4 Preliminary, cont’d. What constitutes a contract? What types of contract are there?Is a verbal contract binding?When is a contract required?
5 Core Area Questions What is Contract Management? The discipline of managing the contracting process through the entire contract life cycle.
6 What is contract management? Buy Side: managing contracts and relationships with suppliers and vendorsSell Side: managing contracts and relationships with customers, partners and distributorsHR Management: managing HR related contracts and agreementsProject Based Contract Management: managing performance and obligations as part of project management
7 What is contract management? Contract management activities may be classified in various waysUsual to divide in relation to the chronological progression of the contract—from pre-contract to closeout.
8 Why is Contract Management Important? One of the last key business process to be automated with the use of technology.Contracts underpin 80% of business to business transactionsContract management offers new tools to increase control over and efficiency of the procurement process
9 Important, cont’d.Contract management is not intended to increase the extent of bureaucracy to which procurement is subject.Goal is to improve the value for money derived from contracting.Need to move from generalities to specific measures that can be taken to improve efficiency
10 Important, cont’d.How many contracts does your college award each year?What percentage of those contracts are completed, on time, within budget, and according to the original specifications?How much of your day is dedicated to trying to resolve problems after a contract has been awarded, responding to protests, contract controversies, or unhappy customers?
11 Contract management vs. Contract Administration Contract Management is comprised of the entire contracting process, from pre-solicitation activities through contract close-out.Contract Administration is comprised of those activities after the award of a contract.Contract management vs. Contract Administration
12 Aspects of contract management Procurement PlanningEarly involvement/partnering with our internal client departments.Thoroughly understanding the needs of our client.Creating a process that will address those needsConsultation and engagement
13 Aspects, cont’d. Planning Know what questions to ask to ensure that all risks are identified during solicitation preparationKnow the market – or how to research market conditionsKnow the supplier/contractor availability
14 Aspects, cont’d. Planning Know what procurements may be on the horizon to help identify time frame necessary to procureRoutineSpecialized Projects
15 Aspects, cont’d. From Planning to Execution Internal Contract Administration TeamAdequate Specifications (non-restrictive)Contract GoalsPre-Award ActivitiesRisk Identification/Potential Problems
16 Aspects, cont’d. From Planning to Execution, cont’d. Determine Required DocumentationConfirm Suitable Process forMeasuring PerformanceReportingDocumentingPayment ProcessingApproval of Change Orders – Contract Close-OutConfirm who is directly responsible for each of these responsibilities
17 Areas of concernProcurement optionsSpecificationsIdentify Milestones for Measurement Document Payment Terms Develop Contract Close-Out Check List =Confirm that Approach to each is consistent with applicable policies/directivesConduct in accordance with Contract Management ManualStandardization of Approach
18 Evolving a Contract Management Approach Evolution of a ProcessPlanned ProcurementContract Management ManualStandardized Approach to each Class of ProcurementPromotes consistencyCan be refined based on experienceIncremental improvement
19 Key challenges Meeting milestones in terms of time, cost and quality Proactively managing work so variances from the agreed schedules are identified early enough for remedial action to be taken.Identifying, managing and solving the many issues that may need to be addressedCommunicating and demonstrating contract compliance without a lot of extra work.Keeping everyone in the team informed in close to real-time, so everyone remains focused and no time or effort is wasted.Documenting work in terms of effort and progress plus key issues solved.Creating an credible audit trail
21 Efficient Procurement By consistently aligning your purchasing processes with your procurement strategies, while harmonizing your operational procurement activities, you will be able to make more efficient use of the available resources.
22 Efficiency, cont’d.Value for money: amount spent to procure is justified by the quality of the products or services received, and the conditions (e.g. timeliness) under which they were delivered
23 Efficiency Methods to enhance Lowering transaction costs of procurementAchieving best bulk pricing by pooling ordersDelivery timed to coincide with need (reduces cost of warehousing, shrinkage and re-shipment)Contract terms which encourage competitive pricingBidding documents and rules which encourage prospective suppliers to bid
24 Efficiency, cont’d.Public sector agencies are generally large scale customers, they always pay (eventually) for what they get, they rarely sue, and they try to be fairWhy are they not getting the best prices in the market?Why do some of the best suppliers give them a pass?
25 What’s out there?Developing a more active /aggressive approach to identifying available products and suppliersGetting a better understanding of normal market pricing
26 Case Study British Airways £4 billion of purchasing annually (350,000 contracts)Used sourcing technology to close the loop from sourcing to procurementUsed contract management technology to link negotiated agreements with purchasesDeployed technology to automate purchasing of £1 billion in indirect expenditure
27 Case Study, cont’d. British Airways Annual savings of ¢80 million 4X increase in order capacityTransaction costs reduced by 40%Employee productivity increased 48%Reduced suppliers from 14,000 to 2,000Reduced inventory by £200 million
28 Nextance Inc. Study, 2003 Interviewed 100 customer 54% said that simply finding contracts is a concern54% said finding key clauses in their contracts is difficult40% said they could achieve large savings by managing contracts better75% said contractual allocation of risk was a serious concern61% had no idea of the interdependencies of their contracts60% did not track contingent liabilities50% had no procedure in place to identify correct people of emerging risk26% were dissatisfied with process governing risk disclosure
29 AutomationAutomation of the Process produces greatest results over timeNow numerous OTS solutions for implementing a contract management approach
30 Automation, cont’d. Centralized record keeping Original contract documentsContract changesOther important communicationsStandard form contracts for each type of supplyStandard form terms for special types of contract (e.g. IT procurement)Electronic document preparation (by entering key variable data)Tickler systemInvoice and payment monitoringReconciliation of invoices with contract milestones
31 Contract Management Software Novatus ContractsProvides contract lifecycle management softwareContract management, paperless contracting and eSignature. Increase control, visibility and management across the enterprise.Known for ease of use, fast deployment, attractive costs and support.13+yrs providing contract management solutions.
32 Software, cont’d.The core features are generally similar from one program to anotherAgiloftprovides the fastest time to valueImplements an initial a trial system that you can actually use to manage contracts
33 Software, cont’.d Revitas Contract Manager comprehensive contract management software solution for the authoring and administration of contracts, resulting in shorter sales cycles and reduced risk.Single centralized contract repositoryAutomated rule-based workflowsIntegration with Microsoft WordContract milestone management
34 Software, cont’d. Open Source Contract Manager Free trial. alerts, full text search, customizable reports, easy import of any format, document compare (Word to PDF), authoring, approval workflow, configurable, on-demand, contract analysis-makes documents easier to navigate/restrict access rights, full audit,Can go live in only 24 hours
35 Software, cont’d.Over the course of an afternoon, I was able to locate 127 different software solutions for implementing contract management within any organization, from small to large.Fairly competitive market
36 The Contract Lifecycle Contract management concerns must be addressed at each of the stages shown.
37 Goals of contract management Ensure both parties perform as specifiedRight goods and services are delivered in a timely mannerFinancial interests of the customer are protected
38 Goals, cont’d. To carry out this mandate, you require Clearly written, comprehensive and viable specificationsClearly defined scope of workClearly identified deliverablesTestable method of assessing performance
39 Goals, cont’d. Timelines and due dates (milestone dates) Must be clearMust be realisticShould be stated in procurement documentContract should be managed to confirm compliance to project work plan
40 Goals, cont’d. Payment entitlement Needs to be clearly stated Proper balance of interests of supplier and customerPayment trigger should be objectively verifiableAvoid automatic payments (e.g. merely by passage of time)Should be test to satisfyIncentives and penalties
41 Good governance Proper budgetary approval Proper process of consultation with stakeholdersEnsuring all requisite approvals obtainedEnsuring proper signing authorityLicenses or other permissions to proceedE.g. IT or Privacy sign offReview of documents by legal
42 Preparing to Go to Market Clear definition of what is to be provided and all requirements to be metMeans to measure performance: how can the supplier know whether or not it has performed properly?Can amount payable be tied to performance?Incentives and also penaltiesIs allocation of price risk realistic?
43 Preparing, cont’d. Does the project team cover all relevant areas Affected usersPeople with required expertiseAre they committed to providing timely inputDo they have the requisite authority
44 Preparing, cont’d. Provisions governing implementation and roll-out Acceptance testing plan clearly defined, with comprehensible test standardsClear methods and timelines for correcting perceived deficiencies in performance
45 Specifications Clear and complete description of what is required If an RFP, should clearly identify the need to be metPerformance constraintsOperating conditionsUsage requirementsSpecial needs to be addressed
46 Specifications, cont’d. Specifications should communicate set expectations that must be satisfiedThey provide the basis for oversight, management of performance and for application of sanctionsVendor accountability during performanceImmediate notification where not metRemedy immediately identified and implemented
47 Communications A concern from commencement to close-out Need to cover each of the followingPre-bidPost-bid pre-awardOperationalClose-outInvoicing ArrangementsProcessing of payment claims
48 Dispute Resolution Process GraduatedCommencing at lowest levelAdvancing to higher levels in each organization
49 Evaluation Process Qualified evaluators Consistent and rational approachEvaluation tied to specifications and other requirements set out in RFP/TenderProper documentationConflict of interest: perceptions of unfairnessProper understanding of role and responsibilityOne level of evaluation or two?
50 Evaluation Process Bid prices Main consideration is usually whether they are within budgetAn equally important concern is whether they are above market pricesIn the private sector, it is usual for buyers to have an idea of the likely priceWhy is this left to chance in the public sector?If the best bid price is well above market, why award a contract?
51 Contract Award Communicated quickly Do not leave losers hanging on the wireConcluding the final contractSecuring requisite approvals (for instance, threat risk assessments, privacy impact assessments)Securing appropriate signaturesProof of insurance, licences, etc.
52 Start-upIs consultation between customer and supplier required during start-up phaseNeed to arrange process for securingIs initial testing required before commencing workSettling upon delivery schedule, if not specified in RFP or Tender
53 Ongoing DeliveryCommunications: feedback to and from suppliers as to progress being made and any perceived deficienciesNeed someone with authority to effect necessary changes
54 Ongoing, cont’d.Monitoring of delivery to confirm compliance with service levelsProper metrics should have been specified in the contract documentsBut, very often they are not.Note also whether quality control standards are being metMay need some flexibility during early stages.Do not let this flexibility amount to a reduction in expectation.
55 Ongoing, cont’d.Interim payments: ensure matched to supply and quality actually deliveredMonitor the value for money being received
56 Ongoing, cont’d. Ensuring continuity Force majeure Are supplies being made regularly: right amount, right time?Are prices being charged consistent with the bid prices?Force majeureFormal claim and record keptManaging and mitigatingIdentify best way for service/supply to resumeMonitor to determine when it ends
57 Managing RiskIf contract has allocated risks, make sure demands for payment and payments made are consistent with that allocation of risk.How should risks be allocatedRisk identification and avoidanceBest risk managerIn line with the commercial basis of the projectLowest cost insurerSharing of risk
58 Dispute resolution Deal with problems promptly and professionally Is the agreed process being followedForm record of agreed solutionsMonitor performance in accordance with those agreementsYours and theirs.
59 Miscellaneous Contract maintenance Change control Notice periods Ordering procedures (e.g. in case of vendor of record)Payment procedures being followed; timely payments madeProper reports being made (internally and externally)
60 MiscellaneousCommunicationsProper records keptProperly approved?