Could outsourcers benefit from mediation?

It hasn’t been the most successful couple of weeks for Outsourcers.

At one point last week, Interserve’s share price had dropped to 29p, the lowest in over 30 years. Interserve have also been forced by investors to pull out of the consortium heading the expansion of Durham University, as well as being fined for numerous safety blunders at an animal testing site in Weybridge. Allied healthcare has also run into trouble recently, being forced to sell off its remaining contracts to other providers in order to stay afloat. Meanwhile, Capita have come under increasing scrutiny following a critical mishandling of cervical screening tests.

At this point, so fast on the heels of Carillion’s collapse, trust between the outsourcing industry and their clients are at perhaps their lowest ever point.

So how can this trust be won back?

It could be argued that the breakdown in the relationship between outsourcers and the public sector can in large part be put down to both parties negotiating without possessing a comprehensive understanding of each other’s motives and needs, thus leading to contractual and financial difficulties which disrupted the relationship.

Take the case of Carillion. From the government’s perspective, Carillion represented a stable support services partner with a successful track record. PFI contracts were awarded to them on the understanding that they were a financially viable, low-risk partner that could be relied upon to deliver a high-quality service. For Carillion, outsourcing and public sector contracts represented a vital revenue stream and an opportunity to keep their teams and subcontractors busy.

But crucially, these deals were negotiated with little regard for the viability of the long-term business relationships underpinning them. When awarding contracts to bidders, government departments would often prioritise cost over the quality of service and accept bids well below the cost of the service provision itself. For their part, firms such as Carillion and Interserve have spent millions renegotiating on deals where they only maintained either very small or negative margins.
Whilst we could diagnose the problem as one of poor negotiation, could the practice of negotiation itself be at the heart of dysfunctional business relationships?

Negotiation, when performed solely as a settlement or dispute resolution between two parties, can easily result in a zero-sum game, where one party’s needs are often side-lined in favour of the others. In any binary negotiation, the process of starting from an entrenched position and gradually meeting in the middle invariably results with one party gaining the upper hand over the other in the final terms of the settlement. Not only does this strain the trust in the relationship, but the constant need for expensive renegotiations and resettlements as problems arise render it inefficient and unproductive.

When such large contracts, often tied to substantial financial risk, must be enacted, the bidding process could benefit greatly from a mediating neutral third party.

Recently, MyFM enacted the role of facilitator in discussions which had to resolve very similar conflicts to those that have plagued outsourcers, a bidding party seeking to protect their margins and an end-user that prioritised cost. As a neutral broker, the mediating party has knowledge of what each side’s primary needs and requirements are, you have a greater understanding of which cards each side are playing close to their chest and what they will be willing and unwilling to compromise on. Through unique market knowledge, you often understand your client’s desires better than they do.

In this case, mediation allowed us to address the concerns of both sides of the table and find a solution that synthesised the needs of each party without either one compromising on their core requirements from the deal.

Instead of pursuing a price that would eat into the service provider’s margin, we encouraged a settlement in which the end user paid an acceptable price for the service, whilst also encouraging an agreement on price by encouraging more appropriate methods of reducing costs, such as providing a more efficient service.

If it is true that conflict largely arises from misunderstanding, then using mediators, with their clear grasp of respective priorities and ability to identify actions that resolve conflict, presents a scalable, elegant solution to all high-stakes negotiators.

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