Why Reshaping Your Contract Helps Your Suppliers Act Intelligently

Driving really strong and collaborative behaviours between you and your supplier for complex projects and services is a great achievement. Your own team’s competence in managing external providers to help accelerate the achievement of your business objectives, will be seen and measured as driving high value for your organisation.

However, if your strategic relationships stutter, stumble or stagnate, then there is a possibility that one or both of you are not acting as ‘intelligent’ entities. When you act as the ‘intelligent client’, these are your responsibilities to go above and beyond to contribute at all junctures to ensure that your supplier partner has all of the support and knowledge they need from you and your team, to do their best for the project relationship. An intelligent supplier, that most pragmatic of partners in any complex project and service delivery relationship, demonstrates 8 core behaviours that define them from their lesser-evolved cousins: the common ‘supplier’.

This article looks at the core element of ensuring your contract terms are discussed with your supplier as part of your ongoing governance; to assure that they remain aligned with the changing business objectives you will have as an organisation. This is achieved by a process called Contract Terms Reshaping and Development.

Periodic contractual fluidity (contract reshaping)

A mistake made by many, on both client and supplier sides, is to consider their contract to be a finite entity, metaphorically chiselled in stone. As such, once agreed, said document is often filed, never to see the light of day again, unless a serious ‘incident’ occurs and someone needs to identify whether the agreement has a way to gain recourse or compensation from the supplier in the event of a serious default or breach of contract, or find a quick and inexpensive way out of the project or relationship.

When was the last time you looked through your agreement, assessed its current suitability for the business outcomes and relationship it serves, suggested an amendment to optimise performance, or adapted it to better suit set objectives or the end user’s shifting needs?

The economics, finances, demands, technologies and goals of a complex project relationship are guaranteed to shift over the years; therefore, it is only logical and appropriate that the agreement that governs and guides that relationship should also adapt to these changing influences through contract reshaping.

Far from being fixed in stone, agreements between intelligent clients and intelligent suppliers are allowed to be (and should be pro-actively governed to be) periodically fluid, to move with the times and the realities of the environment they seek to align with or must work within.

The (minimum) biannual milestone every intelligent supplier should work towards

An intelligent supplier must be able to evidence that the contract terms it has developed for the majority of its clients provide a foundation on which to drive good behaviours between both parties, and are fair and equitable. It must demonstrate and evidence that it works with its clients to reduce contract ambiguity both at the outset and at least once every six months after that, throughout the entire lifecycle of the agreement.

The subject of keeping contract terms aligned with a client’s business outcomes is challenging for anyone to master, but your intelligent supplier will be up for the collaboration. In fact, an intelligent supplier will plan for, prepare for and often initiate such a meeting, as they will recognise the vital benefit of this opportunity to revaluate the relationship in order to optimise it for greater efficiency and relevance that aligns better to the business outcomes you seek to achieve.

It is often easy to recognise a less than intelligent client or supplier in a relationship. They are the ones who consider the contract terms as something either to (a) be avoided unless there is a dispute in the offing or (b) policed solely by the client who upholds then stringently in a mechanical process and to the letter, irrespective of whether the terms align to the business outcomes the client is expecting to achieve.

The perception of contract terms and contract reshaping in successful strategic relationships

The most successful strategic delivery relationships we have seen, use contract terms as an ‘anchor’. Where the client’s aspirations have been clearly defined, and the business objectives, behaviours, delivery strategy, KPIs and governance all drive the right foundations to deliver on the client’s business outcomes, then an intelligent client and intelligent supplier will have reverse-engineered the contract terms to align with the above objectives.

Such teams will also recognise that a client’s business outcomes will change over time. Therefore, a contract re-shaping review cycle must be inherent within its governance process to ensure that the client’s business outcomes are continually in sight for any changes arising. This means that to ensure contract terms are revised and reshaped to remain aligned to the client’s business outcomes, they need to be evaluated against those business outcomes often a minimum of twice per year.

Evidence of where the supplier is already operating this practice should be required by clients as part of the buying cycle. It should form part of the client/supplier evaluation process during the procurement process.

As part of this minimum six-monthly reshaping cycle, both client and supplier should work together to reduce any ambiguity in the interpretation of the on-going requirements, KPIs, performance management and the wording of the contract terms.

This blog forms part of 6 of our on-going series that will help you define an intelligent supplier, and encourage the behaviours, both in your internal team and from your suppliers, that increase the value of your strategic supplier relationships. Read the rest of the series, and sign up for our weekly blog, on the Best Practice Group website.