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WHO IS RESPONSIBLE FOR OUTCOMES? RESULTS OR RESOURCES?

An issue closely related to contract scope and performance is responsibility. Relationships are increasingly based on the delivery of outputs or outcomes. With the trend towards services and solutions comes increased supplier responsibility for performance, something that suppliers are not always aware of or willing to accept.

one of the basic questions in today's technology deals and contracts for services and solutions is whether what is purchased and sold and what will be provided constitute results or resources. This basic question is not as easy as it seems. Not all contracts—or requests for proposals or quotations, for that matter—are clear on this issue. Yet the question should be answered before making a commitment to sell or purchase, as the answer will often determine which party will bear responsibility for the results the buyer is expecting. At the same time, it will normally also determine who bears the risk of the negative consequences of not reaching those results.

So whose responsibility is it to produce the results? In broad terms, in a results contract, the supplier is responsible, while in a resources contract, the buyer is responsible. in many contracts, however, the nature and requirements of the contract in this regard are unclear. This can cause major business and legal problems.

in a clear-cut results contract, the supplier accepts the responsibility for and commits to certain results and thereby accepts the risk of failing to produce the results. The results may be expressed in terms of solutions, service levels, or outcomes. A true results contract drafted to protect the buyer does not trigger the buyer's obligation to pay until the supplier has produced the agreed results, either by reaching certain milestones or upon project completion. in the words of Joe Auer, President of international Computer Negotiations inc., looking at the situation from the buyer's point of view, "there's nothing better than having a good contract—except having the vendor's money.”[1]

Not all situations call for results-based contracts. Not all suppliers are prepared to accept and not all buyers propose such contracts. Risk versus price is one of the reasons. Sometimes results cannot be defined. Maybe the buyer just needs a piece of equipment and is prepared to take care of installation, commissioning, and everything else. Or maybe the buyer only needs advisory services or access to resources, such as maintenance technicians. Applying those resources and achieving the desired results is then the buyer's responsibility. in such cases, the parties may agree that a calendar date, product or service delivery, or the supplier's invoice can trigger the buyer's obligation to pay. A conventional contract based on time and materials—a resource contract—can work well for both suppliers and buyers in such cases, as long as the buyer does not expect the supplier to produce the final results or outcomes at a set price.

Because the question of responsibility for results is so important, a contract should provide a clear answer that reflects the parties' real needs and expectations. The answer should be clear, even though it is not always easy to contractually define the results or how they will be measured.

In many contracts, responsibility becomes blurred when the contract leaves important issues to be decided later or states that the parties will accomplish something jointly. Who is then responsible? if the important question of responsibility for results is unclear, both parties are likely to suffer during performance. if a dispute arises, its outcome will be hard to predict. Proactive planning, careful communication, a true shared understanding, and a well thought-out contract that reflects the choices made can provide the answer.

  • [1] Ten Truths of Negotiations—Truth #3 & #4. Driving the Deal by iCN Blog hosted by Joe Auer, August 10, 2010, available at http://dobetterdeals.wordpress.com/tag/results-or-resources/.
 
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