Quick Tip #10: Executive performance assessments are just too subjective for a supplier to agree, or are they?
One of the common issues with managed services or outsourcing contracts is that they struggle to adequately address the key strategic objectives set by the customer’s executive for the relevant deal. This is often because these objectives are not easily measurable as service levels and they are by their nature more subjective than objective. This may mean that, notwithstanding a strong contract with clearly defined service level metrics and remedies, a customer-supplier relationship will fail because the contract is not geared towards addressing the more overarching objectives that have been set for the deal.
To address this challenge, we recommend adopting a mechanism which facilitates the assessment of the supplier’s performance against the customer’s strategic objectives. The assessment should involve a governance process allowing the supplier to make representations to the applicable forum and using a scorecard of metrics (which by their nature are more subjective) and culminating in a decision by customer executives to determine whether the strategic objectives are being met. We appreciate that the subjective nature of this process is unlikely to be acceptable to suppliers and, if unacceptable, propose an objective process to address this. If the customer executive determines that one or more strategic objectives are not being met, then the parties will develop a service improvement plan with objectively measurable criteria for successful delivery. Supplier will then implement the plan and only where the objectively measurable success criteria have not been met will the customer have an express commercial remedy for failure to deliver. This means that although the initial governance process results in a subjective decision on the part of the customer executive, the supplier is not vulnerable to commercial risk unless the supplier subsequently fails to meet the objective success criteria.