“Pays for Performance” Purchasing Training
Go look at your corporate contract templates. I can already see them in my mind: Goods, Services, Goods & Services, Construction, and Software.
You might have some other boutique contract templates, but these are the standard norm for big companies.
The problem is this: all of them are written to buy “stuff” (i.e. goods and services) instead of buying performance results.
Suppliers want to sell you goods and services, and then move onto the next customer. What happens next is your problem, not theirs, or so they hope. They’ve already got your money, and that’s how they like it.
Why am I talking about this? Well, I talk about it all the time with in my client engagements, but I’m talking about it today because of an article I just read. It was about Obamacare, specifically about the website. You’ve heard about it too – where the Obamacare website is unresponsive and overloaded, resulting in a rather forgettable launch.
So what’s the correlation? Well, as I understood it from the article, suppliers were doing all this programming for the website. The article said that the suppliers were having cost overruns AND not performing. What? How does that happen?
Unless purchasing is totally asleep at the switch, a supplier should never have both cost overruns and performance problems at the same time. Those are supposed to be mutually exclusive events (just like inflation and unemployment – they are never supposed to happen at the same time). If it does happen, it usually means a bad contract was put in place.
Can you imagine being billed extra for a meal at a restaurant when the meal itself was burned to a crisp? Uh….not gonna happen, right?
Which makes me assume that the Obamacare website programming contracts were written for the delivery of goods and services (“a website”) instead of for performance results. Mind you I don’t have any inside information on this – I’m just speculating based on what I’ve heard and read.
Let’s look at how a website development contact might be written for goods and services, what the corresponding issues might be, and how to shift the focus to performance results:
Remember, you never want to find yourself in a terrible situation – one in which the supplier is being paid to not perform, or even worse, where they are being paid extra to not perform. That’s why you should write your contracts to pays for performance instead of paying for goods and services (“stuff”).
Now the table I put together above is really incomplete. There are many other areas that need to be addressed, and even what I wrote was not in sufficient depth. I’m limited by the practical length and depth of a blog entry.
What I want to see from all of you as transformational purchasing and supply chain management professionals is to start writing agreements for performance results instead of agreements for “stuff”.
The goal is to never find yourself in the unenviable position of owing money to a supplier that isn’t performing to expectations, while having no contract remedies to save you.
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Work with me to find YOUR purchasing advantage. You can spend 20 years trying to learn these strategies on your own, or you can work with me and catapult your career in a few weeks.
See you next week.