Procurement professionals are changing the way many services are purchased in Australia. Road transport services are no exception. Traditionally, road transport providers offered their services on terms they dictated. Unsurprisingly, those terms heavily favoured the transport provider. That model assisted to minimise transport costs.
In recent years, more and more users of road transport services have pushed back against that model. While cost remains important, other factors have increased in significance.
There can be no doubt that safety is a critical factor in purchasing decisions. Sometimes these changes have been accelerated by legislation. For instance, there is a statutory requirement that each party in the supply chain for a heavy vehicle must ensure, so far as is reasonably practicable, the safety of the party’s transport activities relating to the vehicle. This statutory requirement is often reflected in road transport service agreements.
However, procurement professionals are increasingly upping the ante in areas such as sustainability. Road transport users are often looking to their service providers to continuously improve the sustainability of the services they are providing.
Many road transport providers are already responding to the environmental and sustainability challenges they face. As road transport users continue to push for greener transport solutions through their service agreements, we consider there will be greater pressure on road transport providers to improve their sustainability and environmental performance. Performance standards and metrics can be built into service agreements.
This focus on sustainability may have an impact before and throughout the term of any contract.
During contract negotiations, road transport providers may be required to provide evidence of their environment and sustainability management, including evidence of appropriate policies, performance objectives, management systems, procedures and reporting practices.
Throughout the life of the contract, road transport providers may be required to report on key environmental and sustainability performance indicators.
It follows that road transport users may track how environmental and sustainability issues are being managed by their transport suppliers. Where performance does not meet contractual requirements, consequences may flow.
As procurement professionals increasingly use their purchasing power to make sustainable purchasing decisions, and take steps to measure and monitor supplier performance, it is important that contractual obligations be appropriately tailored to reflect the expectations and abilities of the parties. Such tailored agreements may reduce the risk of disputes throughout the life of the contract, while also encouraging improved environmental and sustainability performance.
As the greening of the road transport supply chain increasingly becomes a contractual imperative, tailored agreements and performance standards may assist all parties to meet their contractual obligations.
This article was written by Joe Hurley, Partner and Kristin Hibbard, Senior Associate.