dover performance contracts 2015
TRANSCRIPT
Making the leap …
…from paying for goods and services …
… to rewarding for desired outcomes!
Presented by:
Jerry Dover, P.Eng.
Director Engineering
Give and Go Prepared Foods Corp.
Engineer and Maintainer
Project Engineer
Maintenance Manager
Infantry and engineering
officer
Introduction
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Several blows to the head
Definitions*Contract:
a legally binding, voluntary agreement between parties
3
*from an engineer not a lawyer
typically defines the provision of goods or services
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Definitions
Defined Outcomes
Measured Performance
Linked Compensation
PERFORMANCE BASED
CONTRACT
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Learning From Experience:A Story*
* About how I learned to use PBCs through trial and error and mistakes and failures and blows to the head and … so forth
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Life as a Manager of Contracts Seemed Stable and Unchanging
Don’t worry, if it doesn’t work, we’ll take it back
Our Standard Terms are:50% downpayment
40% due on notice to ship10% due on delivery net 30 days
We have a great Service Agreement for 12
Maintenance visits per year, unplanned parts and
labour extra
This is all very normal – crazy talk!
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We Want:
• Predictability - PM contracts
• Reliability - new capital assets
• Productivity – automation
We get:
• Emergency outages
• Unexpected expenses
• Performance below expectations
My happy life as an engineer was much like your happy life:
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I had to supply some unique, older rebuilt equipment to a German integrator who was building a “showpiece production line”
One day, things changed
They did not want our old equipmentto risk their delivery and payments,so they asked us to signa “Performance Contract”
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What is the underlying purpose of this type of contract?
How will it shift the balance of risk and reward?
Can we use this type of contract to our benefit?
This Started a Learning Quest
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So I tried it on other suppliers, and got…
ANGER
CONFUSION
DELAYS
LEGAL REVIEWS (GOOD)
REFUSALS (NOT
GOOD)
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A key supplier of critical equipment simply refused to accept it
First contract after 20 years serving your
company! No customer of
ours has ever asked for this!
Your performance demands are too
stringent and unfair!
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Given this resistance,do we proceed?
Why the resistance?(Is it worth the fighting)
What are the true risks and benefits?(Will it really help)
How exactly do you implement & enforce?(Can we make it work)
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overcome the fear of change
trust: it must be a mutually-beneficial agreement
understanding the risks and costs of failure
collaborate on defining the service levels
be VERY clear on how the outcomes will be measured, and by whom
agree on your dispute resolution mechanisms
Do we go back to the status quo,or press on with this new way?
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The PBC Framework
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The PBC FrameworkTable of Contents1. COMPONENTS OF THIS AGREEMENT ................................... 22. SCOPE OF SUPPLY AND PRICE ........................................... 23. DELIVERY DATES AND CONDITIONS ................................... 44. PERFORMANCE SPECIFICATIONS ........................................ 55. TECHNICAL SPECIFICATIONS ............................................ 56. INTERFACES ................................................................ 67. SHIPPING METHODS AND CONDITIONS ............................... 68. INSTALLATION AND COMMISSIONING .................................. 79. EQUIPMENT DOCUMENTATION .......................................... 811. SPARE PARTS AGREEMENTS ............................................. 1012. COMMERCIAL AGREEMENTS ............................................. 1013. CONFIRMATION OF THE AGREEMENT ................................. 13
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The Supplier has a financial inventive to beat the targets Both parties could track progress clearly I could focus on other aspects of the project
The End Results
Our management was more confident When a spec was not met, the vendor fixed it without complaint Both parties got what they wanted!
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Our team’s attitude evolved from
What Did We Learn?How Are Things Better?
Passive acceptance of
goods/services
Deeper understanding of apportioning risk
Proactive, mature approach to link
rewards with outcomes
The Moral of the Story
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Speak in terms of performance.
Mutually agree to acquire:
specific capabilities
desired ranges of availability
defined standards of build, finish, and maintainability
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Focus on:
true partnering
a mature, non-adversarial approach to assigning incentives and damages
work hard to determine capabilities and how to measure them
The Moral of the Story
They make sense
They improve on the status quo
They help BOTH parties succeed
I welcome your comments and [email protected]
Additional Resources
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