Gainshare Payment Structure

Gainshare or contingency based payment is a method of procuring the services of a specialist or consultant to perform a service or undertake a specific project with minimal financial impact. The client does not pay for the service in the “normal” manner but agrees to pay the service provider a percentage of the benefit gained from the outcome.

In procurement circles, gainshare or contingency is generally associated with outsourced services (i.e. construction, contracted services, Infrastructure installation etc) or sourcing projects where there is a clear path to financial improvement sufficient to reimburse the service provider whilst maintaining a strong level of value internally.

Working with specialists within a gainshare arrangement can have great benefit for the client including:

Guaranteed return on Investment (ROI)

Regarding sourcing projects, the client is only paying for the service provided as a percentage of the benefit the service provides, there is no requirement for the client to agree to a payment level without an understanding of the full level of benefit achievable.

Gainshare arrangements for outsourced requirements work slightly differently and are generally referred to as “gain share, pain share” agreements. In this type of relationship, the client and provider agree a budget cost at the beginning of the project payable to the supplier at the end of the project, at key milestones or at regular intervals for ongoing services, with a percentage contingency. This contingency agrees that in the event that the project completes under the agreed budget, then both parties will share the benefit “gain”.

However, if the project completes over budget and providing the overspend is not directly attributable to one parties’ actions i.e. change in client requirement, mis-management by the supplier etc, then the contingency overspend will be shared between both parties “pain”.

Transfer of Risk

The use of Gainshare contracts helps to address the potential unevenness inherent in most service and project-based arrangements. Normally in a fee for service-based contract, the client agrees a “fee” with the provider before any work has begun. Once agreed, the client is contractually bound to pay this fee in its entirety without any understanding on the benefit to their business.

With a gainshare model, the risk of no return is balanced more between both parties, with greater emphasis on the service provider to achieve the proposed benefits the contract was sold for.

The potential pitfall of this arrangement is that the service provider will be focused on achieving the agreed targets in deference to other potential benefits, which may not provide the same level of tangible (and chargeable) benefits but provide a better solution for the client.

How SCB Procurement Solutions Support Gainshare

SCB Procurement actively promote the use of gainshare or contingency agreements as we feel it is a relatively simple method of ensuring our clients achieve a realistic and tangible return on their investment.

When costing a potential project for a client, we always look to maximise the clients return on investment, gainshare provides our clients with a guaranteed ROI with no requirement to pay for services before the benefit has materialised.

As an advocate of small business growth, at SCB Procurement Solutions, we pride ourselves on always putting your individual client’s business needs first. We consistently look for the best solution for you, even if it means at our cost, we would prefer to sacrifice profit in pursuit of our clients grow and development.

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