Managing Relationships in Defence Negotiations

Contract formation negotiation is often – erroneously - treated as a one-off and the assumption is that once the contract is inked, negotiations have ended.

There are an every-increasing number of deals being made between Defence and its suppliers which are growing the value of business relationships, broadening the scope of services being provided, and cementing the relationship between these parties over an extended term. Relationship management is often the critical factor to ensuring the success of such deals and is key in bringing out the best in both Defence and its suppliers. 

As such, an important opportunity exists for both parties to establish and maintain formal relationship discipline as part of agreeing and implementing the deal.

So, what does formal relationship discipline look like?  We would advocate that it is a framework that: 

• Reinforces the commitments of each party whilst building and embracing a collaborative / partnering attitude. In our experience, when both parties walk into a negotiation with a collaborative mindset and seek to forge a partnership rather than make a transaction, this fosters a deeper commitment between the two parties, with these behaviours becoming a pillar to the relationship performing optimally. When a relationship is performing optimally, it allows both parties to quickly recognise the trust that flows in both directions, which innately leads to the greater sharing of information, timelier understandings, less confusion, and a desire to achieve mutual gain / value.
• Applies an appropriate level of governance and ensures risk is being mitigated.  There are a great many views on what governance is and how it looks… for us, we consider governance to be the application of rules, practices, processes, and behaviours which ensures the success of the deal. Importantly, there are differing types of governance which can be categorised as follows:
• Relationship Governance – focuses on strengthening the competency, capability, and trust between both parties and on creating a collaborative environment. Both parties should share their desired business outcomes and drivers in a trusting manner, operating on the assumption that each seeks to understand and empathise with the motivations of the other. To that end, neither party should be ‘surprised’ by any unexpected revelations as the more defined the expectations from the relationship, the greater the success of the combined endeavour.
• Contract Governance – aims to ensure that within the scope of the contract, each side performs their obligations and responsibilities to the expected level. Essentially it creates an assurance that neither party will step outside of the formally agreed and documented deal. If distinct teams within each party will be managing various aspects of the contract (as is often the case in large Defence contracts), then it’s also important that these internal relationships are managed to avoid contract governance being side-stepped and to understand how they fit into the broader picture of relationship governance.
• Corporate Governance – concerns the way each party manages and regulates their own activities to deliver against corporate needs. For suppliers, this is often compliance with rules and regulations to which they are bound, protecting the interests of shareholders, and meeting ethical practices. For Defence, this is often compliance with Government policies, ensuring value for money to the taxpayer, and ensuring negative news stories are minimised.
• Actively searches for mutual value. All too often, Defence instantly assumes that all suppliers are only trying to service their own performance metrics and shareholder targets. In fact, a responsible supplier will genuinely want to engage and to set up formal relationship disciplines in order to drive the long-term benefits that come from having a customer of choice. Those benefits are not just about revenue; they can help both parties to identify and pursue product enhancements, contemporise service delivery, gain efficiencies, and in some instances develop entirely new products and markets through joint ventures and other contractual vehicles.

To summarise, the setting up of formal relationship disciplines benefits both parties in that it promotes increased openness, collaboration, and trust which serves to align both parties; assists with mitigating risk and ensures that obligations and responsibilities meet the expected level via appropriate governance; and enables exploration of mutual value (which in turn facilitates a greater chance of buy-in between the parties to identify and seize opportunities).  

Conversely, when formal relationship disciplines are not defined and adhered to it’s more likely that the parties will work in isolation and operate competitively, resulting in an erosion of trust (if established at all). There is a greater probability that risks will transpire, both parties can start to dig in to defend their positions, the focus shifts inwardly and each party steps back from their desire to deliver against the obligations and responsibilities of the contract. The consequences of which are that the parties may fail to identify and seize opportunities that might otherwise have grown and matured the relationship between them.

So, what does that have to do with negotiation?... 

The contract formation negotiation is often – erroneously - treated as a one-off and the assumption is that once the contract is inked, negotiations have ended. The reality of course is that almost all negotiations, by number if not necessarily by value, between a supplier and Defence happen across the life of the contract. The external environment is constantly changing in ways not contemplated or dealt with in the terms of the contract formed at the beginning of the journey. Therefore, the parties need to keep working together to ensure that the original aim and intent of the contract is achieved.  

The same structured, disciplined process and skilled approach to negotiation which is used in contract formation should continue to be applied throughout the life of the contract. Otherwise, all the value created during the setup is likely to be leaked away through a “death of a thousand cuts”. 

To discuss your negotiation needs, get in touch with us:

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