There are many risks that might apply to contracts but there are also potential values. These can depend upon the nature and value of the contract. For example, a routine gardening contract is unlikely to deliver much in the way of innovation, whereas a major IT contract could deliver significant savings and value. Here are some of the potential values that can be leverage from contracts
Cost reduction: this one should be fairly obvious but well-sourced products or services with contractors who can reduce costs and therefore, prices, without reducing quality can lead to a reduction in costs in the contracting organisation.
A good example is Surrey County Council. They expect to save £10 million by agreeing better deals with its main contractors. The local authority is asking its major contractors, who collectively receive £250 million of the authority’s£680 million annual budget, to “share the pain” of the economic climate and council funding cuts. The council expects its talks with contractors to deliver values of £10 million over 18 months.
Quality improvements: contractors who can supply high-quality goods can help improve the contracting organisation’s operations and potentially, the quality of its own product. If the contractor is able to work to improve quality continually, this effect will be even greater.
Service improvements: contractors that can provide good service help keep the contracting organisation’s operations and (e.g.) product delivery reliable. If the contractor is able to improve service, it could mean that the contracting organisation’s service and delivery would be improved.
Innovation/New Product Development (NPD): contractors who have continual programmes of innovation or NPD can bring the results of these activities to the contracting organisation. This would help the contracting organisation to use such innovations to improve its own product.
Developing New Markets: contractors who can provide some of the aspects of the supply process mentioned above (innovation, quality improvement, etc.) can assist the contracting organisation in the development of new markets for its own products or service because these ‘supply chain improvements’ can, in effect, be passed on.
HSE: contractors who can show that their goods and/or services comply with the latest HSE regulations can help the contracting organisation to keep up with such regulations.