Should I Fire My Vendor?

BadContractor“We need to fire this contractor.  They just aren’t working out.”  I’m sure that you have heard that at some point and sometimes the performance of the contractor is bad enough that contract termination is the right thing to do. I was talking with an employee in another part of our company recently and this was exactly what he was thinking. When I asked questions about the contractor’s performance he was able to clearly identify failures and many frustration points. On the surface it made sense to terminate the contract. I then asked him if he had clearly laid out what was expected of the contractor.  He began to stumble so I asked him to outline the specific requirements he had provided to the contractor.  His requirement was “fix any issues that arose .”  My honest response back to him was that he had set up his contractor to fail and the failure was his fault.  The requirement was so vague that no contractor could ever make him happy.  I suggested that he bring in the contractor and hold a quarterly business review (QBR) to identify clear requirements, identify current failures, identify current successes, and establish guidelines for both his team and the contractors teamwith actionable deliverables.  Once he held the QBR, the partnership was back on track. The contractor became a one of his best performing contractors for the rest of the year.  Before you fire your contractor, establish a QBR with the contractor to review their performance and build a strong partnership.  Here are the steps you can follow to make the partnership a great success.

1. Establish a clear set of requirements and deliverables

You would think that this is the easiest part but it isn’t.  A combination of assumed expectations and vague requirements will doom you from the start.  A great vendor will go out of their way to make sure that they deliver and you are successful.  Once you take the time to write down everything that you expect from the relationship then you can define the items your vendor should deliver. In my example, a maintenance vendor was expected to resolve any issue. My friend assumed that they would be onsite within 4 hours for each and every problem.  The vendor expected to respond by the next business day which resulted in frustrations for my friend. Write down your expectations and get agreement from your vendor before you sign the contract.

2. Establish service level agreements to measure performance

You have written down your requirements, expected deliverables, and reached a mutual agreement with your vendor.  Now you should outline the expected service level agreements or SLAs.  SLAs are key elements used to measure the performance of your contractor. The purpose for the SLA is to provide an incentive for delivering great results and a penalty for delivering poor results. I have maintenance contractors in different cities that perform the same type of work and I have established different SLAs based on the needs of the staff in each city.  For example, I created a SLA for an audio/video vendor around response and repair time.  In the city with the CEO, we expect a 4 hour response time. In a city with IT professionals, we expect next business day response. The higher response time will result in a higher price tag so you will have to decide how much the increased service level is worth to you and your staff.

Next define penalties for failure to meet the SLAs in a given month.  This penalty may be a 5%-10% credit on the monthly invoice for the month when the issue occurred.  Provide the vendor a written notice with 30 days to cure or resolve the problem. Failure to resolve the problem within 30 days will result in additional penalties. When the vendor fails to deliver results after three months, consider this a chronic issue and have a clause in the contract that lets you terminate the contract at your discretion. (I’ve only had to use this once in my career.)

3. Establish a quarterly meeting to review performance

The QBR is a time to meet with your vendor and cover both the tactical performance and strategic agenda of the vendor and your own team.  Your company’s success may depend heavily on how well your vendor performs.  I prefer to manage the schedule for the QBR for several reasons.  One, it forces me to schedule the meetings with each vendor for the entire year and reserve time on my own calendar. I try to never reschedule the meeting unless absolutely necessary. Two, I am forced to evaluate the vendor’s performance on a monthly basis to ensure they are meeting SLAs.  I can’t hold the vendor accountable if I don’t measure their performance and review the performance with them each quarter. Three, this forces me to measure my team’s performance.

I cover the tactical elements in the meeting by looking at each of the deliverables and whether the vendor met the required SLAs.  The deliverables may be repairs for a maintenance vendor, upgrades on a system for an implementation vendor, or daily performance for managed services vendors.  You have been talking with your vendor on a regular basis and discussing any failures to meet SLAs on a monthly basis so this should be a fairly quick portion of the meeting. I then cover where we are going – the strategic items.  The strategic items are more important because they allow me to focus on the future and not the past.  I try answer each of these questions in the QBR.

  • How well did the vendor perform? – Tactical
  • What do I need to achieve to become successful? – Strategic
  • What are the vendor’s other customers doing better than me? – Strategic
  • How do we build an even more effective team? – Strategic

4. Evaluate and create a score for both teams

I learned this from one of my previous customers. She was the CIO of a bank and asked me to rate the performance of her team in preparation for an upcoming QBR.  I was the service provider and her team was complaining about my team’s performance.  Her team rated our performance for the service we were delivering and did not provide great scores. We rated her team and pointed out our struggles with one particular engineer on her staff.  We went through a deep dive into the facts on the scores and determined that her engineer was not doing his job and blaming us.  The CIO replaced the engineer, we resolved our weak areas, and the partnership grew stronger.

I have found that most businesses only focus on the performance of their vendor.  However, the best relationships and partnerships are built when I focus on both the vendor performance and my team’s performance.  I have developed a mutual scorecard where my team rates the performance of the vendor and then I ask the vendor to rate the performance of my team.  The combined scores provide great insight into our partnership which makes both of us successful.

5. Establish clear contract termination options

There are great companies and really bad companies.  Unfortunately, the best contract with clear deliverables, great SLAs, and regular QBRs will not solve all your problems if you have hired a bad vendor. Make sure you have a clear termination clause in your contract that allows you or your vendor to terminate the contract.  The chronic issue that is resolved the first time may bite you again.  When it does, you need to be able to terminate the contract and find another vendor.  It is better to hire slowly and fire quickly.

6. Vendor success is your success

Managing your vendors takes time and diligence to get it right.  I have found that when I spend the time to set expectations and measure performance, I achieve significantly better results.  My successful vendors deliver those great results and my team looks better in the end.  Take the initiative and help your vendor succeed.  When they do, reward the vendor with renewed contractors and additional work.  When they don’t, act swiftly and find someone who will. Your business depends on it.

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