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Crossing boundaries: the challenge of lost value

March 13, 2017

I was recently running a workshop to assist in designing the governance terms for a major contract. The overall program lifecycle will be around 30 years, so change is inevitable. Among those changes will be shifts in the contracting parties themselves, as well as the roles that need to be fulfilled.

In this particular case, we were struggling to even reach consensus on goals and objectives. The client wanted to think about designing for whole-of-life value. The contractor (who had no security of tenure beyond the initial construction period) was thinking only in terms of the first 5 years. It quickly became evident that this difference of horizons was creating incompatible positions and interests. For example, the client wanted delivery of a solution that would maximize affordability and adaptability in the asset-management and sustainment phase, but they didn’t want to commit at this time to a sustainment contract. That left the contractor thinking only in terms of how they could gain an acceptable return on designing and building the asset.

While the example is extreme, it is indicative of the challenge we face in designing and negotiating contracts and relationships. And each time that information has to cross a boundary, the potential for misalignment or misunderstanding arises. This may be during internal transfers, between different stakeholders, or it may be extenral, to contractors, or onward to sub-contractors.

‘Contracting excellence’ is arguably about the management of boundaries, about ensuring understanding and appreciation of differing viewpoints or conflicting interests and ensuring they are addressed and reconciled. I’m not sure how much work has been done specifically to address this issue. It certainly isn’t evident in the way most organizations manage their contracts. Hand-offs are often quite casual, often to untrained or ill-equipped resources. There is rarely any check on the competence of the counter-party in the way they manage such transitions, or flow terms through to their sub-contractors or suppliers.

Overall, this is a truly fascinating aspect of business performance and it is becoming more critical as organizations increasingly depend on complex supply netorks and as acquisitions continue to shift from products to longer-term solutions or intangible services. The quality of understanding, analysis and communication is becoming more and more critical. Technology will play a big role in smoothing over the bumps of transition, but more highly skilled people will remain the real answer to resolving boundary challenges and disputes.

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