KEY TAKEAWAYS:
- The SOW and Specification outlines the quality requirements.
- Terms and Conditions obligate the supplier to perform according to applicable laws, regulations, and corporate policies.
- A contract professional’s role includes ensuring that the supplier flows all Terms and Conditions to its subcontractors.
If you know what to look for, the news cycle is replete with examples of quality failures in performance-based contracting. One telltale sign is confusion as to who is accountable for a dangerous quality failure. Case in point is the conjecture about whether Boeing (the Original Equipment Manufacturer) or Spirit Aerospace (fuselage supplier) is to blame for the failure of the Boeing 737 door plug on a January 2024 Alaska Airlines flight.
One month after the door plug malfunctioned, aviation safety expert John Cox, questioned, “When was the last time those bolts were installed? Did Spirit not install them and then when Boeing opened it the guys didn’t realize that they didn’t have the bolts? Or did Boeing not install them? That is something that I don’t think we have an answer for yet.”
Naturally, no contract professional wants their contract to be the subject of a quality failure, especially a publicly visible quality failure. However, a common complaint from contract professionals is that “they were involved too late” by others in their organization. Stakeholders don’t include the contracting team early enough when it comes to defining and establishing requirements for the customer, or vetting requirements before submitting a proposal for the supplier.
Involving contract professionals too late in the process is a “worst practice” that often leads to increased operational risks and expensive contract disputes later. Contract professionals have a significant role in ensuring suppliers perform according to laws, regulations, and corporate policies.
The Contract Professional’s Role to Ensure Quality Performance
There are five activities that all contract professionals who work with performance-based quality issues should complete before a performance-based contract is executed. These activities are relevant to both manufacturing and enterprise-wide software development.
#1 Understand the work
While this is obvious, it can be challenging to understand the work. Recently, I had a series of meetings with my client to understand the extent software would impact existing systems in a multimillion-dollar system. The more I talked to my client’s stakeholders, the more conflicting information I received. I got clarity by talking to the chosen supplier’s account executive who had the time to explain the work to me.
Because contract professionals are not technical subject matter experts, some may think they are not smart enough to understand to work, or that they do not need to understand the work. Without an understanding of the work though, the contract professional cannot fulfill the rest of their role. So, take the time to understand the work.
#2 Validate that the SOW or Specification is Complete
Ask the subject matter experts if the Statement of Work (SOW) or Specification is complete. It is not your role to finalize the SOW or Specification. However, it is your responsibility to ensure that the SOW or Specification has all the necessary quality requirements.
This is easier than it sounds. Simply ask the subject matter expert if the supplier’s work requires quality requirements due to laws, regulations, or corporate policy. If yes, then ask if that subject matter expert included those requirements. When some aspects of quality requirements are missing in an SOW or Specification, it is often because people were making assumptions about who would insert those requirements. It is better to clarify rather than just assume.
#3 Look for the Telltale Requirements
If the subject matter expert tells you the SOW or Specification is complete and includes quality requirements, look for some telltale requirements. The chart in Image 1 below provides sample contract language from SOWs or Specifications that require suppliers to perform to a certain standard, including Quality, Safety, Security, Testing, and Oversight.
#4 The T&Cs Should Obligate the Supplier to Perform According to Applicable Laws, Regulations and Corporate Policies
The SOW and Specification outlines the requirements and the contract Terms and Conditions (T&Cs) oblige the supplier to perform according to applicable laws, regulations, and corporate policies. The chart in Image 2 below provides sample contract language from T&Cs that creates an obligation to perform to a certain standard.
#5 Ensure T&Cs are Flowed Down to all Subcontractors
Finally, the contract professional’s role includes ensuring that the supplier flows all T&Cs to its sub-suppliers. It’s not enough that the supplier performs. All the supplier’s sub-suppliers in a complex supply chain must also perform according to the buying company’s stated requirements and legal obligations.
Are you intrigued to learn more? Stay tuned. Each month right here, I will provide more information to help you draft, negotiate, and manage performance-based contracts. If you want the manual to learn at your own pace, purchase your copy of The Contract Professional’s Playbook: The Definitive Guide to Maximizing Value through Mastery of Performance- and Outcome-Based Contracting.
