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Contracts and ‘a free lunch’

June 6, 2019

Contract performance can be undermined by strange and unpredictable factors. Such is proving to be the case in the A$50bn project to build a new fleet of submarines for the Australian Navy.

The contract was awarded to the Naval Group, a French company, in 2016, after a lengthy bidding and negotiation process that involved a number of international competitors. While there will eventually be substantial work undertaken in Australia, the early phases of the program have involved the relocation of Navy and Defence personnel to north west France. And, according to the Australian Broadcasting Corporation, they are not happy, with ‘numerous frustrations’ causing growing conflict with the supplier.

Understanding risk

Any good risk analysis will anticipate tensions in the performance of a long term contract. Indeed,  I know from conversations at the time that ‘cultural factors’ were considered during the award process for this particular program. However, no one expected such apparently minor issues as lunch habits and timeliness of meetings to become major friction points.

“The Australians need to understand the sanctity of the lunch break”, explained Naval Group’s French program director, recognizing that “Not everyone thinks like the French”. Communication challenges have been exacerbated by irritants such as a lack of punctuality (‘diplomatic lateness’) and the traditional French ‘shut-down’ for the month of August.

In reality, none of this should be a surprise and the Australian Defence Department, more than most, ought to be equipped to deal with such challenges. As one of the earliest and most successful adopters of Relational Contracting, the DoD is fully aware of the critical importance of a formal ‘communications protocol’, which is once again emerging as a solution in this case. “The staff will learn how to communicate, hold meetings and work in French-Australian teams”, explained the head of HR, recognizing the importance of training in both communication and behavior.

Dealing with the unexpected

A key lesson from this situation is that no risk register can realistically anticipate every issue and nor would it be efficient even to try. However, what can be anticipated is that there will be unexpected events and that there must be formal and agreed mechanisms for their resolution. Whether or not such mechanisms are embedded into the contract, or simply operate as a mutually agreed and documented protocol, is not important. What is essential is that the parties have the maturity and attitudes needed to establish and maintain collaborative working and that they use the disciplines associated with good contracting to define and agree the managerial and operational mechanisms that will underpin a sustainable relationship.

A communication protocol is one of the nine key tenets of IACCM’s relational contracting model and workshops, used successfully in a growing range of complex contracts and relationships within both Government and private sector projects. The Australian Department of Defence was one of the early adopters of this model, now used successfully in multiple programs.

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