There is always going to be a conflict when it comes to the interests of a performing organisation. Should they push for a better outcome for the customer at their cost or should they ensure that their cost and margins are protected by trading off their reputation?
This is why the critically underlooked aspect of win-win contracts is so important. Especially gradated fixed price contracts - where work finished earlier is rewarded with a higher rate and work finished later is punished with a lower rate.
As long as both the performing organisation and customer organisation have aligned incentives, there is no need to worry unduly about the quality of the vendor's output.
But in a scenario of a standard T&M or fixed-price contract, every organisation needs to be wary of these conflicting interests.
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1 reply by Sante Delle-Vergini, PhD
Apr 30, 2018 5:26 AM
Sante Delle-Vergini, PhD
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Thanks for your input Karan. Tight contracts are one way to try and pull vendors into line. They work for the most part.
No, you can't implicitly trust vendors to be honest. So much money is usually at stake that most will stretch the truth if not outright lie to get your business. Many vendors take advantage of their customer's ignorance, which is why they often like to talk to executives, who usually have little technical knowledge and can be easily dazzled.
Eric, that sounds more like my experience of many vendors. Saving Changes...
There is always going to be a conflict when it comes to the interests of a performing organisation. Should they push for a better outcome for the customer at their cost or should they ensure that their cost and margins are protected by trading off their reputation?
This is why the critically underlooked aspect of win-win contracts is so important. Especially gradated fixed price contracts - where work finished earlier is rewarded with a higher rate and work finished later is punished with a lower rate.
As long as both the performing organisation and customer organisation have aligned incentives, there is no need to worry unduly about the quality of the vendor's output.
But in a scenario of a standard T&M or fixed-price contract, every organisation needs to be wary of these conflicting interests.
Thanks for your input Karan. Tight contracts are one way to try and pull vendors into line. They work for the most part. Saving Changes...
Tamer Zeyad SadiqAssistant Cost Manager| Turner & TownsendRiyadh, Ar Riyad, Saudi Arabia
Usually in a project we don't trust anyone!! In a project we should follow procedures, documentation system, communication as per contract conditions!! We make meeting face to face to solve issues, update reports, review performance, make inspection, making progress payments as per contract conditions and as per approved documents to meet project requirements!! That's a confidence with the vendor if he follow and comply the procedures as well.
That's a stratigic with the vendor if we work with him. Also, we try give him a chance to improve his performance, follow the documentation...etc. Saving Changes...
Thanks Tamar, unfortunately unlike personal relationship where we may start of with 100% trust, we just can't afford to do that in business. Saving Changes...
