10 red flags your contract/subcontract may be running into trouble

A feeling of unease

Operating major contracts and subcontracts can be challenging at the best of times.  You think you are doing all the right things.  You have everything in place and there is a good partnership feel about the client and supplier teams working together.  Your internal team is not signalling any major problems.

But still…

You may have a vague sense of unease or uncertainty.  There may be signals that things are not quite what they should be.  You may be receiving conflicting or unreliable reports.  When you ask for information, you may not receive it, or you may get something you didn’t ask for.

Worse still, you may have been surprised.  There may have been an unexpected increase in costs without proper explanation, meaning you have to seek further funding and are forced into difficult conversations with your stakeholders.  Your ability to manage may have been taken away by the surprise and you may now have to do the same to your line manager.

It is at this point we are frequently called in to conduct a contract/subcontract review.

10 Red flags

To help you spot warning signals early on we have compiled a list of potential red flags which could indicate that your contract/subcontract requires some intervention and steer:

1. You are operating a bespoke contract/subcontract with ambiguities with regard to scope, language and contract definition.  This may lead to disputes over future accountability and contract valuation. bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
2. The contract/subcontract is under performing in key areas and basic KPI’s or SLA’s are routinely missed. When challenged, the supplier fails to engage their team to improve performance. As the client you are finding it difficult to get face time with the supplier to understand what the real issues are. bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
3. Dominant lower tier suppliers are kept at arm’s length from key discussions. bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
4. Contract/subcontract data you require is often inadequate, inconsistent and delivered late.  In addition, it doesn’t adequately explain either cost increases or poor performance.  bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
5. There are a number of concerns coming through relating to supplier/subcontractor staff.  There is a high level of staff churn, often with little prior consultation with yourself and little effective control demonstrated.  You are concerned that staff are not properly qualified or experienced and they appear to lack motivation to deliver the contract needs. bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
6. In the supplier’s/subcontractor’s invoicing (or applications) there are frequently aggregated costs, manual adjustments and/or poor descriptions. Often there is minimal transparency and supplier errors repeat, indicating a lack of supplier checking or weak accounting systems. bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
7. There is a lack of understanding of budget v actual cost variances when the supplier/subcontractor cost teams are queried.  Further to this, at year-end there is a lack of detailed review making it difficult for you to meaningfully set next years’ budget with cost incentive and reduction initiatives.                                                                                                          bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
8. There is limited cost challenge from your own internal audit team.  Their findings are often not concluded, or the supplier dismisses their relevance.bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb                                         bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
9. You hear rumours of poor or slow payment of supplier/subcontractor staff.  This may indicate insolvency issues. bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
10. At annual review meetings the supplier/subcontractor becomes aggressive when discussing contract price revisions. They constantly moan they aren’t making any money, yet you know the contract tendering process was open and fair

An independent review

Sometimes it’s good to bring in an expert and independent third party to look at your relationships. 

The simple application of a fresh pair of eyes can identify things which may not be achieved in the normal run of business.  Contract or commercial managers are often too busy with operational matters and may not have the appropriate audit and commercial skills to uncover issues quickly and effectively.

An independent review of contractual arrangements can bring a number of benefits.  It can show what’s going right, as well as what’s going wrong.  It can:

1. Give a valuable insight into how your supplier/subcontractor operates internally and what its true expectations are from the contract.  They may not always be good.  bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbmmmmmmmmmmmmmmmllllllllllllllllllllllmmm
2. Help remove tension points over legacy cost or commercial issues that have soured the relationship to date.