Fight fire with fire? Managing complex contracts when the other party becomes difficult


In his second blog (first blog can be found here) Dr Haward Soper, recently awarded his PhD, discusses his doctoral findings, giving fascinating insights into the relationships between different parties involved in management contracts. Haward is giving a lunchtime lecture on the 18th May to discuss his research.


As part of my doctoral research I ran a large-scale survey of people who manage complex modern contracts and received over 500 contributions. I asked a variety of questions; some on their reaction to case studies developed from real life cases. One of those cases involved an NHS Trust and its facilities manager. The results of the litigation are interesting, but this is for another day.


I asked my respondents to place themselves in the position of a Vice President of a facilities management contractor engaged in a long (ish) term, complex, contract with an NHS Trust which included the maintenance of non-medical equipment, cleaning and catering in a major hospital.


After a messy bedding down period the contract begins to stabilise, but the Trust begins to make deductions from your invoices. Some of these are “absurd” (in the words of the High Court Judge Sir Ross Cranston). The Trust is allowed to deduct money if a performance failure occurs, – £5 (Minor), £15 (Medium) and £30 (Major).


The Trust makes many very large deductions, for example £46,000 because a box of out of date tomato ketchup sachets are discovered in a store (they weren’t yours and you don’t know how they got there) , £71,055 because a supervisor has not signed off a cleaning schedule (the Trust made a deduction every day pending the fault being remedied – but this fault can’t be remedied), £25,000 because the temperature readings of refrigerators were not taken on one ward in the afternoons even though that ward isn’t used in the evenings. A similar approach is taken by the Trust on so many issues that around 35% of your annual fee was to be deducted.


Patient satisfaction with your performance is very high and on the basis of your monthly reports you are performing very well. There has been a lot of correspondence between your managers and the Trust, but this has failed to resolve matters and it is clear that the atmosphere is very bad, and people are very frustrated.


You write to your opposite number questioning the calculations, showing that they are far out of line with the contract, saying that the Trust’s attitude and behaviour was demoralising and suggesting a meeting so that the parties could work together and move forward in a more positive manner. Unhelpfully the Trust’s Manager tells you something along the lines that the Trust’s stance is: how much do you want to pay to retain the contract?


Overall the attitude of commercial players is that one should play a long game, search for the root cause, talk, and manage. Termination is deeply unpopular and even minor remedies which make the Trust pay small sums for behaving badly are considered ineffective. Even when furious with bad behaviour (“They don’t give a shit about the contract”) termination is not considered sensible. Many respondents felt that management had failed and indicated a need to recognise this and find a way to restart dialogue:


Regain relationship. Recoup losses later. Have a conversation that recognises I have stepped in late


Others wanted to understand why things had happened:


Is there another agenda?/ Is it about the ketchup (rhetorical)


And in reviewing their options, opinions varied although most still believed that talking things out would be best:


…bend over backwards to support the customer and work through the areas of dispute, but when your head touches the floor it’s time to reconsider the approach. Ultimately I would escalate to CEO, even shareholders and ask them if this is how they expect their company to operate (with a lack of moral fibre) and driven by a lack of values. If they come back and say Yes – get out as quickly and as prudently as you can and then sue them!


One witty soul suggested “I would also suggest to install a CCTV system to find out who is smuggling stale ketchup into my stores”.


My survey respondents were offered the option of reciprocation (“Fight fire with fire. Inflate invoices. Make claims. Record every minor and major problem. Notify the Trust in detail often and aggressively. Make life commercially uncomfortable for them”). Few found the idea attractive; just 6% rating tit-for-tat as their first choice and 12% as their second choice


It was said that it involved “stooping to their level”, would dig “deeper trenches”, or “relationships would sour”. I was surprised at this finding, but it is consistent with the relationship-building, communicate and make-it-work philosophy of those engaged in management of these contracts. Tit-for-tat, the bedrock of Prisoner’s Dilemma games, simply does not figure in the management of these modern complex contracts. It is ditched in favour of pragmatism; a realistic, problem-solving approach to the contract and its difficulties. Those differences reflect the real-world nature of my study and the closeness of respondents to the actuality of managing contracts. Game theory is too simplistic, too often binary in nature, and does not provide the basis for a negotiated and discussed solution to the problem. Parties recognise that they need to gain an understanding of the root cause of the issue, and that they will have to talk at some stage and that to reciprocate may only put that day off. Those who disagree could come along to my lunchtime lecture at the Adult Education Centre on the 18th May at 1230, at 54 Belvoir Street (free and open to all).


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