Customer Contract Vigilance?

Why would customers allow contractors to over promise in their bids and under deliver after receiving the contract?

Customers’ only tool to look into contractors’ future performance is the bid process. The goal of customers’ bid process is to select contractors with the best value.

The catch?

Value only matters if it’s received. That only happens after the decision. Over the lifetime of the contract. Too obvious, I’m sorry.

Customers run diligent RFP processes. They’ve selected the best-qualified contractor.

Now, satisfied they’ve done their job, they ignore the big part – getting what they paid for.

Vigilance after contract award is worth more to customers (and contractors) than RFP due diligence.

The Contractor’s Dilemma:

Some contractors make exaggerated claims. And take contracts away from contractors who reliably deliver.

The catch?

Contractors need to be selected before they can deliver. They must show well.

After All The Dogs and Ponies are Gone

Customers are left with the future delivery of proposal promises.

And during the RFP courtship, contractors’ promises all smell sweet.

Customers Must Validate After Contract Award

In many situations customers’ attention disappears after receiving the proposal valentine. Right after contract award.

“Good from far, far from good”. That’s how one contractor put it.

Meaning the choice of the “right” contractor can look good, if you don’t look too close. Or, look after the contract has been awarded.

If proposal promises aren’t validated after the contract is in place, what has the customer bought? A good show? But not the value the proposal promised.

Why Customers May Not Validate After Award

To be fair, many customers do pay attention. But many don’t. Here are several reasons why:

• Procurement typically drops out of the day-to-day oversight
• Customers want to get on with their real job, RFPs are temporary nuisances
• Customers don’t want to find out they’ve made the wrong choice

Customers Don’t Want to Find Out They’ve Made the Wrong Choice

Now there’s an unwelcome kettle of fish (and I’ve never seen a kettle of fish but I bet it’s unpleasant.)

Once it’s clear the contractor can’t deliver, or just plain deceived, customers are in a tight place.

It’s not an easy fix. Someone’s boss higher up is going to find out. And that’s uncomfortable. Not all customers have the intestinal fortitude to stand up and admit a huge mistake publicly. (Don’t know if I could either. Would like to think so, but not so sure.)

Why is Admitting a Wrong Choice So Hard?

MONEY
Money has been spent on the bid process. The customer doesn’t want to be seen as wasteful.

FOCUS
Customers have directed their company’s focus onto this particular service during the bid process. That’s a distraction for many. Customers don’t want that cloud hanging over them – if they’ve done it for nothing.

CAREER
Customers are personally on the line for this contractor. They chose them. Customers don’t want to admit mistakes in their judgment. A mistake of this magnitude is like committing career seppuku.

Real World Example

I was told this story by a few of the sub contractors involved.

Several years ago one of the top facility management companies in the country won a long sought after contract for a Fortune 10 client’s world campus. Worth tens of millions per year.

Unfortunately, they’d under priced their bid by at least 15 full time equivalents (FTEs). These were their managers, not subs. These were the people who were going to deliver world class results to exceed world class expectations. (The mistake was discovered shortly after start of service. Isn’t that always the time?)

Now, they could’ve gone back to their (new) customer, admitted their error, and asked for the proper funding.

But as you’ve correctly guessed, they didn’t. What they did was put all the contracts they were managing out to bid and squeezed for cost reductions. To make room for their bidding error. (By the way, they didn’t reduce their fee.)

Sub contractors who had diligently worked to deliver world class service had to slash and burn prices to keep their contracts.

Did all this create improvements for the Fortune 10 customer? (I don’t think so.)

The customer contacts who had chosen the contractor were aware of the problem. They were complicit in the agreement to not formally disclose the bidding error to procurement.

There was a lot of skin in this game. For the customers and contractor. Too much to be seen as wrong.

Here’s How Customers Can Increase Vigilance

There are two opportunities to check that customers will receive what they’re promised. (I’ve reversed the order of how these occur, it’s more interesting this way isn’t it?)

• Validate After Award
• Vigilance in RFP Bid Process

Validate After Award

Auditing seems obvious.

However, it’s the first thing that melts away when everything seems fine. (Remember pre-Enron/WorldCom oversight?)

Auditing needs to address both contract compliance and service performance.

Contract compliance may include LEED or ISO proposal promises. Auditing these is straightforward as criteria exist.

Service performance (like the sound of that name) auditing can be done in business review or joint committee meetings. Whatever formal customer/contractor meetings that review mutually agreed upon data.

Set KPIs (key performance indicators) before service start and have contractors collect and report their performance in review meetings.

Who’s Doing the Validating?

The best scenario is to include three different parties in the auditing process:

• Customer representative
• Contractor representative
• Outside consultant (LEED, ISO, or other 3rd party service consultant)

If only contractor representatives perform the audits, they may be viewed, rightly or wrongly, as foxes guarding the henhouse. Even if it’s an executive from the contractor’s corporate office.

If only customer representatives audit, you can hear contractors pulling out their hair. Especially if there’s a performance based portion of their contract.

Bringing an outside consultant adds a common, external assessment. Makes for better relationships. Also adds costs and may not be appropriate for smaller contracts.

Vigilance in RFP Bid Process

How can customers determine what they’ll get before the contractor has started?

Ask for it. Ask for site-specific detail. Specifically.

Part of any customer’s RFP should be a request for a contractor’s detailed plan of what they’ll be doing. A specific plan showing who’s doing what, where, when, how, and even why. Specificity is critical.

If contractors are promising LEED acceleration, they should state how they’ll do that, when they’ll get it done, milestones, progress reporting, etc.

Contractors must provide this detail so customers can audit after the contract has been awarded.

Funny. Requesting specific action plans and items is absent in almost all customer RFPs. Many customers seem more interested in knowing how many offices, employees and revenue a contractor has. Rather than clearly and explicitly seeing what that contractor will do for them at their sites.

RFP References Give Limited, If Any, Insight

Customers, don’t count on contractors’ references for proof they’ll deliver.

References are helpful, but not conclusive. As you know contractors’ references are their golden customers. Legitimately these are customer evangelists. Every contractors’ dream. Cynically, reference customers can be swayed with gifts. Either way, contractors references can only be expected to praise lavishly.

The same is true for lost-customer references. They’re those 3- 5 accounts contractors have lost and are selected for their innocuous terminations. “Really, Ms. Customer, we lost that contract because the customer went out of business. No reflection on us. We were golden”.

How are you vigilant after contract award?

And how are you diligent during RFP bids?

~~~~~~
Chris Arlen
President, Service Performance

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2 comments February 19th, 2008

Overcoming Recession Reluctance

Is our economy in recession? Have we been, or will we? What’s a recession? Are these too many questions?

Even if you may not be seeing recession’s effects locally, customers are hearing the pronouncements in newspapers, radio and TV. We are, or will be, in recession.

How does recession affect customers and contractors?

Recession Makes Customers Reluctant

First, on a business level, customers worry if their customers will keep buying at expected rates and quantity. Second, on a personal level, they worry if their plants or offices will be closed and if they’ll lose their jobs.

The fear of the unknown may manifest itself as a CEO’s “freeze everything” memo, or individual decisions at departmental levels. However it shows up, the anxiety is present.

While these worries alone won’t stop customers buying contract services, it may alter when and how they buy.

Customers’ Altered Buying Behavior

Recession reluctance may cause customers to:

AGGRESSIVELY REDUCE COSTS

Some customers may go out to bid specifically to lower contract pricing. Even before their current contracts expire.

Do customers need a pretext to put a contract out to bid in the middle of its term? Nope.

With more price sensitive customers, value may not be as valuable as value once was. It may cause a 6 to 12 month downward spiral where lowest-cost, low-value contractors gain lots of new business. Only to lose it again when customers get fed up and fire them for poor service. And/or the economy looks rosy enough to rehire their preferred contractors.

Customers low price hunting may increase the number of contracts out to bid. However, contractors had better have a sharp pricing pencil to participate.

HAND OVER DECISIONS TO PURCHASING

Recessionary fears may drive executives to mandate cost savings immediately. These initiatives typically fall on the Purchasing (Procurement) department.

Even though Purchasing is involved in bidding service contracts, their role and authority in contractor selection has increased noticeably.

And the knowledgeable end-users (facility and property managers) aren’t as influential as they once were.

As a result of Purchasing’s greater impact, bids may start to skew more towards “lowest cost” rather than the more intelligent “lowest qualified cost”.

DECIDE NOT TO DECIDE

For customers with bids already in progress, they may choose not to pull the trigger to change contractors. The fear of a worsening economy may cause them to prefer the known situation. Again, it’s the Lucifer they’re familiar with.

This behavior frustrates contractors who have already invested in those bid processes – but causes incumbents to breathe easier.

STAY PUT

For customers who aren’t required to go out to bid, they may choose not to. Better the devil (or contractor) they know, rather than stirring up an already uncertain future. Incumbent contractors love this.

DELAY

For customers with upcoming contract expirations, they may choose to delay scheduled bids if possible.

Caution may drive them to see which way the wind blows with their own business first. They want their focus on the health of their core business before distractions from bidding out contracts.

Again, incumbent contractors love this.

The Secret to Overcoming Recession Reluctance

By the way, this secret works for “normal” economic times as well as recessions.

Here it is:

Show customers how their service issues directly impact their business.

Another way of saying it is: Connect the dots between customers’ service pains and poor business performance.

This shows customers that letting a janitorial or security issue continue can hurt their (fill in the blank):

• Revenue
• Profitability
• Brand Reputation
• Customer Retention and/or Acquisition
• Safety
• Regulatory Compliance
• Etc. the list goes on

An Example

Customers may mention the service issue of “poor training” with contract employees (that’d be your competitors’ employees, right?). Recession reluctance may keep customers from doing something about this, like going to bid.

The secret is to let them know that:

1) Poor training may lead to –>

2) Contract employees interacting with customers inappropriately (did someone say obnoxiously?) that may lead to –>

3) Representing your customer to their customers in a poor light that leads to –>

4) Tearing down your customer’s brand reputation that leads to –>

5) Lower customer revenues and profits. End of story.

In this conversation, customers can no longer pretend poor training is acceptable. Not when it takes money off the bottom line, devalues their company’s worth, and generally stinks.

This “connect the dots between service issues and business impacts” is the real deal. It’s a great motivator for customer action.

Avoid the Appearance of Blame

There’s a caveat of course. No one likes having their “problems” jammed in their face. However, if the troubles aren’t discussed, nothing happens. So, contractors must exercise sensitivity. They must not blame customers for their failures, or discuss them in terms of failures. Because aren’t all failures really learning opportunities. Some larger than others.

True Differentiation

And here’s the best part. Other contractors aren’t making these connections. They’re busy explaining how they’ll reduce turnover or missed trashcans, or non-scheduled guard overtime. But they’re not making the connection between service issues and how it impacts customers’ business.

How do you overcome customers’ reluctance to act?

~~~~~~
Chris Arlen
President, Service Performance

Technorati: buying, selling

Add comment February 14th, 2008

The Triple Bottom Line

Green is definitely the flavor of the moment for marketing janitorial, engineering, and of course, landscaping services.

But everyone’s doing it. They’re Me-Too Green.

Contractors seeking to get an edge and stand out from the competition are seeking that next advantage.

So what’s next?

The Triple Bottom Line (3BL).

3BL is a concept where business success is measured in profits -and- environmental stewardship -and- social responsibility. The key is “and”.

3BL (also called People, Planet, Profit) takes into account the interdependence among all three. Not profits at the expense of the environment, or the community at the expense of profits.

3BL is different from green because it recognizes the need for businesses to be profitable. And adds social responsibility into the mix.

Multiple Names – Overlapping Concepts

There are two other concepts that are similar to 3BL; sustainability and corporate social responsibility.

Confusingly, 3BL is also known as an approach for public sector full cost accounting. It was adopted in early 2007 by the UN’s International Council for Local Environmental Initiatives (ICLEI)

These concepts overlap, interconnect, and are sometimes used interchangeably.

Mind boggling.

A Clearly Understood Name

However, for marketing purposes, one name must be commonly used to avoid further confusion.

Sustainability can sound as if it’s only about the environment. And corporate social responsibility may be too much of a mouthful.

That leaves 3BL, which seems to fit the bill for ease of use and memorability. Specifically since contractors’ focus has been on the bottom line, profits. Using 3BL as a new name for a new concept seems an easy choice.

Does 3BL Give An Edge?

The short answer is yes, if the green movement is any indication. Already more customers are looking to do business with green contractors or buy green products. This trend will only speed up as public awareness and peer pressure continue to rise.

Besides the poster children of Levi Strauss , Ben & Jerry’s , and The Body Shop there are many other successful, large 3BL businesses.

Getting to Scale by Jill Bamburg, explores how front running 3BL businesses grew up without selling out.

How will 3BL help Contractors Prosper?

1) A True Win-Win-Win

When 3BL contractors achieve their goals (People, Planet, Profit), everyone’s smiling, worthy warm fuzzies for all.

2) More New Business & Faster

This is the point of this post. Contractors who can tell customers their 3BL story will have the advantage over competitors.

3BL contractors will capture that wave of business from customers that green contractors are now receiving.

But here’s the surprise, and it’s a good one.

3BL contractors will get more business more quickly than green contractors.

That’s because customers will be more aware of the ethics of business. The green movement will have prepped them. And they’ll be ready to move their business quickly to 3BL contractors.

3BL is the Trifecta of cause marketing under one roof

Think of the number of customers who are now going green, and the multitudes who will shortly.

Add corporate customers who require representation by small and disadvantaged businesses (Proctor & Gamble, Bank of America, etc.).

Toss in public agency customers who require prevailing wages and benefits (airports, counties, municipalities, etc.).

Lastly, include customers who have been harassed by unions about wage and benefit issues (property management firms, hotels, etc.).

That’s one enormous salad of opportunity for 3BL contractors.

Those contractors will have designed, or re-engineered their business to serve People, Planet, and Profit. And are now aligned to reap the market advantages of 3BL.

There Really Will Be A First-Mover Advantage

Unlike the slow take up of green services, 3BL contractors will reap first-mover advantages over latecomers.

With compelling messaging and marketing, 3BL contractors can launch further, farther and faster than green contractors have done.

Several of those benefits are:

• Greater customer awareness
• High customer preference & loyalty
• Greater efficiencies from the earlier learning curve

How to Get Started

Learn the concepts and then take them into action.

Read The Business Guide to Sustainability. It provides a self-assessment and rating system for the services industry, and by individual functions within an organization. Throughout the book additional resources are listed.

For facility service contractors I’m guessing the most challenging of the three bottom lines will be the People part. At least regarding higher wages and customers’ price sensitivity. Did someone say recession?

3BL is a challenge. But it’s the future of services industries, specifically janitorial, security, engineering, and landscaping.

Are you up for the challenge?

~~~~~~
Chris Arlen
President, Service Performance

Technorati: green cleaning, marketing, change

Add comment February 6th, 2008