Many businesses enter into contractual agreements with their suppliers and partners. When it comes to contracts, most organisations typically prefer traditional headcount contracts because they are easier to manage and can be more predictable. However, there is a growing shift towards using outcome-based contracts as part of fair and progressive employment practices in Singapore, and for good reason. They offer many benefits that businesses should not ignore and can offer significant value to companies of all sizes. In this article, SBFSE looks at what outcome-based contracts are and why they matter. By the end of this post, you will understand the benefits of using them in your business dealings.
What Are Outcome-Based Contracts?
Before exploring the advantages that outcome-based contracts bring to the table, it is first necessary to understand what they are. In SBFSE’s recent Estates and Facilities Management (EFM) Lighthouse Project, outcome-based contracts are defined as the specification of contractual requirements in terms of measurable performance metrics such as value-based outcomes, operational parameters and quality standards. While this can be a great way to ensure that both parties are held accountable, it is important to make sure that the contract terms are clear and achievable.
The Benefits Of Outcome-Based Contracts
As more and more businesses move towards outcome-based contracts, it’s important to understand how they can benefit your company. Outcome-based contracts are agreements where the payment is based on the results achieved, leading to a closer correlation between contract costs and service quality.
There are many benefits to using outcome-based contracts, including greater innovation from service providers, better responsiveness to customer’s needs, and a stronger alignment of goals between the provider and customer. Service providers are also much more motivated to excel as the reward is tied to the outcome, leading to greater efficiency and a reduced risk of disputes between customers and service providers. But there are 2 key points that make outcome-based contracts so appealing to service buyers and service providers alike.
1. Added Flexibility
In outcome-based contracts, service providers will be granted the autonomy to determine how they deliver what businesses have requested for. This translates to having the freedom to choose to hire added help or redistribute the budget as they see fit to best achieve the outcomes set out in the contract. Through the EFM Lighthouse project, service buyers such as CapitaLand who opted for an outcome-based contract also observed that with increased flexibility for service providers to operate, they spent reduced time and effort monitoring service providers compared to traditional prescriptive contracts. Ultimately, because outcome-based contracts are less prescriptive, they encourage greater innovation and efficiency through increased flexibility.
2. Reduction Of Costs
When it comes to costs, utilising outcome-based contracts are not just a fair and progressive employment practice but offers a win-win situation that is advantageous for both parties. Service buyers will not have to shell out funds for an unsatisfactory outcome while service providers will be incentivised to leverage cost-effective solutions to maximise their earnings and profits.
If your business is looking to implement fair and progressive employment practices or searching for a more cost-effective and efficient way of doing business, then outcome-based contracts are definitely worth considering. With so many benefits, it’s easy to see why this model is becoming increasingly popular. To learn more about outcome-based contracts such as the best practices to craft such contracts, head to our Lighthouse Project report page.
Make A Pledge To Fair And Progressive Employment Practices
The Singapore Business Federation Sustainable Employment (SE) initiative calls on the Singapore business community to take purposeful action to improve their SE practices in anticipation of emergent trends and future developments. Singapore Business Federation launched this initiative with a report that highlights key recommendations and potential opportunities for businesses to take on to achieve long-term business success and foster a vibrant economy and inclusive society.
Make the pledge to join others in this journey to implement fair and progressive employment practices in Singapore.