For those who have already experienced the hardships of having to terminate a large, complex, high commercial risk project before its natural end, you will know that early contract termination is a complicated process that is often fraught with financial and reputational dangers. You will also know that it requires meticulous planning and execution and a clear transition path to a much better operating model. This is something we discussed in an earlier article “How should I plan an exit from a terminated contract with a strategic supplier?”.
That article focused primarily on the client’s perspective and the mechanics of the exit and transition into new services process. However, after publication, we had a number of readers contact us to ask about what ‘behaviours’ they should expect from the incumbent, but existing supplier of a contract where their quality of service has been in dispute and has not been able to be satisfactorily improved. In other words, what personal and internal corporate pressures are the supplier’s team likely to be experiencing and how might these pressures reflect their behaviours, whilst you are trying to navigate the exit process in a constructive manner?
While we did touch on the supplier’s behavioural perspective in that original article, on reading back over our own work, it was clear that our articulation of the pressures on them within the exit process were more implied than express in the article. Therefore, this article aims to more specifically articulate the behaviours, motivations and impacts on service quality from the supplier’s side, as well as strategies for mitigating the potential issues this may create.
Early Contract Termination Exit – Expected Behaviours from a Strategic Supplier
In the landscape of early contract termination of complex and high value projects, understanding the likely behavioural responses of your strategic supplier will be of paramount importance. These behaviours can range from a reluctance to cooperate, all the way up to efforts of them attempting to maximise their financial gain, all influenced by a myriad of factors such as financial implications, reputational risks and internal dynamics from the supplier’s executive management team.
Recognising the likelihood of these potential responses and their impact in advance, equips you with the necessary foresight to navigate the exit and transition process more effectively. Below, we explore these expected behaviours in greater detail, providing a comprehensive view of what you might encounter when parting ways with your strategic supplier.
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- Reluctance to Cooperate
Upon receiving notice of contract termination, a supplier will often exhibit a reluctance to cooperate as fully with you as they may have previously. This can manifest in a variety of ways, such as withholding critical information, delaying responses to queries or even failing to meet agreed-upon deadlines. Such behaviour will often stem from their sense of disappointment in the situation, or even feelings of loss or betrayal, especially if the supplier believes it had invested significantly in its relationship with you.
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- Service Degradation
Another common behaviour is the degradation of service quality. The supplier may allocate fewer experienced resources or start to pay less attention to your needs, leading to a further decline in the standard of work it delivers. This is often a byproduct of the supplier’s de-prioritisation of your project and the subsequent need to reallocate resources to other client contracts that it deems more valuable in the long term.
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- Financial Maximisation
Some suppliers seek to maximise financial gains before the contract with you comes to an end. This approach can range from attempting to invoke ‘penalty’ clauses, accelerating billing, or even attempting to find loopholes in the contract to levy additional charges. Such actions are usually motivated by the supplier’s desire to mitigate the financial impact of the lost contract with you and improve their personal reputation with their own management team.
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- Public Relations Manoeuvring
At this point, where a major, complex project has been terminated early, suppliers will often move into reputation management mode as blame can impact their ability to win new work in the future. They may engage in public relations activities to control the narrative, such as issuing press releases or leveraging social media. The aim of this is to frame the termination in a way that minimises damage to their market reputation.
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- Internal Communication Barriers
Finally, a supplier may erect internal communication barriers between its peers and higher management team in an attempt to reduce transparency and limit unofficial dialogue with you. This is particularly likely if the supplier views the termination as a failure on its part, as the perception would be that these barriers would allow it control over the flow of information both within its organisation and externally.
Understanding these behaviours provides valuable insights into a supplier’s mindset and equips you with the knowledge to navigate the complexities of early contract termination more effectively.
Why These Supplier Behaviours Are Likely
The motivations behind these supplier behaviours can be many and varied. By gaining a nuanced understanding of these driving factors, you can be better positioned to anticipate challenges and formulate effective strategies for a smoother exit process. For this reason we have listed the three most powerful forces driving supplier behaviours in the weeks and months following your decision to terminate your relationship with them.
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- Everyone is human
The human element within a supplier’s organisation should not be underestimated. The termination of your contract can impact staff morale and may even lead to job losses, or the worry of job losses, which can have a comparable effect on the internal mood of the supplier organisation. These internal dynamics can significantly influence a supplier’s willingness to cooperate and this may go some way to explaining any reluctance or communication barriers you encounter.
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- Strategic Focus
Suppliers often categorise their clients based on strategic importance. If you are not considered a key account (i.e. one where other opportunities exist for future collaboration), the supplier is often less motivated to allocate resources for a smooth exit process. This can result in further declines in service quality and responsiveness.
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- Contractual Obligations
The existing contract between you and your supplier will often contain clauses that dictate specific behaviours for both you and the supplier during termination. These contractual obligations can sometimes conflict with your interests, leading the supplier to act in ways that are unlikely to facilitate a smooth exit.
Impact on Service Quality
We have explained that a supplier that has been issued with an early contract termination is likely to exhibit behaviours which may cause further adverse impact on your service quality as the contract continues, but here we will take that one step further to discuss the specific ways those behaviours and actions may affect you and those reliant on the delivery of service within this transition period.
In the following section, we examine the likely impacts on service quality, so you can prepare for and mitigate these challenges effectively.
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- Reduced Responsiveness
As a supplier reallocates resources away from your account, you may experience a decline in the speed and efficiency of service delivery. This reduced responsiveness can affect various aspects of your operations, from delayed responses to service requests to slower resolution of issues.
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- Limited Access to Key Personnel
Key personnel who were previously readily available for consultations or problem-solving may become less accessible. This limitation can be a significant hindrance, especially if these individuals possess unique expertise or insights that are crucial for a smooth transition.
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- Service Shortfalls
With the supplier’s focus on other clients or internal matters, this may lead to a decline in the quality of the services or products provided to you during this time. This can manifest in the form of more frequent errors, service disruptions or even failure to meet previously agreed-upon standards.
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- Inconsistency in Service Delivery
As the supplier’s attention shifts, you may notice inconsistencies in service delivery. Processes that were once streamlined may become disjointed, leading to inefficiencies that can affect your operations.
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- Reduced Proactivity
Suppliers often become less proactive in anticipating your needs or offering solutions that go beyond minimum contractual obligations. This reduction in proactivity can result in missed opportunities for optimising the exit process.
Mitigation Strategies
By proactively addressing these challenges, you will not only safeguard your interests but also create the conditions for a smoother and more successful exit process. Mitigation strategies aim to counteract the potential negative impacts on service quality and foster a more cooperative environment with your strategic supplier. In the subsequent section, we outline explicit steps you can take to work collaboratively with your supplier during this critical phase.
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- Open Dialogue
Maintaining open lines of communication with your supplier is crucial. Regular check-ins and transparent discussions can help you understand the supplier’s concerns and limitations, thereby enabling you to find mutually beneficial solutions.
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- Financial Incentives
Albeit going against the grain, when a supplier has not been performing, it is worth considering whether the offer of financial incentives to your supplier for meeting specific exit milestones could be beneficial. This approach can serve as a motivating factor (to counter some of the behavioural factors discussed above) for the supplier to cooperate and maintain (occasionally even improve) service quality during the transition period. We understand and agree, that this may, at first glance, not seem the most desirable of directions, but there are certain situations where this can prove more effective at driving the right behaviours and actions than you might otherwise expect.
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- Third-Party “Expert” Facilitation
In cases where the relationship has deteriorated significantly, it can be highly beneficial to involve a neutral third party who has both deep technical domain skills in the service being exited, along with strong stakeholder, facilitation skills and a specialist understanding of a strategic supplier’s “Expert Responsibilities” and its “Duty to Warn”. This can facilitate constructive, evidenced-based dialogue, help to resolve disputes and foster a more collaborative atmosphere in strained times.
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- Legal Safeguards
Ensure that your contract includes clauses that obligate the supplier to maintain a certain level of service quality during the exit process and potential ‘step-in’ rights if they do not. Independent governance and monitoring of the ‘step-in’ process is really important if the supplier continues to put your service delivery at material risk. Operated in the right way, these legal safeguards can serve as a fallback, providing you with recourse in the event of significant service degradation.
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- Internal Buffering
Protect your supplier-focused staff from challenging conversations by having senior management lead these discussions with their supplier peers. This strategy allows you to preserve any remaining goodwill, enabling your Supplier Relationship Management team to leverage these relationships for a smoother exit.
By implementing these mitigation strategies, you equip yourself with the tools needed to manage the complexities of early contract termination effectively. This proactive approach not only minimises disruptions but also sets the stage for a more amicable and successful exit.
Conclusion
Navigating the complicated behavioural issues that arise from early contract termination with a strategic supplier requires a multi-faceted approach that goes beyond legalities and contractual obligations. As highlighted by insightful reader comments, understanding the supplier’s viewpoint is not merely an exercise in empathy, but a strategic necessity.
The supplier’s behaviours, driven by a wide variety of motivations such as financial impact, reputational and personal risks, can significantly affect the quality of service you receive during the exit process. However, these challenges are not insurmountable. By employing targeted mitigation strategies, such as open dialogue and pro-active nurturing, you can foster a more cooperative environment that facilitates a smoother and more successful exit.
The key takeaway here is that both parties in a contract have vested interests and pressures that influence behaviours. Recognising and addressing these can not only smooth the exit process but also potentially preserve relationships in the event the opportunity for a future engagement arises. As you proceed with contract termination, keep in mind that the discretion and goodwill of key individuals on both sides can be the differentiating factor between a traumatic exit and a successful one. Therefore, a balanced approach that considers the supplier’s pressures and behaviours, while safeguarding your own interests, is essential for effective contract termination management.
