In a typical outsourcing arrangement, the customer is focused on realizing anticipated benefits and service quality while the supplier is motivated to increase sales by either extending the scope or duration of the arrangement.
In PA’s experience, the most successful outsourcing arrangements are based on aligning these differing commercial goals through open and collaborative commercial management between customer and supplier. The key is to carry the win-win philosophy established during contract negotiations into the delivery phase and focus on benefit delivery throughout the entire lifecycle of the arrangement.
Essentials of PA's contract and commercial management approach
Open and honest communication of the benefits and profit expectations is essential during negotiations to allow the right supplier and contract to be selected. Transparency allows the right balance to be struck between benefits delivery and transfer of risk to the supplier. It also aids the design of any risk/reward arrangements, and establishes good behaviors from the outset.
A separate benefits realization function, involving both client and supplier stakeholders, should be established alongside the delivery organization. This group ensures that the original business case is delivered and addresses risks and shortfalls by managing benefit delivery.
To deliver long-term success, flexibility should be built in to allow the arrangement to accommodate changing requirements and business conditions over the course of the deal. Contracts should:
- set out high-level principles for benefits delivery rather than establishing labyrinthine, rigid clauses that can be restrictive and unenforceable
- include even-handed change control mechanisms and specific review and renegotiation triggers
- be structured to ensure that termination is a realistic option throughout the lifecycle to retain commercial leverage for both parties if the relationship breaks down irretrievably.
Relationships are about people
The PA approach to contract and commercial management is focused on building and maintaining effective and supportive relationships throughout the arrangement lifecycle. It avoids traditional supplier management methods which often lead to adversarial relationships focused on cost reduction. These tend to prevent longer-term benefit realization as flexibility and responsiveness are sacrificed.
