Innovation in contracting: Is it possible?

Sourcing agreements carry disappointment - near the top of the list is failure to deliver Innovation. The industry has struggled for years to address with contract provisions such as "Continuous Improvement" and annual "Innovation Plan" submissions (basically, a big idea summit). But the Supplier settles into a groove of simply delivering the Services; and the Client pigeon-holes the Supplier and doesn't include them in major planning sessions.

Maybe the challenge isn't that the contract is missing something, but that the contact (any contract) simply isn't a good vehicle to deliver innovation. After all, what a contract does very well is commit parties to a transaction - I pay $X if you delivery $Y service. How do you contract for the future?

Short answer is, within the confines of the original contract, you can't. One of my colleagues, Tom Young (www.RUMJog.com) advocates more of a hand-shake agreement that remains flexible and remains in place for as long as the parties are deriving value from the agreement. He explains that the buyer and seller must operate from positions of trust - open book.

A more practical solution is, once the agreement is struck, to implement an ongoing governance process that focuses on continuous improvement - both the buyer and the seller have to dig in and look hard at their processes to see where they can reduce waste and distraction. Ultimate goal is to lower the cost of delivery for the Supplier; and have the Client financially participate in the benefit. Fine Line has a process whereby we look at key inputs - People, Process, Tools, and Market Price and produce a scorecard. For strong performers, the relationship continues uninterrupted by RFPs.

The current market is change fast - the age of longterm agreements struck by lengthy RFP processes are becoming increasing irrelevant.