The effectiveness of a contractual relationship will usually be dictated by how well the initial procurement process has been done and whether the contract fully reflects the intentions of the contracting parties.
Relationships and behaviour are strong influences for achieving successful outcomes. Whether this means having a formal supply chain process or less rigid repeat business cultures, it is safe to say that companies who understand and appreciate each other’s needs will be more likely to work effectively together and this will apply equally to when things are going well or difficulties arise that need to be dealt with straightforwardly and with an eye for common interests. Where price competition is the only criteria for procurement, in our experience this rarely leads to a harmonious and successful trading relationship.
As part of any initial selection it is important to establish whether a potential contractor or supplier has both the capacity and capability – the resources, labour, management and most importantly the expertise and skills to undertake the contract works. The most effective businesses know what they are good at and stick to it.
The most frequent cause of disputes in contracting has to be inadequate definition of the scope of the works. Time spent on properly defining the contract works and compiling the contract documentation will pay dividends, enabling businesses to properly price the works in the first place and facilitating effective management of them once the contract is placed.
A contract should appropriately apportion risks between the contracting parties so that the overall undertaking is commercially viable; all too often contracts are structured to have a comprehensive risk transfer which ultimately means that either a premium price may be attracted or more commonly the contractor will have to undertake the works under potentially onerous terms in unfavourable commercial circumstances.
As the old adage goes, ‘marry in haste and repent at leisure’ – a very fitting thought to bear in mind when procuring or bidding for construction works!
If you would like advice on the best procurement practices or how to manage difficult contractual negotiations, C-Link’s Partner, Commercial Risk Management, can provide you with support, just visit their Partner page to get in touch.
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