Archief voor categorie: Blog

Developments in technology and information systems increasingly focus on eliminating thinking and the associated decision-making (fact-based). Mobile phones can increasingly take over tasks from our memory and thinking processes. Robotics, for example, not only increasingly take over repetitive tasks from humans, but can even perceive the environment and, based on these observations, make independent choices to perform certain actions with the help of sensors. These developments are fuelled by a need to achieve the highest possible performance while minimising risks, by means of processes that are as efficient as possible. Fact-based purchasing is in its earliest stages.

Purchasing still makes decisions based on cost savings

Despite the above developments, we are seeing that most business sectors are still characterised by traditional control principles. Thinking, decision-making and use of influence and control are still dominant. These traditional principles are also reflected in purchasing when selecting suppliers and cooperation partners, where an efficient process, high performance and minimising risks are important.

The majority of organizations in Europe and North America also continue to make purchasing decisions based on cost savings. In addition to the legality issue, which mainly affects public authorities, this is still the driving force behind many purchasing organisations, both in the private and public sector.

Of course, this approach is beneficial in the short term. But on a strategic level, it won’t work. Especially for government organizations, it is important that purchasing takes on a more strategic role and, in addition to savings and legitimacy, focuses more on efficiency and delivering added value. Fact-based purchasing helps with this.

Selecting potential suppliers based on their actual expertise and performance

Developments in the field of digitization and big data mean that fact-based purchasing will be one of the most important developments for purchasing in 2019: Purchasing on the basis of objective figures and data. Now fact-based purchasing may not sound like a super trend to many readers, but ask yourself this: Are performance and risk really part of all your purchasing decisions? Are potential suppliers truly selected on the basis of their actual expertise and performance? And if so, are the actual expertise and performance related to the (strategic) goals of the organization?

The Best Value selection process offers you the opportunity to make the step to fact-based purchasing and to actually start selecting on the basis of actual performance and expertise.

Would you like to know more about the Best Value selection process or what else the Best Value approach has to offer you? Please contact us.

What does the Trojan Horse Paradigm have to do with supplier performance?

When starting a tender for the first time, there is a good chance that you will find something that will not result in the best supplier performance. A fearful and hostile attitude of the project team…

All the suppliers are bad and are cheating on you before your very eyes!

This conviction results in the project team ‘sealing’ everything in the tender documents in order to prevent poor supplier performance in the future. By setting minimum requirements, no more space is left to the supplier. The effect on the other side of the table is that suppliers, logically, respond to all requirements in the affirmative. They promise everything to get the job done.

The Trojan Horse Paradigm

Compare it to the Trojan Horse. On one side of the wall, the supplier who presents himself as more appealing than he actually is, and on the other side, the client with the fear of not knowing what he is getting.

This mechanism is self-sustaining. The more fear of being cheated, the more fear of uncertainty about what is coming in. This leads to more rules, requirements and conditions. And to increasingly attractive offers from suppliers. A bad experience in the past with lagging supplier performance is causing people to go in the wrong direction more and more. Had experience with disputes about extra work? Or with projects that have raised legal issues, cost an awful lot and failed to deliver the expected quality? There is a good chance that the client will draw up even more rules in a subsequent tender, in an attempt to have more grip and control and to prevent poor supplier performance the next time.

But what do we actually want as a client? Every client is looking for a supplier who is involved, who feels responsible, who is proactive and who thinks about what he is doing. All this is in the interest of the result for the client. So why don’t you, as a client, give it the space it needs to be implemented? Room for supplier performance.

More rules, more conditions and more demands are increasingly driving us in the wrong direction.  In fact, the greater the chance of contracting the wrong supplier!

You get what you ask for. Pure logic

It’s simple logic. You get the supplier you ask for. Suppliers who feel happy in an atmosphere where they don’t have to take responsibility, don’t have to think and don’t have to be responsible for the result will be happy to bid for a tender that is full of requirements, conditions and rules. “You ask, we provide” is the adage of such a supplier.

Tenders that include as few requirements and conditions as possible and that leave as much room as possible for the supplier will deter those suppliers and attract parties who feel comfortable in a situation where they can take responsibility.

Break the circle: give suppliers room to act.

How a client behaves and what approach he takes can be seen in the suppliers of that client. Therefore, as a client or contracting authority, take a look at your suppliers. Are these the suppliers you want? Do they feel responsible for what they have to do? Are they proactive? Or is it a continuous struggle about supplier performance, do you have all kinds of additional discussions, does the contract have to be taken out of the drawer regularly?

Then dare to break that vicious circle! Then move in the opposite direction at the next tender or purchase and include fewer rules and conditions. Give your suppliers room. You’ll see that other suppliers will surface.

Would you like to know more about how the Best Value Approach will lead to better cooperation with suppliers and better results of your projects? Please contact us.

What is the purpose of a penalty clause? In short, the use of a penalty clause has a twofold function. On the one hand, it acts as a stick in terms of compliance with the contract, as an alleged incentive for performance; on the other hand, the penalty clause has a damage-fixing function.

Damage-fixing function

The damage-fixing function of penalties comes into effect in the event that there are no more solutions and compliance is impossible. We won’t get into more detail about that in this blog. When applying fines as referred to here, clients primarily intend the means of control. There are also other rules and regulations governing the fixing of damages or compensation. A third function: ‘political considerations’. In other words, the client’s behaviour is covered. So that when things go wrong, one can show:

Look, I’ve taken a penalty. I’ve done everything I can to ensure proper performance.

Penalties as a stimulus for better performance

What consequences does the inclusion of penalties have for cooperation and performance? The stick to beat is nothing more than a means of control that gives the apparent certainty that the client is controlling and influencing a supplier with it. A false certainty? Sure! Best Value teaches us: ‘There is no control!’ As the picture in this blog shows: No matter how high a penalty is, what a supplier cannat do, he won’t be able to do. A penalty clause is Manage, Direct and Control, with which a client, instead of leaving it to an expert to find a solution, wants to force a supplier to deliver better performance.

Better performance under duress?

You may wonder if someone gets better under the threat of punishment. Would a supplier really run faster because there’s a sword hanging over his head? And if he needs that in order to perform, did you select the right party? In addition, by including penalty clauses, suppliers will bid on a risk basis, with a focus on price and limiting the excess rather than delivering quality and achieving objectives. In this way, you select the contractor who can does this the best instead of the party with the best plan.

Increasing the price

And let’s not fool each other: as a client, you simply pay the penalty yourself. Suppliers carry out a risk analysis beforehand and it is simply included in pricing, as a risk premium or otherwise.

No focus on performance

Furthermore, a penalty will result in the wrong focus at the moment when the focus on the proper execution of the project and achieving a good result is most needed. If a situation arises on which a penalty clause is focused (non-performance), a discussion and fight will always start when applying the penalty; accusing, evasive and negative behaviour. Yet it is precisely in this situation that you need to join forces and work on solutions.

No transparency

And especially in situations where something is not going well, an unexpected event or a risk occurs, you want a supplier that acts transparently and comes up with measures to limit the impact as much as possible. When a fine is hanging over his head, a supplier will initially focus on limiting his own damage and reducing or avoiding liability. He won’t be inclined to be transparent. The inclusion of a fine does not contribute to solving the problem and achieving a good result, but rather ensures non-transparency and thus increases the risk.

Best Value without penalty clause

The use of penalty clauses and bonus-malus clauses to steer and control the supplier is counterproductive to what we aim for in the Best Value approach. Forget the false security of penalty clauses and opt for real performance. In order to actually apply the philosophy of Best Value, we have to let go of all forms of Manage, Direct and Control and go for Listen, Observe and Align (listening, measuring and tuning).

Do you want to know how you can work with suppliers who feel responsible for achieving excellent performance and who operate proactively, without the use of penalty clauses? Please contact us.

A major misunderstanding that we often encounter in practice with suppliers and their clients is the belief that Best Value suppliers should manage project risks. It may seem like a bit of a semantic discussion, however, Best Value suppliers manage mitigation of external risks and that’s really something else! They do this by identifying risks, making them transparent to everyone involved and including preventive management measures in their planning.

The starting point is that expert suppliers have no risks of their own. How does that work?

Minimum scope

Expert suppliers identify risks within and outside the sphere of influence in their project plans. They then reduce or change the scope of their plan in such a way that there are no or hardly any risks within their own sphere of influence and in such a way that the risks outside their own sphere of influence are minimal.  If they are unable to achieve the client’s project objectives as a result, they consider tendering for the tender. If they see risks caused by a lack of information, they estimate the situation to the best of their ability. They make an assumption based on expertise.

Transparency

The identified non-affective risks are made transparent in such a way that these external risks are clear to all project actors. The risks are minimised by control measures consisting of mitigation steps (activities in time). Suppliers then measure and monitor the external risks they have identified (outside their sphere of influence) and the associated control measures / mitigation steps.

Client pays for risks that have occurred

All events that occur during the execution and cause a deviation from the plan are for the account of the client, not for the supplier. By this we mean risks that have occurred with effect on time and/or money and/or quality. Whether or not the risks that have occurred have been anticipated does not play a role in the financial responsibility. The more risks that have occurred are identified by the suppliers in advance and provided with measures, the better his performance. It goes without saying that suppliers themselves are responsible for mistakes they make themselves.

Defining risk management

The management of the control measures/mitigation steps is done by means of the Weekly Risk Reporting (WRR). In other words, the risk management (administrative function) is laid down in the WRR. It is important that the WRR also contains performance measurements with regard to risk mitigation. The great advantage of this is not only that it has been made transparent for all the actors involved, but also that these measurement data make it possible to improve performance in a subsequent process. This performance measurement prevents discussions with the client and creates learning effects. The information in a subsequent project can also be used as verifiable performance information. And it protects the profit margin of suppliers, since the client is financially responsible if the risks occur. It goes without saying that expert suppliers act in the interest of the customer if a risk occurs. Smart solutions can limit the ‘damage’ to the customer).

Help causes risks

It is in everyone’s interest to help the project actors that cause risks. In the interest of the client because otherwise the result is not optimal and in the interest of the supplier because disruptions to the service do not, at least, contribute to a satisfied client and the project result.

Understanding this principle is very important: Actors or mechanisms that negatively influence the activities, and therefore pro-activity, of suppliers, constitute risks and are the financial responsibility of the customer!

Activities that increase risks

Clients should understand that the following activities have a risk-increasing effect (and will not lead to ‘Best Value’):

• Asking suppliers to describe their offer in terms of content in the registration form.
• Asking suppliers to describe their technical competence in their tender.
• Using the members of the assessment team’s own experience in assessing tenders based on technical preconditions, rather than assessing them on the basis of the included dominant (performance) information.

This blog may seem more focused on suppliers rather than clients. However, it is important for clients to recognise the starting points for mitigating risks. The awareness that the financial risk lies with the client and that the supplier is responsible for the risk management is particularly important. If a client does not sufficiently recognise this, a supplier will be less inclined to be transparent and less inclined to think and act in the interest of the result for the client.

Would you like to know more about how you, as a client, can optimally design and secure risk management within the organisation? Please contact us.