After enduring the pain of booking with a well-known budget airline, including the mandatory option and what appears to be a website designed to confuse and obfuscate, we felt the need to share a few thoughts about the joy of surprises in outsourcing contracts after three “£39 flights” ended up costing well over £500.
Experience of numerous transactions, sourcing get well programmes and the like provides us with the evidence that despite the best efforts of all parties, surprises are inevitable. And those surprises vary massively in nature, scale and impact. But most (although not all) can be avoided and importantly, can be avoided whilst you still have leverage on your side.
Trouble often starts during the contract development process. Experience shows that organisations often underinvest in the effort needed to ensure all parties fully understand the collective challenges, requirements, obligations and goals. Critically important assumptions remain unqualified or undocumented and collaboration and clarity are dispensed for the sake of speed and cost. The deal gets signed, champagne corks pop and the niggling doubts are forgotten by both client and supplier organisations as they focus on getting ready for service commencement.
Whilst not an exact science, the unexpected surprises often start appearing around the anniversary of the deal. The initial 12 months is often heavily focused on transition and transformation and many of the initial deal team remain close to the client. But after this period, resources often move on as project activities come to a natural conclusion and BAU commences. And it’s invariably these BAU teams that experience the initial surprises and the subsequent fear, uncertainty and doubt that they have insufficient resources to address.
Whilst surprises manifest themselves in countless ways, from increases in cost and effort, to reductions in performance or service level attainment, the unifying fact is that they are rarely welcomed. Typically, the client organisation identifies elements critical to the service are not included “as standard” by the supplier. Similarly, suppliers discover that assumptions regarding the client environment are rendered false, although being frank, our experience is that suppliers are much more thorough with their pre-contract due diligence.
Once the issue surfaces, both parties find themselves engrossed in debate, or more likely argument, regarding items that often seem trivial to one party yet critical to the other. Change requests get created, which are invariably viewed as unfair and/or expensive, with arguments ensuing on the finer details. The contract soon becomes a weapon rather than a management tool and both sides scramble for the clause that may help them save face. But the reality is that the damage is already done and as the resentment sets in, the focus moves towards damage limitation as opposed to value creation. The relationship breaks down and trust is lost.
Thankfully, many of these issues, which occur all too frequently, can be avoided. Experience has shown that the following points can make a fundamental difference to the overall level of value attained from your engagement: