Circular contracting

Once the project has been awarded, the agreements must be converted into a contract. This contract formalises the relationship that was initiated in the procurement project. In this stage, too, you must take mutual confidence and cooperation as your starting point. What do you need to agree on to guarantee the functionality of the products supplied and to produce the circular achievements?

Involve a legal expert early on in your procurement process. Share your ideas and ambitions underlying the procurement with this expert, as well as the principles of cooperation you apply within the procurement project. Next, determine how to describe this concisely in a contract that is based on mutual confidence between parties.

Long contract periods

Entering into a long-term contract projects confidence - you are committing to work with the selected supplier for a long time. A long-term contract enables the supplier to make investments with a longer payback period, for instance investments in quality. This is often beneficial to the circular performance in a contract. It is important to realise that the maximum duration of a framework contract (4 years) can be extended if a well-founded justification is provided. Producing circular achievements could be used as justification.

KPIs relating to circularity

To ensure circular achievements, it can be useful to link these achievements to KPIs (Key Performance Indicators) in the contract. You may also want to include a growth model that will give the supplier an incentive to improve performance during the contract period. Examples of KPIs include the environmental impact of the production of materials, the amount of recycled content or the reduction in the number of products.

Be careful not to offer perverse incentives, such as two KPIs that counteract each other. An example might be a guaranteed maintenance-free period (during which the product must function) and reuse of existing products (that may require more maintenance). You can also link the remuneration structure to the ability to meet KPIs.

Contract management

Once the contract has been concluded, the relationship between client and supplier truly begins. The client's contract manager has an important role to play here. Involve the contract manager early in the process, enabling him to familiarise himself with the ambitions formulated in the tender and with the proposal submitted by the market party. Ask the contract manager to continue to liaise closely with the market party once the contract has been awarded, to ensure that your ambitions will be translated into reality. This requires a flexible attitude when making agreements, as you cannot oversee the full implications when the contract is awarded.

Tips

  • At an early stage of your procurement process, involve a legal expert who understands the ideas and ambitions underlying the procurement project.
  • Involve the contract manager early on in your procurement process to ensure that circular achievements match his interests (for example: product does not fail).
  • Formulate the contract in functional terms as much as possible and use mutual confidence as your starting point.
  • Include KPIs in the contract that safeguard circular achievements.
  • Conclude a long-term contract, allowing market players to invest in the achievement of circular ambitions.

Inspiring examples

Background information

Suggestions and/or additions?