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It’s important to remember that the relationship starts before the contract does. Buyers and internal stakeholders must be mindful that the way in which tenders and contract negotiations are conducted will create first impressions in the relationship that may be difficult to amend later. So decide how you want the relationship to be early on and nurture that from the start. If a relationship starts off by spending a disproportionate amount of time negotiating a particularly onerous set of terms and conditions, don’t be surprised if the supplier holds those terms and conditions to the letter of the law. You may just find that the supplier will charge interest on a late payment that is only a day or two overdue. 

There are a number of things the buyer can do to ensure that the contract is managed effectively and for the benefit of both parties.

A. Establish ground rules in a supplier relationship from the start.

It is good practice to ensure it forms part of the contractual agreement. By doing so, each party is clear on their responsibilities and will strive to ensure that the emphasis on managing the relationship effectively does not fade over time.

A simple governance model should cover areas including:

• Key responsibilities in the relationship;
• Who is responsible for sponsoring the relationship on behalf of each party;
• Who is responsible for monitoring operational performance;
• Who will manage the commercial aspects;
• How these responsibilities are delegated – for example, in a national agreement, there may be representatives at regional and national levels and their remit must be clearly defined;
• Frequency of meetings (eg, annual, quarterly, monthly), including attendees and agenda items for each;
• Escalation plan, which includes named individuals and details a timescale for such escalation.

B. Ensure both parties respect each other and accommodate each other’s requirements.

This will help nurture a close relationship. There are a few simple things that you can do to ensure that respect is maintained. For the principles of a fruitful relationship, see panel below.

C. In relationships such as outsourcing agreements, where suppliers and buyers work closely together, try to create ‘positive tension’.

This involves nurturing a close working relationship with the supplier while reminding them they are there to provide goods and services to you, and that they cannot become complacent. This principle applies both to the buyer and to any stakeholders who deal with the supplier on a day-to-day basis. 

This involves rigorous management of the contract. For example, key performance indicators (KPIs) must be scrutinised and challenged and review meetings must be scheduled and held on time. Don’t rely solely on supplier management information data for your review meetings – make sure you collate objective internal feedback. Only by gathering such feedback can you give the supplier an accurate view of where improvements can be made. Specialist tools are available which help to collect and manage detailed information on supplier pricing and performance.

The supplier should also be benchmarked regularly, particularly in long-term contracting arrangements. This will help to ensure the supplier does not become complacent in their commercial terms. It is worth writing a clause into the contract which permits benchmarking and gives both parties rights in the event that the benchmarking exercise indicates further action should be taken. 

D. When negotiating the commercial terms of the contract, incentivise the supplier to deliver results.

By aligning incentives correctly it will be much easier to work in partnership with a supplier rather than having opposing incentives, which means you are likely to spend a lot of time talking about issues and dealing with disagreements.

In a cost-pressured environment supplier relationships can become strained as buyers push for deeper and deeper cost savings: asking the supplier to cut 10 per cent of their costs mid-contract is far less realistic when margins are already under pressure.

While it is instinctive to many buyers to negotiate hard, focusing on win-win situations can maintain the relationship while bringing greater savings. Work collaboratively with your supplier to solve your problem and ensure both parties can sustain the commercial terms.

It’s important to go into such discussions with an open mind and not assume that the supplier must just reduce their costs and bear the problem alone. Offer them a carrot rather than going straight for the stick.

For example, in a contract where the supplier’s margins are tight and spend is declining, look for ways to deliver your savings and maintain or restore their margins, rather than demanding further discounts. This might be achieved by making a simple adjustment to their bonus mechanism from one purely based on the supplier’s performance to one that incentivises the supplier both on service performance and supplier-led savings. This gives the supplier the opportunity to maintain high standards of service and identify and deliver benefits to the customer.

Nurturing the relationship 

Adhering to some basic principles can ensure that respect is maintained on both sides – to the benefit of the contract.

Don’t cancel or change meeting dates if you can help it.

Where appropriate, allow suppliers access to your planning sessions so they can offer their input. Often they will have innovative suggestions and will appreciate being given the opportunity to get a preview of upcoming work.

Allow suppliers to give feedback on the stakeholders working with them. Often stakeholders unknowingly make requests that generate inefficient activity on the supplier side. Small tweaks to stakeholder behaviours may eliminate this.

Make the account as positive and productive to work on as you can; being an attractive client means the supplier is more likely  to ensure they give you access to their most talented resource. 

Ensure suppliers are paid on time. Few things upset suppliers more than having to chase payment.

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