Customer Contract Vigilance?

Why would customers allow contractors to over promise in their bids and under deliver after receiving the contract?

Customers’ only tool to look into contractors’ future performance is the bid process. The goal of customers’ bid process is to select contractors with the best value.

The catch?

Value only matters if it’s received. That only happens after the decision. Over the lifetime of the contract. Too obvious, I’m sorry.

Customers run diligent RFP processes. They’ve selected the best-qualified contractor.

Now, satisfied they’ve done their job, they ignore the big part – getting what they paid for.

Vigilance after contract award is worth more to customers (and contractors) than RFP due diligence.

The Contractor’s Dilemma:

Some contractors make exaggerated claims. And take contracts away from contractors who reliably deliver.

The catch?

Contractors need to be selected before they can deliver. They must show well.

After All The Dogs and Ponies are Gone

Customers are left with the future delivery of proposal promises.

And during the RFP courtship, contractors’ promises all smell sweet.

Customers Must Validate After Contract Award

In many situations customers’ attention disappears after receiving the proposal valentine. Right after contract award.

“Good from far, far from good”. That’s how one contractor put it.

Meaning the choice of the “right” contractor can look good, if you don’t look too close. Or, look after the contract has been awarded.

If proposal promises aren’t validated after the contract is in place, what has the customer bought? A good show? But not the value the proposal promised.

Why Customers May Not Validate After Award

To be fair, many customers do pay attention. But many don’t. Here are several reasons why:

  • Procurement typically drops out of the day-to-day oversight
  • Customers want to get on with their real job, RFPs are temporary nuisances
  • Customers don’t want to find out they’ve made the wrong choice

Customers Don’t Want to Find Out They’ve Made the Wrong Choice

Now there’s an unwelcome kettle of fish (and I’ve never seen a kettle of fish but I bet it’s unpleasant.)

Once it’s clear the contractor can’t deliver, or just plain deceived, customers are in a tight place.

It’s not an easy fix. Someone’s boss higher up is going to find out. And that’s uncomfortable. Not all customers have the intestinal fortitude to stand up and admit a huge mistake publicly. (Don’t know if I could either. Would like to think so, but not so sure.)

Why is Admitting a Wrong Choice So Hard?

MONEY
Money has been spent on the bid process. The customer doesn’t want to be seen as wasteful.

FOCUS
Customers have directed their company’s focus onto this particular service during the bid process. That’s a distraction for many. Customers don’t want that cloud hanging over them – if they’ve done it for nothing.

CAREER
Customers are personally on the line for this contractor. They chose them. Customers don’t want to admit mistakes in their judgment. A mistake of this magnitude is like committing career seppuku.

Real World Example

I was told this story by a few of the sub contractors involved.

Several years ago one of the top facility management companies in the country won a long sought after contract for a Fortune 10 client’s world campus. Worth tens of millions per year.

Unfortunately, they’d under priced their bid by at least 15 full time equivalents (FTEs). These were their managers, not subs. These were the people who were going to deliver world class results to exceed world class expectations. (The mistake was discovered shortly after start of service. Isn’t that always the time?)

Now, they could’ve gone back to their (new) customer, admitted their error, and asked for the proper funding.

But as you’ve correctly guessed, they didn’t. What they did was put all the contracts they were managing out to bid and squeezed for cost reductions. To make room for their bidding error. (By the way, they didn’t reduce their fee.)

Sub contractors who had diligently worked to deliver world class service had to slash and burn prices to keep their contracts.

Did all this create improvements for the Fortune 10 customer? (I don’t think so.)

The customer contacts who had chosen the contractor were aware of the problem. They were complicit in the agreement to not formally disclose the bidding error to procurement.

There was a lot of skin in this game. For the customers and contractor. Too much to be seen as wrong.

Here’s How Customers Can Increase Vigilance

There are two opportunities to check that customers will receive what they’re promised. (I’ve reversed the order of how these occur, it’s more interesting this way isn’t it?)

  • Validate After Award
  • Vigilance in RFP Bid Process

Validate After Award

Auditing seems obvious.

However, it’s the first thing that melts away when everything seems fine. (Remember pre-Enron/WorldCom oversight?)

Auditing needs to address both contract compliance and service performance.

Contract compliance may include LEED or ISO proposal promises. Auditing these is straightforward as criteria exist.

Service performance (like the sound of that name) auditing can be done in business review or joint committee meetings. Whatever formal customer/contractor meetings that review mutually agreed upon data.

Set KPIs (key performance indicators) before service start and have contractors collect and report their performance in review meetings.

Who’s Doing the Validating?

The best scenario is to include three different parties in the auditing process:

  • Customer representative
  • Contractor representative
  • Outside consultant (LEED, ISO, or other 3rd party service consultant)

If only contractor representatives perform the audits, they may be viewed, rightly or wrongly, as foxes guarding the henhouse. Even if it’s an executive from the contractor’s corporate office.

If only customer representatives audit, you can hear contractors pulling out their hair. Especially if there’s a performance based portion of their contract.

Bringing an outside consultant adds a common, external assessment. Makes for better relationships. Also adds costs and may not be appropriate for smaller contracts.

Vigilance in RFP Bid Process

How can customers determine what they’ll get before the contractor has started?

Ask for it. Ask for site-specific detail. Specifically.

Part of any customer’s RFP should be a request for a contractor’s detailed plan of what they’ll be doing. A specific plan showing who’s doing what, where, when, how, and even why. Specificity is critical.

If contractors are promising LEED acceleration, they should state how they’ll do that, when they’ll get it done, milestones, progress reporting, etc.

Contractors must provide this detail so customers can audit after the contract has been awarded.

Funny. Requesting specific action plans and items is absent in almost all customer RFPs. Many customers seem more interested in knowing how many offices, employees and revenue a contractor has. Rather than clearly and explicitly seeing what that contractor will do for them at their sites.

RFP References Give Limited, If Any, Insight

Customers, don’t count on contractors’ references for proof they’ll deliver.

References are helpful, but not conclusive. As you know contractors’ references are their golden customers. Legitimately these are customer evangelists. Every contractors’ dream. Cynically, reference customers can be swayed with gifts. Either way, contractors references can only be expected to praise lavishly.

The same is true for lost-customer references. They’re those 3- 5 accounts contractors have lost and are selected for their innocuous terminations. “Really, Ms. Customer, we lost that contract because the customer went out of business. No reflection on us. We were golden”.

How are you vigilant after contract award?

And how are you diligent during RFP bids?

~~~~~~
Chris Arlen
President, Service Performance

Technorati:More blogs about
href=”http://technorati.com/blogs/Contract+Due+Diligence” rel=”tag directory”>Contract Due Diligence.

href=”http://technorati.com/blogs/”>, Due Diligence, RFPs

Questions or Ideas?

Send us an email and we'll get back to you, asap.

Not readable? Change text. captcha txt