How do you track contract performance?

Performance measures apply to both parties to the contract and both parties should be held accountable. While it is typically the vendor/supplier that is most stringently measured, the purchaser/customer will also have deliverables, usually around the payment or provision of data. Make certain that the obligations of both parties are fully defined in the SMART format so that everything is clearly understood and there is no room for misunderstanding once performance has begun.

Also, ensure the other company or vendor does not alter the contract before signing it. Review your document for any changes they make or have tried to sneak in during the agreement signing stages. If you are not careful, you could play into an agreement that no longer favors your company the way it was initially intended to do.

Realistic is the keyword here. If you agree to a contract, but the language is not sent to the opposite, you cannot have them honor the dates in the contract unless specified verbally or on an added supporting document to the previously signed contract. Don’t set unreal expectations when doing business. Prepare accordingly and give a few days buffer to each major project you do. Contingency is key!

It's also important to establish any remedies for poor performance. In the example above, if the baseline for delivery is 10 days from the date that the order is placed, then what is the remedy for the purchaser if the delivery is late? Does this remedy escalate as the missed delivery date increases? For example, is there a 5% rebate if the due date is missed by one (1) day, but 10% if it is missed by two (2) days? Clearly define how poor performance will be defined, reported, and remedies applied.

One thing that is always helpful during the duration of projects is a weekly review and collect any pertinent information. At this time, I can also review any change orders or deadline adjustments when things like arrival parts interfere with current schedules. This can help explain gaps that can be present and also information to be fully and clearly described to our executive teams.

A best practice is to meet regularly for a performance review with your supplier to compare the data reports for both sides. Establish an agenda early on and include those that will prepare and present the data as well as any stakeholders that may influence future performance. Let both sides present, with an opportunity for the other side to explain any anomalies. It is important to identify potential risks or trends early and to mitigate them before they impact other areas of performance or production.

Consider implementing Six Sigma corrective action tools to fully document the corrective action process. Any changes to the existing sales, ordering, or delivery processes will need to documented as a Contract amendment, with appropriate consideration to the other (non-causing) party.

Once incorporated into the executed contract, any changes to the Key Performance Indicators (KPIs), performance baselines, data collection and reporting methods, or Terms and Conditions will require a Contract Amendment, signed and dated by an authorized agent of the parties to the contract. Be sure to keep a record of all contract amendments, including the date, reason for the change, and any financial impact to the project. This record will be invaluable to those who may need a quick summary or anyone who picks up the work as roles change.