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The CATS contract life cycle can be schematically represented as follows:

Figure 4.1 The CATS contract life cycle

Every contract has a life cycle consisting of multiple phases. The CATS CLC as depicted in figure 4.1 distinguishes six phases that run almost parallel for both the supplier and the client. The phases for the supplier can’t be executed without the phases of the client, and vice versa. The interaction between the two is essential. Above the line in figure 4.1 are the phases the client has to go through, and we see the supplier’s corresponding phases below the line.

It is important to note that this diagram shows the phases and their order, and not a timetable. Complex contracts with a duration of several years often include a proposal, negotiation and contracting phase that, combined, can take from six months to a year.

Phase 1 – Determining business needs / Compiling a product and services portfolio

For the client, the CATS CLC starts with specifying the need: what is the business need and what are the client’s corresponding requirements? Suppliers play a very active role in this by presenting the client with options, thus creating or shaping client demands. For each need, the client determines whether they want to fill the need themselves or outsource it to a supplier. The organization makes this strategic decision for all or some types of contracts. When no broader, strategic decision has been made to outsource, the organization will make this make-or-buy decision for each individual contract.

For the supplier, the CATS CLC starts with compiling the products and services portfolio. In most cases, this is based on a strategic decision about which products or services the organization wants to provide. The supplier may also decide to develop a specific product or service at a contract level, (frequently) together with the client, in order to meet the client’s demand.

Public tenders

When market consultations are part of a public tender or bidding process, they will take place during this phase.

Phase 2 – Proposal

For the client, the proposal phase consists of drawing up the bid request, also called a request for proposal (RFP), and asking multiple suppliers to respond to this request. The proposals received can then be assessed and certain proposal elements can be verified. If there are any ambiguities, the client asks the supplier for clarification. At the end of this phase, a selection is made of the most suitable proposals and the client decides with which supplier(s) it wants to enter the negotiation phase.

For the supplier, the proposal phase starts with assessing the request for proposal and making a calculated decision whether or not they want to make a bid. The supplier decides whether or not to make a proposal. The supplier answers the client’s questions, gives further explanations in the form of presentations, or allows the client to verify certain elements in the proposal. When the proposal has been sent to the client, the supplier will ultimately receive notification regarding whether or not the client wants to start the negotiation phase.

Public tenders

Inviting the market to respond to the request is done in this phase. All the supplier’s initial reactions to the invitation are part of this phase.

Phase 3 – Negotiation

This phase is optional. A client can sign a proposal, thereby turning the proposal with the accompanying documents into the contract. However, because this generally doesn’t happen, the negotiation phase is explained separately. Negotiations are carried out with the suppliers that remain on the list after the proposal phase. The third phase of the CATS CLC concerns these negotiations. This phase can take any form for contracts that are not regulated by public tender procedures and rules, which means that the proposal can be adjusted until an agreement is reached.

The negotiation phase ends when the party with whom the client wants to make the contract is chosen and when a final version of the contract, on which both parties agree, is prepared.

Public tenders

In the CATS CLC, the usual question and answer rounds for public tenders, and any inspection of items, are part of the negotiation phase. The negotiation phase ends with the client’s definitive choice of supplier: the awarding of the contract.

Phase 4 – Contract signing

This phase of the CATS CLC is very short. It is the phase in which the actual signing of the contract, the formalization of the agreements, takes place. When the contract signing phase is complete, the execution (or performance) of the contract can begin.

Public tenders

For public tenders, this phase is similar to what is described above, although there is a distinctive provisional and final awarding of the contract. Another aspect that must be noted is that public tenders offer no, or hardly any, room to change the previously established tender request and other contractual agreements, barring administrative matters.

Phase 5 – Contract execution

The CATS CLC contract execution phase is determined by the start date and deadline or date of termination stipulated in the contract. This phase runs entirely parallel for both the supplier and the client.

The nature of the WTBD determines the subdivision of the execution phase into possible subphases. Some contracts include an execution phase that consists of a repetitive series of orders, followed by as many receipts, such as contracts for on-demand orders from a catalog or the hiring of temporary external staff on an hourly basis. Apart from that, some contracts require the provision of a service during the execution phase, for example, based on service level agreements - SLAs. With these contracts, the execution phase starts with structuring the service. During this process, assets, personnel, responsibilities, and mandates may be transferred from the client to the supplier. The structuring of service provision is an important part of every outsourcing contract, whether it concerns IT, business processes, facility management, or DBFMO¹-contracts for the government. The use starts after (or during) the structuring of the service, as the supplier will now have all the available resources to provide the services.

In the course of the contract, the client’s needs or the supplier’s delivery options can change. Consequently, the agreements established in the contract may have to be changed to realize this. Every contract normally includes an article that indicates how such changes will be handled.

Some contracts also offer the option for renewal or extension. Deciding whether or not an extension is desirable can be laborious, complicated, and require a long lead time. One reason to extend might involve the possibility of negotiating contract changes, such as adjusting the service level, the payment terms, or the way reports are generated. If the client decides to extend the contract, and the service level is adjusted at certain points, a new service provision structure will have to be created. If the client decides not to extend the contract, the current contract will start a service provision phase-out process. Please note, if the WTBD is still required and the client doesn’t have the intention of fulfilling the need in-house, a new contract life cycle will be started with, possibly, a different supplier during the execution phase. The phase-out is likely to coincide with the structuring of the service by another supplier in a new contract. In that case, elements such as: assets, personnel, responsibilities, and mandates are often transferred from one supplier to another.

Public tenders

In principle, this phase is the same for public tenders and normal supply and demand situations. However, the complexity and processing time when there is an obligation for a public tender may result in agreeing on a longer contract duration and, consequently, a longer execution phase then when there is no obligation to issue a public tender. One thing that should be noted is that organizations required to issue a public tender generally have very limited options for contract adjustments compared to organizations without this obligation. Fundamental contract adjustments, such as increasing volumes above a certain level, are not possible. Furthermore, the contract cannot be renewed more often than agreed in the contract.

Phase 6 – Termination and evaluation

This is the phase after the delivery term of the WTBD has ended and the contract managers on both sides start to finalize the other agreements. This finalization process takes place both within their own organization and the contracting organization as far as it concerns the agreements made with the other party. The termination phase will be complete when there are no more obligations regarding performance or compensation. In other words: when everything has been delivered and invoiced, or when this is not the case, an agreement has been reached regarding how to handle these situations.