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How to Ensure Quality with Utility Contractors and Vendors

image credit: Chris Benz, Benz International

As utilities grapple with the graying workforce and thus, utilizing contractors and other 3rd parties for utility services, one challenge is how to ensure contractor quality. Every utility wants their contractors to perform work as if they were an employee of the utility, right?

The easiest way to ensure quality is through smart contracting strategies to maximize the value your utility receives from your contracted partners. Every situation is a bit different, so I am providing some generalities for consideration. 

Don’t underestimate the importance of the contract.  You may have had a great relationship thus far with the company account manager, salesperson, etc., but don’t fall into a false sense of security. The contract document is the most important document you will have to explain what you require, when you need it, for what price, and exactly how it will be accomplished. You may have had dozens of meetings with the vendor and exchanged written correspondence (emails, RFPs, etc) where you have heard what the vendor’s solution is capable of, but the contract is what will make the capabilities a reality for you. Ensure all of the key aspects from prior discussions, including the RFP response from the vendor, are incorporated in the contract itself. The contractor’s salesperson will probably not be heavily engaged with you once the contract is signed, so you’ll need the contract to memorialize the promises made for all employees the vendor assigns to your account.

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Don’t lose your leverage during the RFP and contracting process. In your excitement and eagerness to move forward, you may unknowingly provide too much information to the vendor with which you want to do business that can negatively impact your bargaining position. It is not a wise practice to inform a vendor that you love their products or services and are ready to sign a contract. There are many ways to approach this with a vendor that are both fair and ethical. In one transaction that I was involved with years ago, our team made it a point to visit a competitor’s headquarters and some of their customers so that the provider we really liked would take notice. This was time well spent and helped us become smarter about what we were buying, and the provider we hoped to contract with provided drastically discounted pricing knowing they had competition. 

Don’t sign the provider’s standard contract.  You may not have the time or inclination to review and modify a contractor’s standard contract, but you need to, and here’s why: a contract that fully explains your requirements along with “teeth” (explained in a moment) will receive a lot more focus and attention from the provider than their standard contract. Imagine a provider assigning its service delivery resources to your account. The provider will likely assign inexperienced resources if the contract offers little risk to them. On the other hand, if the contract is detailed, stringent, and has “teeth” to protect you, the provider is much more likely to assign their very best resources to reduce their risk. Furthermore, the attention you will receive from the provider’s management and C-level executives if your contract is viewed as “tough” in their eyes will help ensure your team is given the attention it deserves.

Make sure you have “teeth” in the contract. You need to add some sort of recourse if the contractor does not meet your requirements. Contractors will tell you that “you can walk away if you are not satisfied” but everyone knows once you get involved with a vendor you are highly unlikely to walk away as it will cost you dearly in time, money, and credibility. Your contract should state what will happen if the supplier does not provide exactly what you want, when you want it, and how you want it. For example, if you are procuring a product and require functionality that is not yet available from the provider, it is not sufficient to state in the contract the vendor must provide the product by a certain date. The contract should clearly state what the recourse will be if the result is not fully met (in terms of meeting the required functionality and meeting the due date). Some recourse examples include a reduction in fees, a certain quantity of no-charge products or services, better terms, etc.

Align the contract with the business case. Your business case is your reason for implementing the project. A best practice is to ensure your business case drivers and major benefit areas are addressed in the contract. The reasoning for this is you want the vendor to put a focus on the areas that are important to you, which will minimize your risk of not meeting the business case. As an example, suppose the primary driver for implementing a technology solution is to enhance your outage management capabilities. If so, the contract should call out requirements relating to outage management functionality you require, performance levels you demand, how it will be accomplished, and what recourse exists if the vendor fails to meet your functional, performance, and service requirements. You should also itemize in the contract the specific acceptance criteria for each requirement. This will ensure the provider fully understands what it will take to satisfy you. By incorporating this in the contract, you are protecting your utility, reducing the risk that the contracted solution doesn’t fulfill your business case, and provides the vendor plenty of notice early on of what is important to meet your expectations.

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Incorporate risk mitigation into the contract.  Undoubtedly you may have concerns about subcontracting out work. Perhaps you checked client references and heard some concerns about the vendor. These concerns have made you and your risk-averse executives hesitant to move forward. To resolve your concerns, make a list of these “risks to success” and circulate the list to all stakeholders to ensure the list is comprehensive. Once completed, incorporate the risks into the contract. For example, suppose the primary risk is schedule slippage because you are committing to your customers and the regulatory agencies that the project or solution will be completed by a certain date. If your deadline is critical, the contract should clearly specify the date the solution must be implemented (along with defining what it means to be “implemented” to meet all of your requirements). As discussed earlier, you should add “teeth” to ensure the provider meets this deadline. As another example, if you are hearing from other customers the vendor is known for certain product quality issues, negotiate in the contract stringent terms for product failures and returns such as not exceeding a certain percentage of field failures in a given month or year.

Address future needs and considerations in the contract, even if they are not fully fleshed out. During contract negotiations you know you need certain products and services now, but you also know that you will need additional services over the coming years. Assuming this is the case, creatively think through what you may want in the future and incorporate into the contract. This can be a challenge but if you don’t do this, the vendor will have most of the leverage when you want to buy additional products or services in the future.

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Ensure your house is in order. Contractors typically require support from the utility to be successful. You are essentially tied at the hip, so make sure you have the resources, controls, and structure in place to ensure both parties are successful. Before blaming the vendor, make sure you didn’t cause the problem. Make sure your resources are responsive to the contractor and you fulfill your end of the bargain - such as providing resources, materials, data, and information in time for the contractor to perform its work.

Establish scope controls. Changes that were not foreseen at the time of contract execution will likely occur. Having a process to control scope changes is critical. Your utility should document scope change requests, assess the impact of such changes, and work with the contractor to ensure adjustments are made to the services provided, the schedule, resourcing, and pricing.

Aim for a true partnership. This article is not about “sticking it to the vendor community”. Work in true partnership so you can resolve issues that will come up in a fair manner (think “win-win”) that works for all parties. That said, it is prudent to build into the contract an escalation path up the supplier chain of command in case the assigned vendor team does not have the ability or authority to resolve the issues.

There are certainly other strategies to consider and one size does not fit all, so if you are considering contracting with a provider, consider investing in a consultant who has seen the pitfalls and risk areas and can guide you. It could be money well spent and will help you avoid potential hassle for years to come.

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Chris Testa's picture

Thank Chris for the Post!

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