of independence/distance from what is going on “at the coalface” (and so as to provide a degree of impartiality and balance to any discussions which may arise when challenges arise). The key is to make sure that if issues arise – whatever they may be – they are surfaced early and so as to give both parties a chance to assess and respond to them. No one likes unpleasant surprises, but the smaller the pain associated with them, the better the reaction is likely to be!
Partnership Mentality
This is perhaps the most difficult one to achieve, and many parties talk about it but don’t then deliver upon it in practice.
Having a partnership mentality involves thinking about your counter party’s interests as well as your own, and sometimes even putting their short term interests ahead of your own, if it will be for the greater good further down the line. So a customer might agree to provide some additional funding even where the scope associated with a fixed price commitment has not changed, or conversely a service provider might agree to undertake some additional activity where a customer has no additional budget, even when it might otherwise have been entitled to insist upon a cost variation via change control.
The key point to make in this regard is that such an approach requires reciprocity; if only one party is approaching the outsourcing project with an open and collaborative mindset, it will likely quickly develop a sense of frustration if it does not see this being reflected in kind by the other party….such that they are then more likely to revert back to strict adherence to express contractual obligations and no more.
Not all of the foundations for relationship management above can be achieved via the legal teams and the contracts that they draft. However, it is also true to say that the drafting of the contracts and the manner in which the initial negotiations are undertaken can help to set things up on the right footings and create incentives for the parties to work together in a more collaborative way…..all in the ultimate interests of successful project completion!
Kit Burden
Partner, Technology and Sourcing Group, DLA Piper
