Having co-led the introduction of Relational Contracting into the Australian Department of Defence, where it is known as Collaborative Contracting, since mid 2013 with the help of IACCM I wanted to add my thoughts on your question. For the record we were lucky enough to have Jim Bergman help us on our journey!
In terms of 'Does Relational Contracting require long term commitment over multiple contracts for the parties to realize the benefits?'. Simply put, no it does not. A single contract can absolutely benefit from a relational approach, especially where there is a high level of uncertainty about main elements of the contract such as scope, performance, schedule and of course price. A relational approach allows both parties to work together collaboratively to evolve the solution, noting it could be a novel solution that has not been used before. For example, in the Australian Department of Defence we have a number of contracts where we are either the largest user in the world or the first user, which necessitates a degree of flexibility in the commercial structure since the uncertainty and risk is high. Both parties have to work in good faith to deliver the enterprise outcome to Defence. The relational contracting approach provides a commercial architecture within the contract to allow both buyer and seller to have these discussions without reverting to tightly fought commercial structures.
That said, I do believe that in large organisations such as the Australian Department of Defence, there should be levels of a relational contracting approach. For example, at the contract level, even for multi-party contracts, we'll use a Collaborative Contracting approach. However, when we combine multiple contracts with a single seller, we can then combine these relationships as a part of a Supplier Relationship Management (SRM) approach to vendor management across a program or portfolio of contracts. Again, Jim assisted us with this, although we are still on the SRM journey.
In terms of 'How do we ensure that the benefits (price competitiveness, quality of service, innovation etc.) that can also accrue from competitive sourcing are not lost?'. The Australian Department of Defence has been using Performance Based Contracts (PBCs) since 2005 to ensure both short-term and long-term benefits are being realised. In 2012 we started using what we refer to as Generation 3 PBCs which includes enterprise performance and enterprise behaviours (relational) within the performance measurement framework linked to both commercial consequences, both positive and negative. In this case, we typically use incentives such as contact extensions, sometimes known as rolling wave or award term contracts, to ensure the seller is maintaining the long-term behaviours you described. You can get more information on these type of performance based contracts at my blog at www.performancebasedcontracting.com.
Finally, to assist with the successful implementation of Collaborative Contracting into our commercial functions we developed and released on 28 September 2018 a Collaborative Contracting Better Practice Guide a copy of which you can get from the following link www.defence.gov.au/casg/Multimedia/Collaborative_Contracting_Better_Practice_Guide-9-8860.pdf.
Anyway, I hope this helps. And of course, as part of the IACCM Australia New Zealand Advisory board and an IACCM Fellow I would be happy to answer any further questions.
The upcoming Ask The Expert: "How do organisations worldwide, including yours, collaborate with the Indigenous Business Sector?" may help with part of your question. The event will run live in a couple of days on March 14th. After that the recording will be in the library.
Derek - I have placed a few materials, which I use in the IACCM Oil and Gas learning program, into the Library. If you have trouble finding them, please let me know.
Jim Bergman (firstname.lastname@example.org)
Mark / Jim - thank you for your assistance.
• Kinaway Chamber of Commerce, Victoria
Happy to hookup and have a conversation with you about your question. please let me know
• Tullow Oil
Derek, I may be too late, but there's an OECD paper that I found helpful. It's high level but I think worth a read. The paper is called: OECD Development Policy Tools Collaborative Strategies for In-Country Shared Value Creation framework for Extractive Projects. If you can't find it online let me know and I can email it to you.
• Queensland Department of Transport and Main Roads
I have found that due to the other demands on time that small contractors have, the onus tends to fall on the procurement side. This means documenting the agreed verbal outcomes for the quoted price.
Obviously there is minimal remedy if things go wrong - but i have found that by following up by email and providing a printed copy prior to work starting means that any assumptions I have are clarified, the contractoris clear about my expected outcomes and the work goes much more smoothly.
Often small contractors have so much on they forget exactly what was agreed. They tend to really appreciate you making the effort to understand the work and i have found a number of opportunities to save or get an upgraded service at minimal extra cost.
Hope that helps!
• UK Department for Education
Thank you for taking the time to reply Nicola - your response is reassuring because that's the approach I've taken too.
However, I do think small contractors could make better use of contracts - as an instrument for operational management... Whereas, I think most small contractors perceive them as a weapon (as in the module: 10 pitfalls to avoid in contracting)
"most contracts are driven at high speed and whenever they hit a pothole, remedial action is undertaken (fix things or blame someone else)... over time, this approach may cause significant delay and cost overruns; it may even result in damage that puts the contract and relationship beyond repair"
I suppose it depends on how big the job is and how much (energy/ £) is invested.
Hi Pablo, I'm in the UK and agree with Sophie's points. Ability to negotiate certain terms in the first instance when completing an online document is zero. You tick a box to accept the terms and if changes are necessary you will have to address them at a later stage. Public procurement certainly needs transforming and you may find this report from Future Purchasing interesting: www.futurepurchasing.com/knowledge_hub/procurement-transformation/procurement-transformation-ip/public-procurement-is-central
In terms of EU Regulations I have it in mind that only "Open Procedure" and "Restricted Procedure" tenders do not permit negotiation. I do not yet have any experience of Competitive Dialogue.
Negotiated Procedure permits flexibility, but within individual ITT documents it is possible for compliance with T&C's to be 'gated' or heavily weighted. If so, this will be specified in the instructions to tenderers and/or award criteria. Also, the contracting authority will almost certainly reserve a general right to reject non-compliant tenders. I've never seen this done (yet!) but it's an important health warning.
In my experience the UK Healthcare sector seems to be one place where "no negotiation" of T&C's is strictly enforced at both a framework and individual procurement level. They also tend to give themselves some pretty robust (bordering Draconian) remedies.
Local government, police, and utilities seem to have more flexibility.
• RadiSys Corporation
I work in the pacific northwest region of the U.S. I used to negotiate contracts in the public sector for a major public university, and those negotiations were governed in part by the statutes and regulations in my state that have been enacted for public contracting. But those statutes and regulations don't dictate specific positions on items such as warranty, data security, etc.
We negotiated several large purchases of technology at the university- both hardware and software. In those negotiations, we had pretty wide leaway on topics of warranty, data security, and IP (i.e. the license grants, etc.). The university as a public entity most definately negotiated, and we did not have a "no negotiation" policy.
While this state of affairs may different from state to state in the U.S., I think generally speaking public entites here have the ability to negotiate certain terms if they chose to do so.
I hope this is helpful.
• Legal & General
I'm based in the UK and in my experience, there is a degree of flexibility in some (but not all) cases and this seems to vary depending on a variety of factors including the value of the contract, process selected (e.g. framework/open/restricted/negotiated) organisational culture, internal governance, professional confidence and appetite for risk.
Queries regarding the terms we seek to amend are raised through the clarifications process usually via the contracting authority's procurement portal. This process is of course very restrictive, not least because all parties, including competitors can see the points you have raised. However, it has proven successful in a number of cases.
It certainly is difficult for suppliers to drive this, much easier for buyers. A couple of thoughts:
1) it will be a struggle to achieve progress if being done in the context of a specific bid or transaction. You need to drive this conversation as part of a relationship strategy.
2) your success will be greater if you have a model agreement that makes the approach clear. Some IACCM members are working with us on contract design assessments which not only create more balanced terms, but also simplify language and design. This increases buyer appeal and reduces the 'threat' associated with change.
I've found a collaborative approach works best where the parties have established a relationship - built over time. This is particularly best suited when dealing with smaller groups or ideally a single key negotiator.
Most recently I was engaged with a single negotiator who had recently joined the buying organisation. I was able to help him build his credibility with simple things like ensuring our technical teams followed up immediately with phone calls, emails etc. This allowed him to develop a reputation as a 'go to' guy.
Further, albeit riskier, in a one on one phone call I outlined that if there was ever any issue that was critical to his organisation or him personally make it clear to me. I would do the same likewise - thereafter other non critical issues became easier to negotiate. This helped us open the right space for healthy dialogue where we were both able to explain the core reasons for needing x,y or z.
• Sysintellects LLC
I am business relationship manager at Sysintellects. I understand that your business involves various vendors, suppliers & other third parties to call for a business. This product will help you to manage your contract with multiple vendors through a simple process & keeps a note about renewal or expiry of the contracts with your sellers or buyers. I assure that this would lower your risk or business & bring down your cost of operation. We offer this solution for simplifying your business. The business grows and this in turn calls for up gradation of technology for a change.
We believe that Contract Management Software should help businesses like yours to reduce operations risk and provide seamless and transparent collaborations with third parties and at the same time should make life of the Contract Managers easier.
It would be great to have a discussion with you demonstrating the product benefits and how it fits your business, let us know your availability for a discussion and demonstration of the product.
Email us : email@example.com | www.sysintellects.com|
From my point of view collaborative approach to negotiations should be the Approach. It should avoid conflict, future claims and litigation by defining a well balanced and fair contract.
But sometimes, when you are on supplier side, you will have to manage aggressive client who tries to achieve the best not balanced contract possible.
My question is: what can a supplier do when the client is aggressive and no room for collaboration?
With regard to Christian's question (which reflects frequent reality), there are of course some well documented negotiating tactics to address this challenge. But if you face an unempowered negotiator who is simply seeking to enforce a standard template, rational discussion may prove to be ineffective. In those circumstances, your only real choice is to seek to escalate to higher levels. But to do this, you must have a solid business case as to why a different approach will benefit the customer; and you have to accept that escalation may be risky. It may create enemies and it may cause delays. Certainly your account team will often resist such a move and pressure you just to accept the client's terms. So you may even have an internal escalation on your hands!
Ultimately, your best hope of avoiding these situations is to be engaged early, ideally before the tender is released, so that you influence the customer terms before they become entrenched. Otherwise, at least seek to be involved much earlier in the sales process and ensure ts&cs are not left until late in the process. The earlier discussions begin, the more chance you can influence the outcome.
Currently I'm reading a book, where the mantra of win-win is questioned and where the initial and provocative reaction to a requirement, were we usually react with the willingness to negotiate, is simply NO. The authors theory is to get away from the buyer/ bidder relationship and more to a how can WE TOGETHER find a way to do it and come to the collaborative approach you are talking about Simon.
The book is called " Start with NO" The Negotiating Tool The Pros Don#t Want You To Know. From Jim Camp.
Mark - the Australian Coomonwealth, through the Defense Materiel Organisation, has been leading a number of efforts in the area of Relational Contracting - which is gaining great uptake as a collaborative approach to contracting.
A key contract component in the Relational Contracting portfolio in known as the Relational Charter. The Charter enables the parties to focus on the key areas in a relationship such as communications, continuous improvement, problem solving, setting mutual objectives, etc.
If you are interested in speaking with some of those in DMO who are leading on these projects, we can certainly make an introduction.
Carolyn, while we wait for someone else from our community to share with us their "best practices" identified in regards to this point, I wanted to provide this link www.iaccm.com/resources/; where, as you will se, it is covered the matter related to the drafting of enforceable teaming agreements.
• Metropolitan Police
I have gone through the process of ensuring flow down of terms from prime contracts to subcontracts and understand your feelings. It is laborious. The contracts that I managed had 'mandatory' clauses to be included in the sub-contracts; hence it was somewhat easy to navigate through. We also put in place a simple tracker listing all the clauses and if the sub-contract had complied with the mandatory term flow-down. We referred the matter to the legal team if there was any discrepancy. What I found was that once I completed verification of a sub-contract, other sub-contracts for the same prime contractor was easier to go through.
You could categorise your sub-contract into high (significant),medium and low groups and could vary the mandatory clauses for flow-down as appropriate.
• Housing New Zealand
Interesting situation, I may be misunderstanding things here...and correct me if I'm wrong, but typically the point of having a Prime is to "manage" subcontractors and they should negotiate back to back agreements that adequately ensure that as a Prime they can fulfill their obligations...it should also reflect the spirit and intent of the agreement...happy to explore this further.
• Metropolitan Police
Hi MC - Agree with you that purpose of the Prime is to "manage" subcontractors... In central Government (not sure if this is required in private sector) sector contracts, it is necessary to ensure that there is a flow-down of the terms to sub-contracts. For example the 'Data Protection' Clause. My response was in this context. The IACCM link given above is a good reference.
My current approach is to have the subcontractor "aware of" the whole contract (coupled to an indemnity if they cause us to be in breach - if I can get it!)
I then add a detailed flow-down of (i) the mandated flowdowns from client - usually things like anti-corruption and audit and (ii) the terms which are essential for us to ensure that the commercial risks are back-to-back - eg. the specific standard of workmanship that the subcontractor must exercise in their design.
Generally speaking this means 5-6 flowdown clauses, for which I either amend terminology by hand or rely on "mutatis mutandis" if I'm short of time.
For 'awareness of the whole' I think the donor clause was from the CECA Blue Book.
I have also drafted some subcontracts in which I had to ensure that the subcontractor had the same commitment that the prime; as Girija stands, it is very laborious since you need to understand which of the obligations within the prime contract are transferable to the corresponding subco and also you have to modify the wording. I would never attached the entire agreement because of confidentiality concerns and also because usually prime contractors do not wish to share financial details with subcos in order to seek a more profitable negotiation with them.
You bring up an interesting point. You as the contractor and the owner do not want to share the details of the contract, but want to subs to agree to them. Doesn't that seem unreasonable? I will never agree to something I have not seen. I do get copies where some details are redacted and that is fine, but the text has to be reviewed in order to be agreed to. I would be interested to hear your rebuttal as the contractor in this case when I say I have to see the prime to agree to it.
• Housing New Zealand
Some great discussion point coming through - A recent experience - last month our prime contractor needed to conduct a MRO work package at a location controlled by another party (Subcontractor). As the Prime, they commenced negotiation; however this subcontractor only provided 3 months warranty on their work while our agreement with the prime had a twelve month warranty. The prime formally requested dispensation from the twelve warranty and was rejected due to the following reasons:
1) It is the primes obligation to ensure the test and acceptance of standards and quality of the work
2) The prime included in their financial model, an element of risk which they would absorb based on their contractual obligation.
Part the above negotiation included some issues around IP ownership during the work package being conducted. In this instance we accepted the deviation from the standard IP clauses as we deemed the subcontractor clauses to be reasonable as it didn't affect the operation and future requirements to maintain the vessel.
So while the prime is ultimately responsible for the deliverables, we needed to assess on a case by case situation if any deviations were acceptable...and also had to be careful that we don't set a precedence.
In my experience the Prime Contract is the negotiated version which your company's legal eagles would have negotiated with your client so it would certainly contain more stringent clauses than your company's boiler plates. Usually once the prime contact is negotiated the necessary amendments are made to the the boiler plates to align them with the prime contract. The flow downs are usually attached as "Special conditions" of contract and they take precedence over the 'General Conditions' of contract due to the fact that the GCC are usually amended under SCC and the more stringent approach is adopted. this eliminates any misalignment between the two forms. e.g. 'Limits of Liabilities', 'Indemnification' and 'Insurances' are mostly dictated by Client and the risk must be transferred down to the lower level to protect your company's interest.
• New Zealand Defence Industry Association (NZDIA)
Australia is about to introduce new legislation about unfair contract terms with SMEs. This is going to make it harder for Primes to push terms down for fear of being void. Hopefully this will start new discussions about getting rid of clauses which are unfair!
• APL Norway AS
1. Always remember that if you miss a Clause, it's not the end of the
world, because, as Contractor, you will always be responsible for the
delivery of your contract, regardless of who you choose as your
2. Check your subcontract template. If your subcontract template and your
Contract and Procurement Principles match, then the Prime Contract
negotiated between you and the Client is much easier to flow down.
3. Semantics. Don't get caught up in the details of the Clause having to be
an exact copy of what you have in your Prime Contract. If it says the
same thing, then it doesn't matter if you use different words or the
words are in a different order.
4. Remember that you are a buffer between you and your subcontractor. As a
company, you do not want the Client getting into your business.
5. The top 8 flow downs (no particular order):
a. Warranty duration
b. Exclusion Clauses
c. Indemnities including pollution
f. Intellectual Property
g. Benefit Clauses such as paid suspension
h. Days, remember to allow for internal processing as well as Client
There will always be exceptions but number 3 is where most people fail, including the Client.
Don't use the back to back Method unless there are high risks, high value and/or Client appointed Subcontractors and if you plan on using this Method, take that subcontractor's qualifications with you from day one. In addition you need to develop a standard template for Form of Agreement and Exhibits because it isn't possible to just blindly throw your contract at a subcontractor, they are a Third party, and it just doesn't work without some modifications to the Prime Contract.
• Looking For A New Opportunity
Hi Carolyn. Depending on cooperation levels of your prospective subcontractor / subconsultant, you can 'seal the deal' with an RFP document and a Letter of Acceptance. If you give me your email address, I can send you a template document I created for implementing back-to-back subcontracts to a prime FIDIC contract.