Many major IT and outsourcing projects have failed because the relationship between the customer and the supplier has irretrievably broken down.
This breakdown has been particularly costly because of the way in which the contracts are structured. Once the underlying relationship breaks down, it is almost inevitable that the contract fails and the parties are forced to renegotiate, abandon the project or enter into a dispute resolution process. This results in a failure to meet the objectives of the customer and usually in bad publicity for the supplier. Whilst this is an unwelcome state of affairs for all private and public sector projects, it is a particular issue when tax payers’ money is wasted and a potential public benefit from improved IT services lost.
This failing can often be traced back to the philosophy adopted for the contract procurement. Customers, especially in the public sector, have traditionally adopted an approach to their suppliers which emphasises price over other considerations. They seek a procurement process where they succeed in getting the lowest price and believe that this leads to the best value for money. As a result they have tended not to take into account the interest of the suppliers in receiving a fair commercial return for their work. Some customers have as a result developed a very hard-nosed, almost arrogant, way of dealing with their suppliers.
Equally, some suppliers have tended to seek to press their standard products or services upon customers, again particularly in central and local government, and not to provide a real solution to meet the specified requirements. They do not care whether they are able to meet the particular needs of the customer but wish to make as much money as possible for as little effort as is plausible. Their approach becomes one of distancing their negotiation and delivery teams from the supplier and communicating little. The contract often bears no real resemblance to the actual deal.
Whilst of course it is correct that lowest price is important and companies should not always be reinventing the wheel to meet a specification, it is suggested that it is a combination of best value and correct solutions that delivers successful projects.
There is often a serious misunderstanding between the expectations of the customer and the ability of suppliers to meet this. There are further unique issues in terms of supplying IT products and services to the public sector that differentiate these contracts from the private sector.
In order to achieve an overall contractual position which deals with the requirements issue and also delivers best value for money, it is necessary to look beyond the strict contract terms and formal procurement process to the relationships between the customer and supplier which underpin the contract structure.
The proposition in this paper is that a partnering arrangement between the parties, as opposed to an adversarial relationship, can provide for a successful relationship which translates into effective service delivery. The Office of Government Commerce (OGC) has issued guidelines on partnering in the public sector explaining how this can work.[i] This article discusses what partnering in this context really means and how it can be achieved and documented in practice.
Meaning of Partnering
In the IT sector, partnering has tended to mean arrangements amongst suppliers, often providing different products at different levels of the supply chain, to provide coherent combined packages for customers. Thus a database supplier may have a partnering arrangement with a managed service provider which will enable them to bid together for contracts. Whilst this does mean a need to create contractual relationships between the parties involved to reflect the arrangements, it is not partnering in the sense meant in this article.
Partnering here means more a recognition that a customer and a supplier in a complex IT service contract need to establish, at many different levels, reciprocal relationships between the two organisations which will facilitate not only a successful procurement, but also effective and timely delivery of the project. It is manifested by personal relationships between individuals from each of the organisations which allow them to understand what drives the behaviour of the other organisation. It enables a supplier to understand the, sometimes frustrating, internal process that (notably) public sector customers have to go through in order to procure what may seem self-evident IT improvements. Equally, the customer can see some of the commercial pressures which apply when a supplier (which ultimately has to make a reasonable profit or it will go out of business) becomes locked into a seemingly endless procurement process.
Partnering in this sense means the ability of two organisations through the activities of their individual employees and advisers to work together for their mutual benefit.
Advisers
Any major project attracts a plethora of advisers providing support on business consultancy, finance, project management and legal issues. They can end up with key and influential roles in the development of the project. As such they should be on board with any partnering approach that may be adopted. Otherwise they have the capability to be obstructive, sometimes unintentionally, and to prevent partnering operating effectively.
Partnering throughout a Project
Partnering is, it is suggested, critical at many different stages of an IT project or indeed programme. The initial procurement and bid activity provide opportunities for the intelligent supplier and the aware customer to get to know each other and to determine whether they can work together.
This then develops during the critical stages of contract negotiation where both parties will be seeking to put down on paper how they will co-operate and what each will get out of the relationship.
During delivery and performance, the ability of the two sides to understand where they are and to co-operate for the success of the project is crucial. If the supplier stops communicating how its development activities are going in the initial stages of a project, the customer will lose faith in the process and may not want what is eventually delivered. If the customer ceases to communicate changes in its thinking during the project delivery, the eventual ability of the project to meet the contract requirements will be placed in jeopardy.
Commercial Issues and Change Control
One of the perennial difficulties with IT service contracts, and indeed outsourcing contracts generally, which continue over a period of time is that the technology evolves and the requirements of the customer change. Change control clauses provide a contract process for managing change. However they do not provide for the continuation of the commercial understanding between the parties that formed the basis for the original agreement. Partnering can go deeper and set out some of the commercial concepts that will apply when change occurs to allow the parties to have at least a commercial framework they can use to deal with the change.
It can also be used as a mechanism to seek opportunities for improvements and enhancements to the service and to evaluate these on a continuing basis. The problem of then responding to technology or client-driven change becomes a potential opportunity for the customer to have a constant improvement in service delivery and for the supplier to provide more effective services. Concern about suppliers taking advantage of customers by unfair pricing can also be dealt with by providing a fair mechanism for agreeing prices for changes, for example, on an open book basis.
Disputes
If there is any sign that the project is getting into serious difficulties, the close relationship in an effective partnering arrangement will enable the parties both to identify that state of affairs and then take action to remedy it. Too often the warning signs of project disaster are not heeded early enough to do anything about them. By the time they come into the true light of day, the parties have little alternative but to take fixed positions and tend to end up in a costly and disruptive dispute.
Relationship to Contract
The contract is meant to reflect the proper agreement between the parties. Whether or not it does will depend on the depth of the discussions and understanding achieved during the negotiation phase.
Whilst partnering may be reflected in the contract, and indeed to some extent provided for, it goes much further than the essential contractual nexus between the parties and seeks to capture the behaviour of individuals in their respective organisations towards each other. As such it can be seen as a “soft” issue which is difficult to express as a contractual obligation. It is also something that has to be worked at very hard. I feel that there are a number of ways in which partnering can be reflected in documentation and processes as a way of ensuring or facilitating its occurrence.
Legal status
It should perhaps be recognised that documenting a partnering relationship is not primarily intended to put a party into the normal position, if there is a breach of contract, of being able to sue the other party. It is rather meant to specify a way of working that will be applied by each party, and indeed the teams and individuals within each party to the performance of the contract. It still should be documented in a legally binding way to encourage understanding and compliance. However, if the parties cease to act in accordance with the documented partnering arrangements, the consequences are usually that the project suffers, if it does not fail completely.
When to Document
Partnering is important, if it is going to work, from the early stages of the procurement process through to the end of successful performance. It does not suddenly and magically appear in the parties’ behaviour as soon as the contract has been signed. It should manifest itself during the negotiation phase, which if used properly will set the tone for the remainder of the contract process. Therefore a partnering agreement should be considered, like a confidentiality agreement, as an early stage document setting the scene for the whole spectrum of contract procurement and performance. It can subsequently be acknowledged as continuing to operate in the full contract document, and may even become a separate schedule to the contract at that time, although there may be some merit in its continuing independent existence.
What to Document
I therefore suggest that, at least initially as a separate partnering agreement, the parties should describe the way in which they intend to work together for their mutual benefit to contract for and deliver the project. A typical partnering agreement could deal with and provide for some or all of the following issues:
· set out the principle that the parties intended to co-operate together as partners to cement the customer supplier relationship and ensure its success;
· specify the overall objectives which each party expects to be achieved through the project and which promote understanding of their respective behaviour;
· specify a team structure for the customer and the supplier which will be led by a project director on each side and will evolve (but not change completely) so as to operate through the different phases of negotiation and performance;
· identify the CEO (or other senior officer) of the supplier and an equivalent senior officer in the customer (in the public sector this will be the minister (or possibly senior civil servant) or chief executive in the case of a local authority) who will have ultimate responsibility for the project and provide for an open line of communication between them and for a project review at this senior level on a quarterly basis;
· require the parties to procure that all of their respective advisers to the project form a part of the relevant teams and comply with the partnership approach;
· adopt the OGC model of having a senior executive on each side who is not involved with the day-to-day running of the project and has no online responsibility but who can meet with the equivalent person in the other organisation to discuss and review project progress;
· provide for the open sharing of information about how the project is developing and of any concerns – if there is a hitch in creating new software, rather than not telling the customer, involve them in its resolution;
· set out a process for proactive management of change with a commercial framework which supports the contract change control process;
· provide for joint teams to be created who will work together on development and delivery – this should not shift ultimate responsibility from the supplier or the customer as the case may be but does allow for co-operative working;
· provide for regular weekly reviews at project director level of the operation of the partnering arrangements to ensure that partnering is working in accordance with the plans of the parties;
· establish a red, amber and green early-warning system for occasions where the project or aspects of it may be falling behind schedule or otherwise departing from the planned contract performance;
· facilitate escalation as appropriate of difficulties and problems should they occur – if necessary take to the CEO of the supplier and his or her opposite number so issues can be resolved in a managed and timely way.
Relationship with Contract Processes
Most of the above will fit in with and supplement traditional procurement and contract processes, but with a key difference. All of these partnering provisions go to the quality of the relationship between the organisations as opposed to the “harder” contractual obligations to perform work and to pay an agreed price.
Conclusion
Each project has its unique characteristics. Some are not at all suitable for partnering. Those that are, which will typically be long-term complex IT service contracts, demand a more flexible and understanding approach. It is here that the partnering approach, if properly thought through and documented, can mean the difference between ultimate success and failure of the project.
Clive Davies is an IT and Outsourcing partner at Olswang who works from their
[i] Effective Partnering: an overview for customers and suppliers is published by the Office of Government Commerce and available on www.ogc.gov.uk.
