Motivating Vendor to Conform

If the vendor's payments are tied to the performance results, that provision can be a principal motivating factor for the contractor to accomplish the outcome the client wants. Of course, having the vendor sharing the rewards and risks is a worthy plan where the circumstances make such an arrangement practical. It can make the vendor feel more like a partner than a contractor, and that spirit is desirable. Or, the contract may specify financial penalties when the vendor does not meet specified performance standards, generally a desirable type of provision.

The time to make terms for sharing the rewards and risks is when the contract is being negotiated; however, such an arrangement can be negotiated as an amendment to the original contract if both sides can see that it is to their benefit.

Whether or not the contract provides for the vendor's payments to be tied in to its performance criteria, it is essential for the performance report results to be communicated regularly and systematically to the client's management. The contractor should be thanked for meeting or exceeding set standards, and must be reminded of situations where the results criteria have not been met. If the performance is less than satisfactory a few times and the vendor is not brought to account, the contractor will not be motivated to hit the target. Thus, it is important to let the vendor know that the client is aware of the deficiencies and expects them to take corrective measures. Careful records of the deficiency and copies of the reminder notices are important to keep, so that if the situation becomes a larger issue, the historical facts are documented for reference in discussions and negotiations about corrective action.

The client has one advantage in its pressures to the contractor to meet performance requirements. Outside service firms, for business reasons, are anxious to please their clients so that contract renewal can be achieved. Therefore, a request for improved performance should normally be met with respectful responses or negotiations to resolve the matter. If a contractor is seriously and repeatedly deficient in its compliance, the ultimate threat is to terminate the contract, which is the last resort and an undesirable conclusion for both parties; terminations under hostile circumstances can hurt the client as well as the vendor, since they inevitably cause disruption and the difficulties of moving the work back in-house or to another vendor under unpleasant circumstances.

Negotiating Essentials

Negotiating Essentials

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