E-Sourcing Forum » Trust is the Key in Long Term Contracts

Trust is the Key in Long Term Contracts

July 6th, 2009 at 08:54am TPI

By Dinesh Goel, Partner, TPI

I know this has been written and spoken about umpteen times, but I feel so strongly that good and successful outsourcing arrangements are founded upon a high degree of trust in the relationship between the buy and the sell side.

In my experience, most companies attempt to do a good job while writing and finalizing the contract with a service provider – with or without the use of external advisors. Arguably, the contracts that use an external advisor can withstand the test of time better. That said, there are often significant variations in the final contracts due to the amount of control, flexibility and balanced risk-reward platform these contracts target to create for and between the parties. Notwithstanding these variations, the single most important ingredient in a successful arrangement is the level of trust both parties are able to create in their relationship. While a well written, flexible and balanced contract is also vital to the success of the contract, it is certainly not sufficient.

How do parties end up creating a trustworthy relationship?

Trust is built, like in any business or personal relationship, through consistent adoption of simple principles:

- Actions and behaviors that are positive and generate confidence in the other party
- Strive to deliver on the promises
- Promise only what you can deliver
- Take a broader view of the relationship when it comes to minor adjustments to the work or commercials
- Focus on quality and predictability
- Have a customer-centric mindset – but that does not necessarily mean accepting something unreasonable from the customer

Similar principles apply to the buy side. The customer has to make prompt decisions, provide timely and accurate information, and treat their provider teams with due respect for their skill and competency.

The net result of all this will be that the relationship will drive the contract and not vice versa and that is the sign of a long term successful relationship.

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Entry Filed under: General

2 Comments Add your own

1. Stephen Schwartz | July 7th, 2009 at 7:33 am

Although the word “trust” certainly contains all elements of a positive relationship the article seems to miss some important (and practical) points.
My main point would be “constant and consistent communication”. I could write a book on this point, but many companies have the experience of communication slowing and even failing when the contracted company starts missing milestones. This begins to erode trust. Within this context is also “assumptions” made by the contracted company, when they need clarification.
2. Dinesh Goel | July 8th, 2009 at 3:39 am

Hi Stephen, First off -thanks for your comments. You’re absolutely right. Constant, clear and transparent communication is a key to building trust not just in outsourcing relationship but generally in most long term relationships. Absence of a good communication can lead to wrong perceptions and create room for rumours which are not good for a fact based trustworthy relationship. The whole point is about efforts that need to be made on both sides to build these long term trustworthy relationships – it can’t be a mere contractual relationship which will lead to frequent avoidable disputes and distract management unnecessarily.

Regards
Dinesh

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