Does your contractor know what you mean by 'down-time'? The Facilities Business turns its attention to performance measurement and advises on targets, measurement systems and getting the language right.
One factor of contract management on which everyone agrees is the establishment of regular progress meetings between the respective contract managers. Unfortunately, most people establish a monthly schedule of meetings without thinking clearly about whether this is the right frequency. There will always be daily contact between the outsourcing organisation and the contractor at working levels of service delivery. Many contract managers organise weekly meetings to pull together the results of that daily contact. Some contracts will demand weekly meetings simply because of their size, complexity or importance to the outsourcing organisation's business function. Consideration must also be given to periodic meetings at senior management levels — quarterly, six-monthly or annually.

Meetings are a curse if they are not effectively organised and managed. A useful rule of thumb is to restrict them to one hour, which can generally be managed well by establishing standard agendas, standard report formats and restricting records to clear statements of actions agreed.

Management systems
There is seldom any real need for an outsourcing organisation to devise its own performance measurement systems. All contractors have their own systems and it makes sense to use them — they are after all being paid for in the contract price. The message must be not to reinvent the wheel, but to adjust and fine-tune existing systems to meet your particular needs.

Whatever detailed performance measurement system is adopted, it is worth implementing a simple system of summary performance agreements in which performance targets for specific, important areas of the services are each summarised and tabulated on one sheet of A4 paper. Performance against those targets could be marked simply with:

  • 0 for target not achieved
  • 1 for target achieved
  • 2 for target exceeded.

    Everything that is not scored as 1 is then investigated. That is perhaps obvious in respect of non-achievement of target, but it is equally important to investigate where targets have been exceeded, because this could involve value for money judgements. For example, could the outsourcing organisation save money by getting the contract performance down to target, or does the higher standard being achieved represent good value for money — and should it be adopted as the new contract standard?

    It is important for both parties to approach performance measurement positively. The generally accepted contract culture is to use performance measures as a stick to punish the inadequate performer. How much more effective will they be if they are used as a feedback to encourage improvement? Performance measurement should be seen as an aid to developing the partnership. They should be used as a direct and positive means of achieving participation in target setting.

    Points of reference
    Attention should also be paid to the things that are measured and the value of the information such measures provide. The overriding consideration in setting out the requirements of performance measurement is definition and clarity. The parties should be absolutely clear about what they want in terms of performance measures and must both understand the same things by the same terms. For example, do they both have the same interpretation of 'up-time', 'down-time', 'processing speed', 'clean', 'planned preventative maintenance'? For the outsourcing organisation it is fundamental to the success of the contract that it knows what it wants from the contract and communicates that clearly to the contractor, then motivates the contractor through the contract and its management to deliver what is agreed. For both parties it is fundamental to ensure that what is wanted is being delivered. It is therefore vital to be able to measure how effectively that is being done, so that problems can be rectified and performance can be improved.

    The use of performance measurement will highlight those occasions when the service provision falls short of the contracted requirement and both parties must recognise the need then for corrective action. There will no doubt be occasions when one party will need to compensate the other for failure to perform and such compensation will be more readily identified and quantified by the sensible use of well constructed performance indicators and measurement methods. The essence, however, must always be to find solutions before allocating blame, because what will matter in probably 99.9 per cent of the time will be the continuance of the service. That should be the first aim. Liability and compensation can follow.

    Continuous improvement
    All contracting organisations must focus themselves on continuous improvement in what is an increasingly competitive business environment. Contractors generally are heavily committed to such programmes for their own benefit and outsourcing organisations need to harness them for the benefit of their contracted services. This is sufficiently important to be established as a regular review process in its own right, not just as a part of regular contract review meetings.

    Both parties to the contract must constantly search for efficiency improvements and more effective ways of providing the service. The search should always focus on reduction of total cost, not simply on means to contain contract price increases. The culture of expecting prices automatically to rise annually in line with general or special indices must also disappear, but outsourcing organisations must always be prepared to accept that a contract price increase might mean an overall cost reduction. For example, the contractor could take on additional responsibilities that it can perform more cost effectively than can the outsourcing organisation.

    • Source

    The Facilities Business

    Postscript

    David Pearson is managing partner of DJP Consultancy, which advises on contract and purchasing management.
    Email: djpconsultancy@btinternet.com