Winning the right contract on the right terms

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Chasing sales at the expense of service is a risky business. The reality of this has been demonstrated starkly by the behaviour of some suppliers competing for high profile public sector contracts. So, what can we learn from this?

Back in 2014, when Serco announced its 62% drop in profits earlier this month, Ed Casey, acting Chief Executive of Serco, commented: “There has been so much pressure to achieve growth that we may have reached too far for some contracts… we hope we will be disciplined… and not bid for contracts we can’t deliver. More recently, of course, we have seen the demise of Carillion, which came to a stickier end for under-selling contracts.

There is no doubt that the outsourcing companies have been going through a tough time and whilst much of the pain may be self-inflicted, there are also several lessons here for both service providers and their (Government) clients in general, for how contracts are procured and run. Here are just three:

1. Establish a trusting relationship.

 Trust is a two-way street. Firstly, suppliers have to show that they are trustworthy, this is achieved by being honest, credible and reliable and by demonstrating a genuine interest in what is important to their clients. Secondly, trust also requires clients to be trusting. Facilities Managers (FMs) are generally thought of as a risk-averse group but perhaps they are sometimes too trusting at the start of a relationship. Often, the trust is based on personal chemistry (“I like this person”, “I want to do business with this person”), combined with a couple of friendly references. FMs should seek hard evidence to test the suppliers’trustworthiness. Perhaps requesting blinded access to a supplier’s client feedback data or asking an independent party to survey the supplier’s client base? Now that would be insightful!

2. Be more open and realistic about what can be achieved.

Suppliers have a duty to ensure that they don’t over-promise during the sales process. Sales and Operations teams usually work together during the sales process to ensure that can deliver what they sell, so where does it go wrong? In my experience, it is often during the last minute negotiations when someone decides to over-ride all the hard work, throw caution to the wind and “do whatever needs to be done”to close the deal. Managers have a duty to ensure that they are pursuing the right business in the right terms; they also need to have the courage to walk away, if needed. Similarly, FMs need the courage to reject a last minute change in direction.

3. Work together towards measurable outcomes.

Service contracts are sometimes too focused on inputs, rather than outputs. The main reason for this is that people think that only inputs are measurable. It is true that it’s easier to measure inputs such as the number of toilets cleaned per hour, percentage of security points checked, or the number of meals served per day. However, focusing on these key performance indicators (KPIs) is having a destructive effect. It is important to remember what the strategic objectives are. The objective is not to (just) clean toilets, but to create a pleasant environment for the hotel guests, create a safe and healthy learning environment for children or provide a productive workplace for employees. Working together as a dynamic team towards achieving common goals is far more enjoyable and productive than the chore of trying to adhere to the terms of the KPI-bound contracts that seem to be in place today. Furthermore, with the right methodology and technology, you can now measure outcomes far more effectively too (disbelievers should look at “How to Measure Anything” by Douglas Hubbard, or at the Leesman Index as a means of measuring workplace effectiveness).

Build trusting relationships, be realistic about what can be achieved and focus on measurable outcomesit all sounds so simple!

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