Smart-Purchasing.com: Best Practices: Checklist

Best Practices: Contracting
Create Rolling Contracts

Traditional	Best Practice
Contract for 3 years; renew or re-bid at that time for another 3 years	Contract for two years with strategic partners. Jointly develop an aggressive, but reasonable improvement plan with specific rate reductions to cover the term of the contract. Evaluate the supplier every three months on how well it is executing the plan. If the supplier has performed well, it earns an additional 3 months of business. Otherwise, the contract length does not extend. Contracts can extend typically to 5 years in length and then are re-bid.

Rationale
Does not allow for supplier complacency. Forces suppliers to constantly work for new business. Allows for long-term contracting with a shorter-term out.
Details
Under contract, buyer can cancel supplier contracts if they have performed poorly in three consecutive evaluation periods

Best Practice | Case Study | Commentary