Case study: Buying a result or number of people?

A large hotel and casino complex outsourced its cleaning and maintenance services. The contract specified a minimum number of staff that must be deployed each day on cleaning duties. Over time, new technology and cleaning materials enabled the supplier to perform these duties with 25 percent fewer staff.

One day, the head of procurement received a call from the hotel's operations manager, demanding that payment should be withheld from the supplier, on the basis that the supplier was failing to send the specified number of staff and was therefore not in compliance with the contract.

On questioning, the operations manager acknowledged that the quality of cleaning was entirely satisfactory and in accordance with service level standards. As negotiated, the contract had offered no incentive for open discussion and sharing benefits from innovation.

Case Study Questions 1. What is the problem? 2. What are the factors that led to the problem? 3. What is your recommended solution for the head of procurement?