An interesting study in the Journal of Empirical Research on Human Research Ethics confirms a growing body of work showing that people care more about procedural fairness than distributive fairness.
How does this apply to vendor management? It may mean that a buyer or vendor who is getting less than they expected won't react provided they perceive as fair and equitable the process for distributing the rewards. Thus, an outsourcing relationship can remain strong even when circumstances begin to favour one party provided the mechanism for redressing imbalance is perceived as fair.
I've prepared two diagrams below that attempt to capture this relationship. The first diagram shows an outsourcing contract with a high degree of procedural fairness (clear, reasonable processes defining when and how to make changes to the relationship). The curved line shows the fluctuation in the distributive fairness (equity of effort to reward) as time passes. When the line moves closer to the top of the box representing procedural fairness (buyer line) it indicates that the buyer is putting in more effort for less reward than they expected at the outset. Note that in the diagram below the curved line does not cross either horizontal line which indicates that despite the fluctuating equity neither party reacts to the fluctuations.
The second diagram shows a relationship with a low degree of procedural fairness. Note that the inequity in the relationship fluctuates to the same extent as in the first diagram but results in two reactions from the buyer and one reactions from the vendor (a reaction occurs where the inequity crosses the top or the bottom of the procedural fairness box). In this relationship, the reduction in procedural fairness has resulted in reactions that would not have occurred in the above relationship. Note that reactions to inequity can occur in many forms ranging from litigation to underservicing.
The lesson for contract drafters is to spend time on the processes you are implementing for dealing with change throughout the life of the contract.
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Hudgeon, Can you explain this a bit more in detail with some examples.
Hi Senthil. Lately, I’ve been thinking about how to categorise the different ways of drafting procedural fairness into contracts. Over the next few weeks I’ll post my results with some examples.
Since April 19, 2006, a lot of weeks have passed by, not only a few ones!!!