In traditional contracting models, customers and service providers take adversarial positions. This is where one party’s gain is the other party’s loss. When interests are not aligned behaviours become adversarial. Examples of unaligned interests include margin, project profitability, and financial impacts to project performance.
The situations described below illustrates the win/lose negotiation frame for traditional contracting:
customer uses their power to drive the service provider price down. But take no accountability for a process improvement. One that would protect service provider margin on the new lower fee structure:
- issue: Customer selected to win by getting a lower price. Took this action without considering the partner's need for profitability. The unintended impact is a lowering of service level. Less margin means less investment in resources. Both parties get hurt by this initial action and the relationship worsens.
- service provider wants a clear advantage by offering fixed fee in a non-competitive environment. The first advantage is no pressure on price. A second advantage is there's no need to provide supporting data. This is a traditional position in fixed fee bids. The result is the customer has no way to determine if price is reasonable and competitive. The customer agreed believing in their power to “negotiate” their way to the right price.
- issue: both parties are in a long term relationship. They are positioning themselves for a power based adversarial battle for each project. A battle both of them think they can win. They are creating a recipe for high conflict and dissatisfaction.
- due to very high levels of unknowns, the fixed fee contract was thrown out. The service provider had contributed to this problem. Then, they proceeded to take full advantage of a T&M contract. They take no responsibility for their contribution to the original issue.
- issue: The customer had major issues with this project. Service provider takes no responsibility for their contribution. They take full advantage. No joint accountability.