Supplier underperformance at Calden Insurance
A mid-sized insurer outsources infrastructure and application maintenance to a single supplier under a three-year contract worth €5 million a year. The service level agreement promises 99.9% availability and four-hour resolution for priority-one incidents. Over the past six months there have been four major outages, average resolution was 14 hours, and user satisfaction has fallen by 20 points. The supplier argues that the incidents stem from poorly specified changes requested by the insurer's business units and that the contract's scope never covered the new digital portal. The insurer's business information manager has documented 60 change requests in the same period, many with incomplete specifications. The board wants to invoke penalty clauses and 'hold someone accountable'. The contract has a penalty cap of 5% of annual fees and a renegotiation window in three months. The BIM manager must recommend a course of action.
1. Which BiSL process should own this issue, and what analysis is needed before responding to the board?
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Connect management should own the issue, because it concerns the relationship, agreements and performance of the external supplier. It works with change management, functionality management and financial management.
Before responding, the BIM manager needs a fact base: incident records with timestamps and root causes, the volume and quality of the 60 change requests, whether specifications were complete when submitted, contract scope including the digital portal, and the supplier's own performance reports. The key question is causation. If most priority-one incidents trace back to poorly specified changes or to business units bypassing change management, penalties will punish the supplier for a demand-side problem and damage the relationship before renegotiation. If the supplier missed agreed resolution times on well-specified work, the performance issue is real. The analysis should separate the two, quantify each, and present a balanced picture to the board rather than a blame narrative.
2. How should the BIM manager handle the board's demand to invoke penalties and 'hold someone accountable'?
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Acknowledge the demand, then test whether penalties achieve what the board actually wants: reliable service. Penalties are capped at 5% of annual fees, so the financial lever is modest; the bigger risk is a defensive supplier that diverts effort to contract interpretation. Advise the board to use the renegotiation window as the main instrument.
Propose a short remediation plan with measurable targets: resolution times, root-cause reporting, change quality and user satisfaction. Link penalties to failure to improve, not to past incidents alone. On accountability, be precise: name the internal causes too, such as incomplete change requests and business units bypassing the process, because a one-sided story will not survive the first review. The BIM manager should also check whether the insurer has the internal capability to specify and oversee the work; if not, part of the problem is a capability gap, not a supplier failure. This is uncomfortable advice, but it is the advice that protects the board's position in three months' time.
3. What changes to internal BiSL processes would reduce the chance of recurrence?
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Four changes follow from the facts.
- Change management should enforce a minimum specification standard before a request reaches the supplier; incomplete requests are returned, not forwarded.
- Functionality management should provide business impact and acceptance criteria, so the supplier is not asked to guess what 'working' means.
- Demand management should bundle and prioritise requests across business units, because 60 changes in six months suggests uncoordinated demand rather than a single supplier problem.
- Connect management should run a monthly service review using a balanced scorecard of supplier performance and internal performance, and should review the service catalogue and SLA at renegotiation to reflect the digital portal.
In addition, financial management should track the cost of poor specification, including rework and overtime, so the board sees that quality upstream is cheaper than penalties downstream. These measures address the demand side, which the board's blame narrative currently ignores.