Many providers operate with very low prices in the bidding phase. They do this in hope that once they are inside, it opens opportunities for extensive additional sales and new projects. If the provider does not get this sale launched, the contract may be less profitable so that that costs need to be cut. This can then result in the customer experiencing that the supplier over time delivers inferior performance.
Gray areas in the agreement can also be a source of increased costs. If certain elements are not clearly defined in the agreement, they could trigger additional billing, leading to unexpected costs and a source of conflict. Poorly defined services are often the source of this issue.
It is therefore to the benefit of both parties that both customer and supplier earn money on the deal. The customer should really encourage positive earnings for the supplier. One should turn around the traditional mindset with extensive and rigid contracts that intend to punish or prevent low performance. In large sourcing agreements, it is impossible to seal all gaps and gray areas with text and sanctions, even with the best lawyers involved.
Naturally, a professional agreement between the parties must be established, an agreement containing the essential elements to define the ground rules of a partnership, but one should strive to focus on the positive elements:
Customer success = higher revenue for supplier
In this way, it will be in all parties’ interest to focus on customer success as this adds value for both the customer and the supplier. It is significantly easier to achieve good deliveries when all parties are rather working to achieve success than to avoid fines and penalties.
Using defined KPIs (Key Performance Indicators), the parties set up success objectives and profit criteria, based on business needs. These can be set for shorter or longer periods and they must be able to be redefined in the contract period, based on changing business needs.