1 BY ABUBAKARI MRISHO, CPSP (T), 0717 58 14 04, mrishoabuu27@gmail.

com

TOPICK FIVE

MANAGING CONTRACT RELATIONSHIP

Learners being able to:-

a) Demonstrate ability to building corporate relationships.

b) Analyze relationship problems.
c) Apply dispute resolution techniques.

RELATIONSHIP MANAGEMENT, DISPUTES AND TERMINATION

The nature of relationship will determine the type of person appropriate to manage a contract. In
an arms-length relationship and when the contract itself is the basis by which the contract is
managed, the contract manager needs to be a tough negotiator who is highly skilled in the
application of contract law.

That notwithstanding, an arms-length relationship does not mean a difficult one. In any case, the
contract manager must remain pleasant and avoid bringing in personal problems in order to avoid
deterioration of the relationship. The problem must be the focus and not personalities.

In a cooperative relationship and when the basis of managing the contract is the relationship
itself, the contract manager needs to possess quite different characteristics. He should be, for
example, an excellent communicator and good at building relationships. It is even more
important to manage the relationship in the context of a partnership-style relationship.
Cooperative relationships are examined next.

MANAGING COOPERATIVE RELATIONSIPS

Building the relationships

It is necessary to manage cooperative forms of relationship well if the benefits of such

approaches are to be realised. The desired relationship with the supplier should be

 Established at an early stage.

 Reviewed constantly.

 Actively managed.

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 2 BY ABUBAKARI MRISHO, CPSP (T), 0717 58 14 04, mrishoabuu27@gmail.com

In some cases, the relationship with the supplier may have been established and managed by a
‘relationship manager’. If that is the case, the contract manager has to make sure that

 No conflicting messages are sent out by his staff to the supplier.

 No actions are taken that might compromise the relationship.

When there is no previous history with the supplier and a cooperative relationship is desirable, it
will take some time to create the necessary level of trust. In the beginning either side may be
looking for signs that indicate that the other side is serious about the partnership or not.

The trust that is necessary for a partnership style relationship develops from personal
relationships. Hence, allowing the personnel of the two organisations to meet often is likely to
speed up the process of building trust.

For example, a workshop for key personnel of the two firms may be arranged at an early stage of
the contract. The theme of the workshop might be to develop common objectives relating to the
achievement of the work and/or development of the relationship. The result of the workshop
might be the establishment of small teams or committees to take care of specific issues. This will
help the development of the integration of the two companies.

In parallel to the development of good relationship at operational level, senior management must
be seen to be committed to the partnership arrangement. A few senior managers who are cynical
and lack commitment can destroy the efforts of many. Attendance by one or two of the senior
managers of the workshop mentioned earlier can be good; it demonstrates their commitment.

Moreover, if either party perceives the other is acting in an ethical manner, trust will be
enhanced. The buying organisation should also make sure that its actions are consonant with a
cooperative approach. This may include dealing with legitimate claims quickly and paying
invoices in accordance with the agreed terms of payment.

The importance of performance measurement

One of the dangers or problems with partnerships is that they may become ‘cosy’ arrangements
in which the supplier becomes lazy. This is so especially when the supplier does not have to fight
for the buyer’s business. Continuous measurement of performance against targets is likely to
prevent this from happening. Wherever possible, the buyer should benchmark the performance of
the supplier against the supply market to make sure that the relationship is delivering optimum
performance.

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 3 BY ABUBAKARI MRISHO, CPSP (T), 0717 58 14 04, mrishoabuu27@gmail.com

Dealing with relationship problems

When the supplier appears to act opportunistically at an early stage, the buyer should examine
carefully the circumstances before deciding on appropriate action. This should involve
discussion on the situation with the supplier to gauge his motives and see if he is prepared to
change his position. When after careful assessment of the situation, the supplier considers that
the behaviour of the supplier is inconsistent with the desired relationship and that the behaviour
is unlikely to change, he should choose to take action. Failure to take action is likely to leave the
supplier open to further opportunistic behaviour.

If the buyer has undertaken his supplier selection process carefully, such situations may not
occur. All the same, a relationship may not always run smoothly. Problems that threaten the
relationship can be expected to occur now and then even though the relationship may have been
operating successfully for quite some time.

It may appear reasonable to retaliate when the supplier behaves inappropriately in the early
stages of the relationship. Such reaction should be avoided, if possible, when the relationship has
been established for a substantial period. As by this time the supplier has shown he is capable of
operating in a cooperative manner, it is worth making much effort in resolving the situation.
Indeed, don’t destroy a potentially successful relationship for the sake of a small problem.

However, sometimes the buying organisation may be the one that behaves inappropriately.
Examples include someone within the buying organisation having placed a major contract with
another supplier which, according to the partnership arrangement should have been placed with
the partner. In this event, the relationship manager and/or contract manager should immediately
investigate the issue, explain the reasons for the decision and give reassurance to the partner.

Resolving ‘contractual’ problems

In an arms-length relationship, it may be difficult to enforce a clause in the contract that obliges
the supplier to make potential problems known at an early stage. Hence, it should not be relied
upon. Quite often it is in the interest of the supplier to delay communication of problems because
doing so may result in additional work at premium rates. The first indication of the existence of a
problem may be when the supplier submits a claim.

One of the main benefits of a cooperative form of relationship is the increased communication
that results. This is particularly important when problems or the threat of problems emerge. If the
cooperative relationship is good, any problem or contractual issues can be expected to be
identified by the supplier at an early stage when they can be dealt with most effectively. The
following guidelines are helpful:

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 4 BY ABUBAKARI MRISHO, CPSP (T), 0717 58 14 04, mrishoabuu27@gmail.com

 Partnerships must have an agreed approach to dealing with problems when they occur.

 The approach should focus on seeking solutions to problems rather than who is to blame.

 Problems should be solved at the lowest possible level within a time scale.

 If a solution cannot be found at one level, e.g. technical level, the next level, e.g.
managerial level, should be involved.

Problem-solving sessions should be facilitated by one who is conversant with the application of
such techniques and in problem-solving methodology.

The following flowchart summarises a suggested approach to solving problems within a

cooperative relationship.

1. Identify the problem.

2. Clarify the problem with all parties involved and develop a problem statement.

3. Determine the appropriate level of decision making.

4. Agree to a time limit for solving the problem.

5. Use one or more problem-solving methods.

6. Is the problem has been solved? If the answer is NO, the problem moves up to the next
level.

If the problem cannot be resolved within the relationship, the process will inevitably become
more formal.

HANDLING CLAIMS AND RESOLVING DISPUTES

When a solution cannot be found amicably, the result is often a formal claim submitted by one of
the parties.

Claims

A claim is a request by either party for entitlement under the contract that is not being fulfilled.
Claims might result from the following:

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 5 BY ABUBAKARI MRISHO, CPSP (T), 0717 58 14 04, mrishoabuu27@gmail.com

 Unforeseen costs.

 Disputes over the interpretation of contract clause.

 Disputes over what is included within the contract price.

 Breaches of contract.

Claims may be relatively frequent in an arms-length relationship. The buyer might have
negotiated a particularly advantageous deal. The supplier might attempt to improve his otherwise
poor profit margin by exploiting any ‘grey areas’ or omissions in the specifications or contract.
For example, the supplier may try to do so by submitting claims for extra work.

There should be few, if any, formal claims submitted in a partnership-style relationship. A

formal claim in the situation of a cooperative relationship implies the parties have failed to
resolve the issue within the relationship.

Any claim by the buyer or supplier should include:

 A full explanation of the problem as well as the causes of the problem.

 The contract clause under which the claim is being submitted.

Claims from suppliers should only be considered if they are directly contracted by the buyers.
Those submitted by sub-contractors of the suppliers should be rejected outright as there is no
contract with them. The supplier may, however, wish to make a claim on the basis of a claim
made against him by his sub-contractor.

Approaches to dealing with claims and other problems

The first course of action when a problem is identified is to try to resolve the issue amicably
between the parties. When amicable agreement has been reached, all the details should be
recorded and the parties should sign them immediately to avoid the potential for
misunderstandings.

When a solution cannot be found or an agreement on a claim cannot be reached by negotiation

between the parties, involve a third party in reaching a conclusion. The decision to involve a
third party should be made after very careful consideration for two reasons:

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 6 BY ABUBAKARI MRISHO, CPSP (T), 0717 58 14 04, mrishoabuu27@gmail.com

 The cost and time involved are likely to escalate rapidly.

 The working relationship with the supplier may be irreparably damaged.

These two cases may have a significant impact on the contract in question and on any future
contracts with the supplier.

The contract should ideally identify the dispute resolution procedures that are to be followed. If it
does not do so, an agreement should be reached as to what approach to use. If no agreement can
be reached, litigation is the only option. And it is the most expensive option.

Termination

Terminating a contract is usually the last resort. It results in a lose-lose situation. However, a
contract may need to be terminated under the following circumstances:

 The supplier’s performance is unacceptable.

 The supplier is in breach of contract.

 The supplier shows no sign of being rectified.

 As a result of changes in the buyer’s need, e.g. the relevant project being cancelled.

The contract should, nevertheless, define the circumstances under which a party may terminate
the contract (Refer to conditions and warranties in a contract) and the rights of each party in this
case.

If the risk of termination is considered to be significant, contingency plans should be instituted.

This is particularly important if the contract is for high-risk products or services (i.e. bottleneck
or critical items).

Dispute resolution

As might have been learned above, disputes that may occur in the course of executing a contract
can be resolved by using a number of methods. These methods are summarised as follows:

1. Negotiation: As hinted earlier on, one very amicable way of resolving disputes is for the
parties concerned to come together and sort out things themselves. The vast majority of
claims and disputes are settled through this method. The parties in question will talk over

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‘ +255-767-235965 ‘ +255-755-829991 ‘ +255-767-682753
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 7 BY ABUBAKARI MRISHO, CPSP (T), 0717 58 14 04, mrishoabuu27@gmail.com

the issues in relation to the contract and its terms and conditions and how the
implementation has gone the wrong way, who is the cause and how the situation can be
rectified. Of course, there should be willingness on the side of either party to have an
amicable solution through admission of faults where necessary or intention to even pay
compensation when the other party has suffered as a result.

2. Mediation: is an informal process in which a neutral third party assists the opposing
parties to reach a voluntary, negotiated resolution of conflict. The mediator uses
communication expertise knowledge to assist the two parties to reach the agreement of
their dispute.

3. Adjudication: This is a process of expert determination whereby an expert is appointed b

agreement between the parties either generally or to decide a particular case. Provided the
expert keeps within the terms of the appointment and displays no bias, there is no
restriction on the way a decision can be reached. It is believed to be a quicker method of
settling disputes compared to litigation or arbitration below. If the contract provides for
expert determination to be final and binding, a court will not interfere with the decision
reached.

4. Arbitration: Many disputes between suppliers and buyers dealing on an international

scale are now settled by arbitration. If the parties to a contract are to settle a dispute by
arbitration, then they will often refer to arbitration arrangements stated in the contract. A
typical clause (CIPS – Preparing and managing Contracts, 2006?) in a contract is as
follows:

If at any time any question, dispute or difference shall arise between the purchaser and
supplier in relation to the contract which cannot be settled amicably, either party shall as
reasonably practicable give to the other notice of the question, dispute or difference. This
shall be referred to a person to be agreed upon.

Indeed, the parties to the contract may agree on an arbitrator at the outset of the contract.
The name of the person or institution maybe included in the contract itself or the
purchaser’s invitation to tender documentation. In either case, the choice of arbitrator
forms part of the contractual agreement itself. The arbitrator should always be a suitably
qualified professional.

5. Litigation: Litigation occurs when a party or parties seek to settle their disputes through
court action. This is the least likely; it is regarded as the last resort when the other
methods have failed.

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MOB: +255-710-302814 MOB: +255-710-302816 MOB: +255-710-302815
‘ +255-767-235965 ‘ +255-755-829991 ‘ +255-767-682753
Email: kpsdsm@gmail.com Email: kpsdodoma@gmail.com Email: kpsmwanza@gmail.com
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 8 BY ABUBAKARI MRISHO, CPSP (T), 0717 58 14 04, mrishoabuu27@gmail.com

In the British law, cases between businesses are normally heard in the High Court. Such
disputes are often heard by a single judge. If either party wishes to challenge the
judgement of the High Court, they may appeal to the Court of Appeal. If they are not
satisfied with the judgement, they may seek to appeal to the House of Lords.

Litigation is an adversarial action under procedural rules established under a country’s

constitution. It will produce a legally binding decision. Litigation is time consuming and
the process is complex. Besides, the accompanying costs are high compared to the other
methods referred to earlier.

DARE ES SALAAM DODOMA MWANZA

MOB: +255-710-302814 MOB: +255-710-302816 MOB: +255-710-302815
‘ +255-767-235965 ‘ +255-755-829991 ‘ +255-767-682753
Email: kpsdsm@gmail.com Email: kpsdodoma@gmail.com Email: kpsmwanza@gmail.com
Website: www.kps.co.tz Instagram/Twitte: kps_Tanzania Facebook Page: KP PROFESSIONAL SERVICES-KPS