Contract Lifecycle Management - Manages the Risk in Outsourcing

by Adam McInnes

There is something to consider when engaging a contractor to perform a critical service for your organisation; you can outsource the process but not the accountability.

You will always be accountable for outcomes in an outsourcing relationship, even if you are able to pass on 100% of the risk and liability. This means that you have to pro-actively manage the contract lifecycle. This is contract lifecycle management.

I hear people all the time saying, “a contractor does that, and if he does not deliver he’ll be in breach of contract,” and they are happy with this. This is not a good position to take, because the first time they hear about non-delivery is when it is too late, and instantly you are putting out fires and trying to fix mistakes. This is re-active contract management and all too common. Let’s look at an example of this.

ACME Food Services are a global supermarket chain who outsource customer deliveries to contractors. BeeQuick is one such contractor that delivers orders to ACME’s customers on behalf of ACME. ACME Food Services has set-up SLAs that include contractor penalties for late and non-deliveries, so if the contractor is late or the food spoils in transit BeeQuick is financially penalised in some way. This acts as an incentive to provide the correct service as per the specification.

But, what SLAs and penalties do not do, is compensate ACME Food Services for the loss of goodwill when something goes wrong, dissatisfied customers, negative word of mouth, and associated loss of revenue due to poor contractor performance. What ACME Food Services really needs to do, is not just rely on the contractor to meet the SLAs, but also put contract management processes in place that increase the likelihood that SLAs will be met. These activities might include training for contractors, re-training, spot-checks, checklists for drivers, inspections, and even incentives for meeting SLAs or exceeding expectations. Because ACME Food Services is the company that will be blamed if something goes wrong, they have to do everything that they can to make sure that it does not. Even if ‘fault’ is just customer perception, can you afford to take the risk?

Additionally, the BeeQuick contractor forgot to renew an insurance policy. ACME Food Services checks insurance when they award a contract but does not annually check if contractors have renewed their policies. They do not have a solid systems approach to contract lifecycle management. Contract Lifecycle Management software systems notify contract managers as key dates approach so that they can take pre-emptive action.

One of the BeeQuick drivers left the hand brake off and his truck crashed through and ACME Food Services’ customer’s front gate. Guess who the customer contacted about the damage. Wouldn’t it have been easier to have been pro-active about ensuring that all contractors had current insurance policies?

About the Author:
Adam McInnes is the Chief Executive of Open Windows Contracts, a leader in contract lifecycle management software. Open Windows offers a trial of their contract lifecycle management software and further material that you may be interested in.

Published by: Adam McInnes on February 25th, 2009 | Filed under Legal



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