We have entered a new era of business management, with corporate budgets coming under a level of scrutiny unlike any time before. This has resulted in companies more closely examining and managing their third-party, external relationships.

One of the many relationships that come under this watchful eye is that between an organization and its vendors. But rather than approaching this as a "glass half empty" scenario, both parties — the organization's vendor manager and the vendor itself — should view this as an opportunity to improve their partnership in a way that will lead to a more effective relationship today and greater success in the future.

Due to greater public scrutiny and government oversight, government budgets today are required to have more transparency than in the past. Contract terms need to be clear and understandable to ensure that both the provider of services and the vendor manager can easily resolve any issues.

The average outsourcing contract may range from three to 10 years, a timeframe that may span the course of several economic and business cycles. As the business and the economy change, there are opportunities to revisit these contracts, renegotiate terms and restructure where necessary. For example, changes to the number of employees, changes to business models or a reorganization can result in contract terms being outdated. It is imperative the right person be assigned to examine and manage these agreements.

It takes a unique individual with a varied skill set to effectively manage vendor relationships. Oftentimes this employee is a technical or subject-matter expert in the area with which the vendor will be assisting, but he also needs to be aware of the complexities associated with federal contracts. This requires competencies in the financial aspects of the agreement, the ability to put proper controls in place for risk mitigation, an understanding of effective metrics to measure performance and experience in negotiating and resolving issues that may arise.

So what are the things to focus on when reassessing existing contracts? To keep the relationship efficient and to minimize risks, there are a few core activities that should be accomplished by the employee assigned to manage the relationship.

• From the start to the finish of the relationship, meet with your vendors in person. Face-to-face meetings create a collaborative process and help keep the business running smoothly.

• Work with the vendor to formalize a comprehensive governance strategy. This should include a formalized process for issue resolution in the terms and conditions of the final agreement.

• Clearly establish criteria for service quality. A service-level agreement should be established within the contract that includes metrics that track the performance of the vendor. Every metric must be managed through the use of timely data and dates of review. Without this, it will be difficult to determine how successful the relationship was for both parties.

• Manage payments. Fee calculations in many outsourcing contracts are complex, and regular reviews will help identify any discrepancies — as well as help keep the focus on the project at hand, not disagreements with the finance department.

Vendor governance is a challenge in any environment, but the added complexity of federal outsourcing requires all parties to put their best foot forward when finalizing the terms of their agreement. The attention given to spending has necessitated an increase of due diligence with service providers and demands effective and efficient delivery from vendors.

In the end, always remember to manage the relationship firmly, but fairly and on a positive note, as the relationship should be considered a success for all parties involved. å

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Jeff Brown leads Ernst & Young LLP's Human Resource Operational Improvement program within the company's Human Capital practice. The views expressed are his alone.