I was today in a somewhat “difficult” conversation with a service supplier. The topic was about a looming claim that I was going to make on behalf of one of my customers, due to an ongoing delay and constant delivery failures from the service supplier.
First, let’s look at what a claim is about: from my contract management classes, a claim occurs when agreed processes are not followed; or when work is carried out without authorization from the customer, when changes (to a contract) are rejected, or when contractual obligations are not met by one of the parties. A claim can be declared by either the supplier or the customer.
However, launching a claim is often the signal that it is already too late. Something “bad” has happened, the parties didn’t realize and voluntary or involuntary shortcomings let the “bad” thing happen without realizing its negative effect on the relationship. And now one feels feels infrindged
So how can claims be avoided?
This is valid whether you are the customer or the supplier, and some basic hygiene in this area can be summarized as follows:
- The first things is obvious: have a clear and precise contract, but more importantly: manage it actively.
- Include measurements in the contract that can give early warnings of something going wrong
- Finally, maintain quality and effective communication with the other party throughout the duration of the contract.
A good use of the review meetings could be, to review each other obligations listed in the contract, and to report whether or not those are being performed, at the right level, and seek often to understand whether both parties are happy.
If you are the customer, you should not take for granted that suppliers will always do what you intend, instead, you should have an active role in understanding and in explaining what your expectations are, offer assistance where needed and facilitate the release of roadblocks. This approach is beneficial for both, because the supplier will understand that the customer takes an active role in ensuring that he can deliver his services, and the customer ultimately receives the services he is expecting out of his contract.
You are a contract manager and you receive a claim? what should you do?
OK, claims happen, so stay cool, this isn’t “de-facto” the end of the relationship.
But you shouldn’t ignore it! Of course not! Even when there is a claim, the parties have an opportunity to show their professionalism in the attitude and in the way they work to resolve this painful situation.
First check in your contract if there is a mechanism for contract change control, (most of the time there is one), and when you find it “apply it !!”. Wait a minute?! “Applying a contract change management mechanism to work out a claim resolution???” Yes, you are reading correctly. As a matter of fact, most steps of contract change management can be applied to claim management and resolution, and in troubled times when confidence is low between parties, relying on an already agreed process, can restore the communication between the parties : follow the contract change management process and apply it as if the claim was the subject of the change.
Then identify root cause (use simple techniques like the “fishbone” or the “5Whys”), and assert the validity of the claim. Discuss the situation with the other party and seek to resolve the situation to the benefits of both parties.
Finally you should implement steps to avoid such claims in the future and reflect them on the contract through an amendment if necessary
Claim Management skills, is another example of competencies that you might consider as part of your toolbox skills for good contract lifecycle management. It will give you an opportunity to shine in troubled times, and if you address the situation in an appropriate and professional way, you can conquer back the lost confidence of the other party and limit the damage.
Is a claim a signal that weak or no contract management processes were applied beforehand?
My conclusion is YES, certainly in a lot of cases.
Applying best practices of Contract Lifecycle Management makes the occurrence of claims very seldom.
If you follow my conclusion, or would like to challenge my thinking, please be so kind to click on my name below and send me an email.