Those who are not allowed to make deals leave their business on the hook if their actions are similar to those with permission or agency, no matter how bad the deal is. In some cases, they may be held personally liable. This is why contracts and agreements must be the responsibility of organising public procurement. Basically, it is the law. Applying performance contracts throughout the process can enable procurement organizations to derive more value from their suppliers and suppliers. Close coordination of public procurement with other functions can support performance improvement and continuous improvement efforts. This closely coordinated monitoring and supplier management can also significantly reduce downstream costs, such as cost overruns, planning delays, and poor quality. Contract revisions are important cornerstones for managing supplier performance and relationships and their review should be on the agenda of every formal supplier meeting. Assume that your supplier will also keep an eye on the contract and that you will be judged based on your performance under the terms of the agreement. In our sample, eight out of ten contracts did not contain any form of benchmarking clause that requires a regular review of pricing using relevant industry standards or indices, to ensure that suppliers and suppliers charge prices in accordance with fair and reasonable market prices. Since a benchmarking clause would allow for much greater cost control, we regularly find contracting opportunities to improve contracts in this regard. But too often, calibration clauses contain generic language that allows the buyer to compare prices only for similar companies.
Bottom-up cost benchmarking, which could be linked to a „cost-based“ understanding of the supplier economy, would be much more effective in identifying additional opportunities for value gain. It is important to note that oral agreements between buyer and seller are as binding as written agreements, but it may be more difficult to prove the essential facts of the agreement. In the contract, the buyer`s obligation includes payment, receipt and control of the goods. For example, a hospital system has set incentives and penalties for services provided by the provider. In housekeeping, the hospital uses several metrics, including staff turnover and room passage times. To get a more complete picture of the quality of household management, the hospital also used a patient satisfaction survey, in which specific incentives were linked to positive values in patients (Figure 2). The combination of metrics allowed the hospital to focus on CPDCs that had a noticeable impact on operations. The countless variables involved in negotiating, lettering, and enforcing contracts mean that incremental efforts to improve supplier performance are unlikely to be of significant value. Instead, a comprehensive approach to the contracting process and project execution is needed. Performance contracts can help reduce costs and achieve value that is greater than the original scope of the contract, by transferring responsibility from the buyer to the supplier and defining services, performance monitoring and management processes.
These contracts define acceptable metrics and quality levels as part of the scope of work and establish a clear governance structure for reporting and monitoring continuous improvement. The particular advantage of defined benefit contracts is that operational efficiency is guaranteed by the supplier. This security results not only from the integration of performance measures, penalties and monitoring, but also from performance incentives and incentive mechanisms, typically common in partnerships. . . .