A supplier’s contract delivery team is not only measured on its ability to ensure customer satisfaction, but also on the profitability of the contract as a whole.
While it would be unjust to suggest all vendors will seek to abuse the relationship to maximise profit, the contract manager must be alert to this possibility. The key to ensuring this does not happen is control, through effective contract management.
The following list represents a litany of approaches taken by vendors on past contracts to maximise profit. They serve as a warning of the range of activities open to the vendor who is willing to bend the rules, seeking to take advantage.
- Strict interpretation of contract terms, and a refusal to implement minor changes.
- Strict adherence to the specification, including task programmes.
- Charging for minor changes and variations without cost visibility.
- Charging for additional visits and reports, beyond those set out in the contract.
- Extra transport charges and travel costs.
- Delay in reporting problems, preventing timely problem solving.
- Frequent small reductions in service delivery, eroding the specification.
- Concentrate on manipulating high-cost aspects of contract to manipulate the price.
- Shift responsibility to sub-contractors to avoid accountability.
- Highlight and emphasise any shortfalls by the buying organisation to undermine confidence and to avoid contractual liability.
- Blame pressure put on price by the buyer at the time of contract for performance shortfalls, and then try to renegotiate the price.
- Deliver low quality goods when buyer is known to be short of stock and desperate for supply.
- Escalate minor difficulties to prevent them being raised in the future.
- Push for advance payment to assist cash flow.
- Charge interest on overdue accounts.
- Suspend work/deliveries if accounts are overdue and then charge for re-mobilisation.
- Exaggerate costs of variations and changes to enhance profit.
- Seek relief from service level agreement targets.
- Seek relief from improvement targets.
- Substitute skilled staff for semi-skilled workers.
- Charge excessive travel time.
- Claim for extra staff not actually deployed.
- Manipulate the decision-making unit.
- Promote sustainability to seek premium costs.
- Make deliberate errors on invoices, e.g. price extensions.
- Establish a precedent, which then becomes the new standard practice.
- Change part numbers and charge extra.
- Manipulate the timing of service calls to minimise cost, which affects service.
- Perform service in premium time.
This is not an exhaustive list. What do you think we have missed?
☛ Stephen Ashcroft is a purchasing and proposals coach at Brian Farrington. You can comment or connect with him on LinkedIn and follow him on Twitter