Optimize Value and Increase Savings with Performance Based Service Contracts
As more and more healthcare organizations decide to attack their purchase service contract cost I thought it would be timely for me to discuss how to write “Performance-Based Statements of Work”. In this way, I hope to help you to optimize your purchase service value and increase your savings by improving your suppliers’ performance.
Why you might ask is this important? Purchase service contracts don’t fit naturally into your normal strategic sourcing bidding protocols since they aren’t off-the-self commodities. Each contract is unique to your healthcare organization and therefore needs to be treated as such. The best way I know to do so is with a carefully crafted “Performance-Based Statement of Work” to measure, monitor and manage your supplier’s performance.
With this said, here is a checklist of the five primary elements of any “Performance-Based Statement of Work” to guide you through this process:
1. Performance Objective
What do you want to accomplish as a result of your contract? An example in a laundry processing contract would be: On-time, on budget, hotel quality linen service five-days a week. This way you begin with the end in mind with your performance objective, which makes it easier to write your contract terms and conditions.
2. Required Service, Task or Deliverable
This is the nuts and bolts of the agreement: The who, what, where and how the service is to be performed and then delivered. This could be accomplished in one paragraph, one page or a dozen pages. It all depends on the sophistication of the ser- vice.
3. Performance Standard
What is missing in most purchase service contracts: A standard(s) to hold your suppliers’ accountable. It could be error rates, accuracy rates, staying within quoted costs, downtime, etc. Whatever you decide on make sure that it is measurable!
4. Method of Surveillance
What is inspected usually happens, so it is your job to write into your purchase service contracts your measurement tool(s), such as supplier monthly activity report, monthly inspections, random samples, etc., to avoid any surprises or service quality is- sues.
5. Positive or Negative Incentives
Everyone, including your suppliers, work best when they have either positive or negative incentives built into their work plan, which can be monetary or non-monetary in nature. For instance, you could include a 5% annual bonus into your contract language if your supplier is under budget by 15%. Or, you can in- corporate into your contract a penalty of 2% for every one per- cent they are over budget for any given year.
There you have it, a five point guide to writing “Performance-Based Statements of Work” that will provide you with the purchase services needed, performance required and incentives to get your service work done right the first time.
Filed Under: Best Practices • savingsblog
