Turning around the performance of a large outsourced contract

Large complex contract relationships require high-quality management skills and high-quality performance measures. Even with the best intentions parties can often find themselves at loggerheads when assessing performance. With over two decades of experience, Grosvenor works with clients to ensure contracts and contract relationships are performing.

Situation

In late 2019 Grosvenor was asked to assist a NSW Government client to resolve a long-standing contract dispute with their outsourced service provider. Despite being over two years into the contract, our client and the service provider had not been able to reach an agreement on the outcome of quarterly performance measures. Both parties were very distrustful, and the relationship was starting to fall apart.

The Challenge

Despite the contract having detailed KPIs, the parties had not been able to agree on the data that would be used to make the assessment nor, on how the wording of each KPI was to be interpreted. To make matters worse, to resolve outstanding issues from transition, the parties had agreed to reduce the number of measures from over 70 to less than 30. That agreement had a different set of measures that was also in dispute.

The client believed the provider was cherry-picking data to support their claim and the service provider believed that the client was actively looking for ways to fail them.

In total, almost a million dollars of at-risk fees was at stake. A resolution was needed that the parties could agree too and could be used both retrospectively as well as for ongoing quarterly assessments.

The Project

First, we then took the time to get a separate and detailed briefing from both parties. Understanding the full scope of the dispute we then developed a plan to which we asked both parties to agree.

Trust is critical to all relationships particularly if you have been asked to arbitrate between disputing parties. The success of our intervention depended on ensuring there was mutual agreement on our role and the process we would follow.

“Good performance measures need to be well-drafted and then tested to ensure that both parties agree what the measure is for (the intent), how it will be measured (the process) and how the results will be interpreted (the assessment)”

From there we separated the dispute on the quarterly measures from the other dispute associated with reducing the number of measures. We then completed a detailed review of the performance measures, how they had been interpreted and how the data was being used to assess them.

What we identified are issues that are all too common for large long-term agreements of this type including:

• The measures could be interpreted differently – despite considerable effort to draft the measures they could still be subject to reasonable interpretation which would provide vastly different outcomes
• Some hurdles were too high – for some measures the outcome would be very difficult, if not impossible, to achieve given the size and complexity of the portfolio
• Some were not measurable – there were some KPIs that either could not be measured or had to be suspended until operational changes took place and new measures are developed.

“Designing and documenting good performance measures does not stop when the contract is signed. Just like managing the performance of staff you need to regularly review performance as often as you review the measures themselves.”

We also assessed the performance framework and how the individual measures rolled up into a quarterly assessment score and found:

• Assessment scores could be less than actual performance – due to the algorithm used, a quarterly assessment could be made that was less than actual or observable performance.  As a result, in some instances, the quarterly outcome did not reflect actual improvements that had been made in performance
• The framework was overly complex – the framework had multiple levels and hurdles for achievement that, while well intentioned, was not supporting the intention of driving improvements in performance.
• The framework needed to be more flexible. The complexity of the framework also made it very difficult to adjust and agree on changes that were needed as services evolved.

We developed a simpler framework that did not lose the intent of the measures and in fact did not change the workings of any of the KPIs.

We also provided guidance on the intent behind each of the KPIs, new business rules so the parties could stay focused on the outcomes and not get caught up in the measurement itself. Finally, we established a review process that required the parties to work together to discuss the measures.

The Result

With an in-principle agreement to our findings reached, we recalculated the assessment based on the revised framework. The dispute arising from the reduction of KPIs was reassessed and the parties agreed to our recommendation on a settlement. Similarly, the quarterly measures were reinterpreted, and agreement on the outstanding quarters agreed.

When Grosvenor commenced our involvement, the reported performance was assessed by the client at less than 40%. Over the last 12 months this has steadily improved to the point where they are now agreeing on performance at over 90% achievement.

Just as importantly the parties have developed a rhythm from assessing, reporting and agreeing on performance which takes a fraction of the time it once did. Where there is disagreement, they table their issues and resolve the matter.

Grosvenor continues to provide a governance role in each quarterly assessment, working with the parties to review the KPI assessments and facilitate the review process.

The relationship is back on track.

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