As you have certainly read in the news, Belgium is embroiled in a turmoil regarding a possible shortage of electricity this winter. A couple of years ago, thanks to privatizations reforms the government decided to put partially in the hands of the private sector a key strategic element of its economy: electricity production. The situation is today that 6 out of 7 nuclear power plants producing electricity for the Belgian people are now stopped due to recent findings of concrete degradations and other repetitive incidents in the last couple of months. Government fears shortage this winter to come while prices are certainly guaranteed to reach sky high values as Belgium will need to import electricity from its French and German neighbours.
But why am I writing about this topic you may think?At the end this blog concerns contract and commercial management, you may ask?
Well, the point that I want to make, is that this issue can be nailed down to a simple thing: lack of contract management!
At the end of the day, whether it is for an IT services outsourcing contract or for the production of electricity, it looks to me like there is a lack of simple discipline in following up with a key supplier, one producing electricity for a nation in this case being even more strategic.
Let’s be clear, I have never seen the contract between the Belgian state and Engie-Electrabel, but I have no doubt that it has certainly been written by experts who have foreseenall possible clauses allowing the customer to monitor the performance and the deliverables of the provider.
Probably there exist a plethora of provisions allowing good financial and performance management, so that government could ensure that he is paying for the service at the correct price, even if this includes making sure that the concrete of the reactors is maintained on time.
But a good contract is not sufficient, as in this case we can see, it also requires constant communication, follow-up inspections, and joint actions towards defects. This best practice and its underlying processes can be grouped in what we call vendor relationship management. It encompasses the activities that make sure, during the life of a contract, that parties get together and jointly recognize and work towards a solution addressing the day to day needs of the services. Normally this is a joint responsibility, however in this case the Belgian state has a vested interest that this is executed: has it happened, did the Belgian authorities enforce these practices? We can certainly ask the question.
In a recent public declaration the Belgian prime minister expressed its anger and disappointment at how this state supplier dealt with the situation of the nuclear power-plants and made it clear that he expects Engie-Electrabel to absorb the price increases of the electricity. While this is certainly nice to hear, especially when we are only a couple of days before municipal elections in Belgium, it is unlikely that this will happen in reality, and at the end of the day the Belgian consumers will have to pay a higher energy bill and this may be down in part to lack of good governance and applying of simple, yet efficient, good practices of contract and vendor management.
Please feel free to let me know your thoughts
Good practices in contract and vendor management are our north star at Unego. Every day we advise our customers on how to avoid the typical pitfalls encountered in complex service contracts. We preach about good contract, performance, financial, risk and vendor relationship management and have developed processes and methods that have proven to be efficient in maximizing your contractual expectations while minimize the risks associated with your key suppliers. We do this using a clever combination of technology, automation, artificial intelligence coupled with pragmatic human expertize.
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