Assuring Performance
When contracting for services, it is important for service providers and clients to understand and agree upon how performance will be assured, including what remedies and/or penalties might exist should a breach of contract occur. Performance assurance is important to all parties as it extends to what is expected from each of the parties in terms of supplying, paying and receiving, performing and/or administering services, and in return, there should be what reasonable expectations are for performance.
Performance assurance can be accomplished through certain precautions and conditions for satisfactory service, such as inspection and testing, warranties, insurance and/or other means of compensation. It is also important to take all reasonable precautions to ensure that the contract performance is satisfactory, and that the services will have a satisfactory outcome. This can involve the use of reasonable measures to reduce the risk of unsatisfactory service, including the provision of materials, equipment, and/or personnel as well as the use of correct methods and techniques.
On the other hand, events that are outside of the scope or control of both the service provider and client should also be taken into consideration when considering performance assurance. These events might include acts of God and/or other occurrences that are outside of the control of the parties. In cases such as these, it might be necessary to use a form of contract to modify or exclude the service provider and/or the client from liability.
Once performance assurance has been established and agreed upon, further steps can be taken to ensure that service and performance is duly secured. In addition to the use of contractual provisions, such as those previously described, the parties can also mutually agree to joint monitoring. Joint monitoring involves both parties overseeing and monitoring progress of services, and is generally helpful in ensuring the timely completion of services.
Performance may also be secured through the use of third-party agreements. Such agreements provide for the use of independent third-party services and/or supervisors to monitor performance and to provide a form of dispute resolution should the parties be unable to reach an acceptable resolution on their own. These agreements are typically very useful in quickly resolving disputes that arise out of service contracts, and in providing the necessary assurances and security for both the service provider and the client.
Finally, performance assurance also involves ensuring payment for services. Payment terms should be clearly stated in the contract, and may be based upon performance, delivery which of the services provided, or upon the completion of services. In cases where performance or delivery is difficult or impossible to monitor or assess, it is important to include provisions for periodic payments, such as on a monthly or quarterly basis. Payment terms should also be based upon a reasonable rate agreed upon by both parties.
All of these methods of performance assurance are interchangeable and should be used to the extent that is necessary and appropriate for the particular service being provided. It is important to remember that performance assurance should be tailored to the service being provided, and should also ensure that there is an equitable balance of risks and rewards between the service provider and client. Ultimately, an agreement that adequately captures and addresses the requirements for performance assurance helps to ensure that services are performed in a manner that is satisfactory and in a way that meets the expectations of both the parties.
