Strategic partnership relationships are inherently complex entities. At their outset, you will inevitably know less about one another than six to twelve months later. However, at the outset you are expected to develop a roadmap in the form of a contract to direct and manage a relationship that could last 5 or 10 years, or in the case of a PFI relationship, 25 years or more.
Ongoing reassessment of expectations in strategic partnerships
There are only three certainties in life. One of those is the fact that expectations and how they are addressed will change over time (the other two certainties being death and taxes). It is, therefore, inevitable that changes in how your expectations must be addressed by your strategic supplier, and how those changes will be reflected contractually, will be required.
The ongoing reassessment of expectations in major strategic supplier relationships is something that we continually champion. When we design an agile, outcome-based contract for major service and solution relationships, we build in a regular review (usually 6-monthly, though sometimes more or less frequently according to the criticality of the solution/service being delivered) of the outcomes from the service/solution being delivered. We call this a ‘reshaping’ process.
Realign strategic partnerships – what ‘reshaping’ achieves
Reshaping determines the current viability of the outcomes, services, governance and financial benefits the relationship is achieving. The process seeks to learn, from what is working really well and what is not, where any adjustment and realignment in any of these constituent elements may be required to benefit the overall outcome of the relationship.
Its role is to guide everyone in the light of an ever-changing environment and position along the schedule timeline. This is the sensible tweaking process of any strategic contractual relationship. However, should more significant and unexpected changes to the agreement be required along the way that don’t appear to benefit the overall outcome, this could cost parties a significant amount in both financial and reputational terms. It is something we would suggest avoiding.
This article explores what we find helps to identify the right insights into getting the relationship working well, how to achieve ongoing alignment in outcome-based contracts to support the relationship deliverables, and how to draw everyone back on track should they go astray.
Strategic supplier relationship structures
Contract models for strategic supplier relationships vary. Each has its own risk profile, and the choices of model often have unanticipated positive or negative ramifications that reverberate throughout the relationship. Your contract choices, therefore, need to be reverse-engineered from the outcomes you wish to achieve, rather than use a poor template that has to be ‘wedged’ and does not drive fit-for-purpose behaviours or service delivery.
What happens when a badly aligned contract structure is used
A reported example of a significant mismatch of client, contract and strategic supplier happened when the Ministry of Justice (MoJ) awarded contracts to a number of private sector suppliers.
The contracts were intended to manage the Community Rehabilitation Companies (CRCs) who are tasked with supervising the rehabilitation of offenders. The contract chosen was anticipated to be ‘outcome-based’, where the suppliers were paid based on the reduced rate of reoffending by prisoners.
It was thought by the MoJ at the time that this would encourage suppliers to innovate to achieve the best possible strategies to reduce prisoners reoffending. However, due to a number of considerations that were unanticipated – such as the lengthy nature of data collection on rehabilitation and the difficulty of attributing any movement in the rehabilitation rates to any one factor – it was quickly established that this was not the best of contractual models.
The contracts were supposed to run from 2015 to 2022 and to deliver over £10bn in net economic benefits. However, by 2018 the Justice Secretary determined that the probation services were not performing to expectations and that these contracts would be terminated sooner than planned.
Crossrail – Another example of unanticipated hurdles
An example of a project that showcases unanticipated costs of contract changes, is Crossrail. According to the National Audit Office (NAO), the Department of Transport (DoT) instructed suppliers across 36 main contracts. Each of these contracts had dependencies on Crossrail fulfilling its own obligations so that each supplier could fulfil theirs.
These co-dependencies required Crossrail Ltd to compensate its suppliers in the event of Crossrail creating delays that impacted on suppliers being able to deliver correctly and on time, for their own work. Between 2013 and 2018, changes required to the design, installation and schedules sent costs spiralling and an additional £2.8bn was needed in funding. Of that funding, £1bn was needed to compensate those suppliers because Crossrail did not deliver on its own obligations.
The NAO identified the contract model used as one of the main issues that led to unpredictable costs on the project, and Crossrail Ltd started to move to a fixed price contracts in an attempt to counter this.
7 Steps to Realign Strategic Partnership if your Contract Model is Failing You
While selection of the right contract model at the outset is always the aspiration, it is not always going to be achieved. It is important to know what can be done if, some way into your relationship, you realise that a renegotiation of your agreement is necessary. Our significant experience in this area has led us to a series of observations you can check against your existing thinking to plan for any realignment of your agreement, your relationship and the future of your project.
Step 1: Take a breath
It’s important to recognise that the goal here is to find a way to improve the prospects of your strategic partnerships, to realign them to be more capable of achieving planned outcomes. Therefore, you need to consider your supplier as a collaborative partner in the realignment process. Even where targets have not been hit, milestones missed and disagreements have occurred, at the early stages of realignment it’s important to have a clean slate mindset that will allow you to view the relationship as renewed once a new agreement has been negotiated. This openness to putting any ‘bad blood’ behind you will boost commercial trust and the right behaviours from your partners.
Step 2: Build your evidence case to remove subjectivity
If you are looking to make a significant change to the way your relationship is to be managed, you need to have good evidence for suggesting it and to persuade your suppliers to buy into it. The evidence you have gathered should clearly show deliverables are not as they should be and a quantification of issues and rewards associated with a change. The more prepared you are with evidence the more likely your conversations, and resulting outcome, will be successful.
Step 3: Honest view of responsibility
Where a contractual change is required due to failings in obligations and responsibilities, in order to drive better behaviours between you, it’s important to highlight not only the failings of your partner, but also those you are responsible for improving.
If you don’t balance this out in the right way and matters formally escalate into legal proceedings, it will only result in the courts getting grumpy about the supplier or yourselves attempting to mislead them. The result? Whoever is doing the misleading is likely to have penal costs imposed against them.
It’s also important not just to focus on the things that went wrong, but to congratulate when things went well. It’s a balance. The conversations you are having are not to berate or to whinge – they are to develop stronger working relationships and trust to achieve better outcomes for all. An honest evaluation recognises any issues on both sides and a fair and balanced view that all sides will recognise this.
Step 4: Know what needs to change
Building your evidence case and taking an honest look at the reality of your strategic relationship will provide you with greater certainty of what needs to change. You must refine this view to identify why issues have occurred, what they are and what everyone needs to do to improve the situation. The clearer you are with your objectives for the conversations you’ll face, the easier it will be to explain the evidence, achieve buy-in and be prepared in your discussions with the other parties.
Step 5: Know your contract inside out, back to front, side to side…
Any conversations, negotiations and realignment of contractual obligations will require a full understanding of your agreement – as it is now, what is working and what is not, to guide the relationship. It’s so important to know ‘what is’ before you can articulate and get buy-in for ‘what could be’. Questions will arise and it’s important that you are able to evidence them in order to maintain trust in the negotiations and to show that your outcomes are realistically considered.
Step 6: Engagement with your supplier
It usually makes sense to initially write to your suppliers to inform them of your findings, what you hope to achieve in the future, and that you’d like to work together to do this. Set the right tone for a face to face. The formal meeting you agree on to discuss issues and work towards developing a framework for dealing with them, must be approached constructively. It should move the relationship forward in a positive way and set a roadmap for change that can be scheduled, monitored and managed.
Step 7: Monitor and proactively manage your change
We judge others by their behaviours, but we judge ourselves by our intentions. Nothing happens from just having intentions or ‘just talking’. It’s vital to ensure that the great work you have done at your meeting, your relationship building and realignment, is then followed up by action.
You need to create the momentum with good monitoring and management to move you towards your goal, to highlight where activities are running smoothly towards change and where the bottlenecks continue to exist. Open lines of communication are vital. Involve your supplier counterparts at all stages and always make them feel a part of the process.
Conclusion
Selection of the correct contract model from the outset is clearly important, but in the real world the ground can quickly shift from beneath you and what seemed clear and obviously right at the outset can have unintended consequences and veer off in the wrong direction all too quickly. It is, therefore, important to have the sort of relationship, or to have a plan of action to create one, that can refocus on a brighter future, and how to get there, rather than walk through the treacle of the issues of the past. A collaborative partnership will see you through the necessary changes to make that happen, transcending rivalry and misaligned priorities.
The seven steps above are just an introduction to an agreement realignment strategy. Should you wish to discover more specific guidance, do contact me directly on 0845 345 0130 or awatton@bestpracticegroup.com.
Photo credit: iStock
