Continuous Improvement in contracts
Contracts now tend to be longer than in the past – frequently 3-5 years in length, often with an option to extend for one or two more years. Over this length, things can change dramatically – not just in terms of what you need from the supplier or service, but also in terms of technology and equipment used in delivering a service. Often, these developments mean that goods or services can be provided faster, cheaper, or to a higher standard than when the contract was originally let. To ensure that the contract provides Value for Money throughout its whole life, it is important to ensure that it is structured in a way that incorporates a need for improvements.
Ideally, the requirement for improvement will be built into the contract, but should be based around the concept of continuous improvement and be beneficial to both parties, rather than just a means for the customer to drive down costs. This might be through a clause that states that the supplier and client will work together to find opportunities for improvement; that the supplier is expected to exploit appropriate new developments to improve performance levels or standards over the life of the contract; or that any reductions in cost due to new technology should be reflected in updates to pricing structures over the contract.
Changes might also come from contract amendments if the client has reviewed their needs against the contract and discovered that they now require more/ different/ less frequent service from the supplier. These changes would need to be negotiated with the supplier and the contract amended appropriately.
Some examples of improvement or development might include:
- Upgrading machinery to newer models with better functionality but keeping the cost the same as originally agreed
- Lowering the price-per-sheet for printing as new printing equipment reduces the costs
- Changing the frequency of provision of a grass-cutting service
- Extending the areas included in a building cleaning contract
Incentives to improve can include: increased profit; some form of benefit or reward for improved performance or added value; benefits-based payments, where payment is dependent on the realisation of specific benefits to the customer. Incentives should be built into the contract terms, but must be realistic and appropriate to ensure that the contract provides added value throughout the duration.
If improvements are not being made or the contract is not performing, it may be necessary to examine the reasons for this and consider where change might be necessary – for example, misaligned performance metrics, change in service functionality, insufficient service infrastructure or increased workload.
Suggestions on approaches to continuous improvement can be sought at the tender stage; for example-
“An integral aspect of the Contract will be a continuous improvement in the way the services are delivered both at a practical and strategic level and having regard to a combination of best value issues including but not limited to economy, efficiency and effectiveness. Tenderers are invited to suggest how they would review provision with a view to providing ongoing improvements in quality or efficiency throughout the life of the contract.”