Can a Basic Agreement Improve Supplier Relationships and Save Your Agency Money?

Watching the World Series, my colleague John Coombs, CFCM and Fellow, was struck with a baseball analogy to explain the power of the little-used Basic Agreement. He writes: What if Giant Gregor Blanco’s Game-Two bunt trickled to a stop but there was no base line to indicate if the ball stayed fair? How could Blue make the call?

A Basic Agreement is like a Baseball Diamond. It marks off a standard playing field for all participants in the Agreement, improving communications by establishing means and forums for exchange. Use Basic Agreements to document principles for federal supplier relationships including:

  • Cost or savings objectives
  • Minimum performance standards
  • Performance metrics
  • Reporting frequency and format
  • Performance incentives and remedies
  • Alternative dispute resolution
  • Contentious terms and conditions
  • Earned Value Management programs
  • Small business subcontracting goals

What is a Basic Agreement? A Basic Agreement is not a contract. It is a written document negotiated between the government agency and the contractor, that:

1) Establishes a common understanding between the parties;

2) Contains clauses applying to future contracts between the parties;

3) Provides for separate future contracts that incorporate the agreement by reference.

Applying Basic Agreements to Supplier Relationship Management (SRM). A Basic Agreement can define the reward for a homerun on cost savings, or define when quality has drifted foul. A contracting officer’s decisions, akin to the Ump’s calls, become easier because the Basic Agreement documented standards and expectations in advance. A major-league benefit of Basic Agreements is that they can set the conditions for multiple contracts incorporating a common Agreement, allowing for standard reporting, efficiency, trend analysis, fewer disputes, and fewer modifications.

Consider the Government’s ground transportation requirements. Hundreds of vendors bid on over two thousand federal transportation contracts each year. In a highly competitive market with narrow profit margins, the impact of fuel prices on cost is immense. What if a federal agency used a Basic Agreement to establish standard procedures for rate adjustments – both upward and downward – on its transportation contracts based on changes in fuel prices, incorporating this Agreement into applicable transportation contracts across the agency? The savings when fuel prices drop could be immense. Quality and timeliness when fuel prices increase may remain stable if haulers aren’t pressured to cut corners to save costs due to locked-in rates. Overall pricing may be more realistic because vendors would not have to offset fuel cost risk with higher rates.

A Level Playing Field. Using Basic Agreements to establish Supplier Relationships with some firms could be construed as hindering competition, but this is unfounded. First, any firm wanting to compete can sign on to a Basic Agreement. The firm however has to agree to the standard rules, benefitting the Government. The Government gains efficiency, standardization, repeatability, and the vendors gain predictability. The Basic Agreement merely defines the playing field: any vendor can compete for contracts. Consider the World Series: No one attributed the win or the loss to the diamond; regardless of the stadium, the field stayed the same.

Putting the Squeeze on Savings. As Federal program managers and procurement officials look for ways to reap additional savings and efficiencies without sacrificing quality or performance, a Basic Agreement can define a supplier relationship to generate savings without a squeeze play on vendors. If your organization has several contracts with the same vendor, or several vendors providing similar products or services, I developed this quiz for download from the Integrity Knowledge Center to check your agency’s readiness to implement SRM as well as guidance on creating a Basic Agreement.

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Jaime Gracia

The use of Basic Agreements are standard practice for effective management of supplier relations. It is the effective expectations and the ultimate arbiter of the performance on the contract, along with quality plans and ensuring performance and positive outcomes.

This is a standard business practice, and a vital tool in managing the supply chain. Failure to execute, or even create a Basic Agreement, are sure signs of setting up a program for failure.