101 Administration of service contracts

Administration of service contracts

Service contract administration includes follow-up, quality control and suppler metrics, payment, records and other aspects of contract administration.

1.  Follow-up

Follow-up and expediting in services may require internal as well as supplier checking. Therefore, responsibility for follow-up with the supplier appropriately may be placed in the user department to help ensure user compliance with prior commitments and deadlines, while follow-up on internal commitments may become a joint responsibility for the Procurement management as well as the supplier. It is this commonly extensive user interface with supplier personnel during service delivery, and often before, that affects other aspects of contract administration as well.

For example, if a service is performed on site, after-hours, security check-in sheets and access systems may be used to verify work patterns or area activity. Periodic site visits and a walk-through of the facility with the supplier’s representative may lead to a better understanding of user needs. Some form of benchmarking against other providers may also be useful.

2.  Quality control and supply performance metrics

In highly tangible services such as construction, quality control can be geared heavily towards the measurement of the tangible, in ways similar to standard quality assurance and control. Two aspects of service — the intangible and the non-inventory — can create special quality measurement difficulties. All aspects of the ability of the actual service provider(s) — people — to consistently perform the service at the desired quality level are vital to the performance evaluation process. Were the supplier’s personnel sufficiently and consistently courteous when dealing with the buying firm’s employees?

Five quality dimensions have been identified for formal service quality evaluation process. They may be measured by a survey, or by the number of complaints received, but it is important to recognise that any standard, at best, will be imprecise.

a.  Reliability: Ability to perform the promised service dependably and accurately.

b.  Responsiveness: Willingness to help customers and provide prompt service.

c.  Assurance: Knowledge and courtesy of employees and their ability to inspire trust and confidence.

d.  Empathy: Caring, individualised attention the firm provides its customers.

e.  Tangibles: Physical facilities, equipment and appearance of personnel.

Because the nature of many services prevents storage, delivery tends to be instantaneous. In other words, quality control will have to be performed while the service delivery is in progress, or afterwards. Moreover, it may be difficult to interrupt the process, even if simultaneous quality control is possible. Therefore, quality risk in services may be relatively high compared to the procurement of products. In cases of quality failure, it may not be possible to return the services for a refund.

Post-service evaluation is an essential component in effective service acquisition. Quality risk avoidance may be mitigated by doing business with service suppliers found to be satisfactory in the past and by avoiding repeat business with suppliers who did not do a good job. The risk can also be avoided by careful checking of suppliers beforehand with other users with similar needs and by careful pre-service delivery communications with the supplier and service users to ensure common understanding or requirements and expectations.

3.  Payment, records and other aspects of contract administration

Payment for services may vary somewhat from payment of goods. Some services require prepayment, such as an eminent speaker, some immediately upon delivery, such as the hospitality services, whereas others can be delayed. Progress payments are usual for large contracts spread over time whereas regular payments are appropriate for ongoing services, such as building maintenance.

As in all procurements, the need for proper records hardly needs to be reinforced for the acquisition of services. Part of the difficulty may be the feedback loop from user to Procurement function and the retrievability of information regarding the service performed. Unless care is taken to preserve this information, it may be lost for future reference and consideration.

It is almost inevitable that contract administration for services will encounter the need for changes subsequent to contract signing. Delivery dates, the nature of the service, the place of delivery and other aspects may require change. What may seem like an innocent change to one party may be difficult or expensive for the other contractual party. For example, a one-week delay in delivery may cause the supplier into a serious capacity constraint. The reverse may also happen. A supplier request for change may make life difficult for the buyer.

Thus, mechanisms, as well as timely interaction between the appropriate representatives of supplier and buyer, need to be in place to deal with changes as necessary. Changes may be costly and affect budget status and a host of other dimensions. Before changes are agreed to, both buyer and seller need to assess the impact on their own organisations and the contract changes arising from them, including price. Obviously, if flexibility to change is already foreseen as important before contract signing, this should be addressed as part of the original need description. Then, in the search for a suitable supplier, flexibility becomes a key sourcing criterion, which would be later written into the contract.

Please read ‘services procurement’ on pages 364 – 377 in Chapter 16 from your textbook Procurement Principles and Management, 10th edn, England: Prentice-Hall, Pearson Education Limited by Baily, P, Farmer, D, Crocker, B, Jessop, D and Jones, D (2008).






  Activity 5.4
Question to activity 5.4
Suggested answer to activity 5.4


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