Contract Management. By Xavier Darmstaedter

Transcription

1 Contract Management By Xavier Darmstaedter Managing Partner, DACOTA Consulting IACCM, Lead Contact for Belgium & Luxembourg Judicial Expert in IT & telecom Judicial Mediator in civil & commercial matters A series of 7 sessions organised for ABCAL Session 1 Introduction - 19 March

2 Contract Management What do you think it means? Contract Management Please give your definition now. 2

3 Contract Management What does it mean? Contract Management is the process by which the parties execute their respective commitments in an effective manner, in order to reach the agreed business and operational objectives, more specifically to realise the expected Value for Money covers the lifecycle of a contract (the contractual process), as well as the management of the contracts from a content and a process-oriented standpoint (the management processes) : the contractual process starts with the definition of a contract (services or products, means or result-oriented, etc.), and includes the contract creation, negotiation, follow-up in all possible life events, until its extension and finally its termination the management processes include among others the management of commitments and risks, the follow-up of contractual dates and periods, the governance and compliance, the reporting to management, the management of supplier relationships. 3

4 Introduction 1 Contrats 2 SLA 3 Service Level Agreements 4 Avant signature Mode opératoire Après signature 5 Risques 6 Votre projet CLM 7 La gestion des contrats - en 7 sessions 4

5 Session 1 - Introduction Why Contract management? 5

6 Introduction Why Contract management? Contract Management Introduction (1) In most products (but also services), the purchased part is steadily increasing, amounting to 50 à 70% of the total cost of a product. In addition, an increasing number of functions and tasks are subcontracted. This implies not only a transfer of parts of the production and management processes but also a transfer of risks, to uncontrolled third parties. Conclusion : we need a new type of management! You do not manage subcontractors and partners (often resultorientation) like you manage workers and employees (meansorientation). The Challenge : How do you manage contracts, commitments, projects, risks better than the competition and still make a profit? 6

7 Introduction Why Contract management? Contract Management Introduction (2) If we are purchasing so much from our suppliers and subcontractors, we are probably in a similar position to our customers. In this meshed network, we are not only holding our suppliers liable, but, as a supplier, we are also liable towards our customers. So it is a chain of commitments and risks where every link has to be carefully monitored and where quick intervention is essential. Conclusions We need to set up a link between purchasing and marketing&sales. We need to exchange the experience of purchasers with that of marketing. The Challenge : How do you take advantage of this meshed network to increase your added-value in a better way than the competition and a better profit? 7

8 Introduction Why Contract management? Contract Management Introduction (3) Results of a recent inquiry at 100+ Global 2000 enterprises (90% US 10% Europe) : the mere fact to find contracts is a major concern (>80%) they are incapable to analyse their contracts per supplier, client, product or service line (>50%) they could achieve substantial gains through a better contract management (40%) they could achieve a much higher revenue with a better management of their sales contracts (31%) they have no idea of the interdepencies of their contracts (>60%) they do not (or rarely) follow through the by-letters (66%) they do not apply their conditional commitments (60%) they have no procedure to alert the management when a risk situation occurs (>50%) they are unsatisfied of the level of information on risks in their financial reporting (26%) 8

9 Introduction Why Contract management? Contract Management Introduction (4) Consequences Every year, the enterprises lose billions, because of Loss of contracts Discounts not applied Inefficient processes Inadequate contractual provisions Contracts make or break your business 9

10 Introduction Why Contract management? Contract Management Introduction (5) The Procurement Contract Management affects the performance of the enterprise : it is a balance between Innovation Risk Management Time To Market 10 Source : Gartner

11 Introduction Why Contract management? Contract Management Introduction (6) How did we come there? Globalization Deregulation Increased Competition Buyer Power + = Increased Legislation Contract Personalization 11 Source : Gartner

12 Introduction Why Contract management? Contract Management Introduction (7) The very role of contracts has evolved : they are ever more difficult to manage because more numerous more complex more interdependent It is essential to better recognise and assess the risks connected to contracts, and to make them more visible : regulatory risks (Sarbanes-Oxley) hidden operational risks non-conformity risks resulting in sanctions/penalties Considerable amounts are wasted in renewal without checking termination without checking loss of revenue due to non-renewal of sales contracts flagrant inefficiencies in the process Your company reputation is at stake! 12

13 Introduction Why Contract management? Contract Management Introduction (8) Organisations which do not manage their contracts effectively will be at a tremendous competitive disadvantage (Tim Cummins, CEO of IACCM) 10 Risks pertaining to a bad management of contracts 1. Contracts where critical elements are found missing 2. Loss of contractual files/documents 3. Non-respect of due dates or contractual commitments 4. Under-invoicing 5. Over-invoicing 6. Loss of time and productivity 7. Bad management of the impact of external events or regulations 8. Competitive disadvantage 9. Loss of client confidence 10. Loss of essential knowledge upon employee leave 13

14 Introduction Why Contract management? Contract Management Operational Criteria (9) Operations The enterprise must respect the agreed price levels The enterprise must respect (improve) the agreed service levels The enterprise must ensure (control) that its collaborators properly apply the rules and instructions in order to minimize costs and risks Suppliers To minimize procurement costs and risks, the enterprise must follow and control the risks and service levels of its contracts Regulations Conformity with all regulations and laws Example : SOX (US Sarbanes-Oxley Act) 14

15 Introduction Why Contract management? Contract Management Language test What is the meaning of the word Material? What is the contrary of Material (1 word)? 15

16 Introduction Why Contract management? Contract Management SOX (10) Extract of the Sarbanes-Oxley Act of 2002 Section 401(a): Disclosures In Periodic Reports; Disclosures Required. Each financial report that is required to be prepared in accordance with GAAP shall "reflect all material correcting adjustments... that have been identified by a registered accounting firm...." "Each annual and quarterly financial report... shall disclose all material offbalance sheet transactions" and "other relationships" with "unconsolidated entities" that may have a material current or future effect on the financial condition of the issuer. The SEC shall issue rules providing that pro forma financial information must be presented so as not to "contain an untrue statement" or omit to state a material fact necessary in order to make the pro forma financial information not misleading. Section 409: Real Time Disclosure. Issuers must disclose information on material changes in the financial condition or operations of the issuer on a rapid and current basis. 16

17 Introduction Why Contract management? Contract Management SOX (11) Companies also need a CLM approach to comply with SOX 404: Controls 401 (a): Aggregate Contractual Arrangements 409: Real-Time Disclosure Contract Process Management and Auditability Purchase Obligation Reporting Contract Risk and Performance Management 17 Source : SAP

18 Introduction Why Contract management? Contract Management Conclusion Not managing contracts opens companies to risk and unrealized contract value Legal risk Financial risk Regulatory risk Approximately 21% of identified savings are LOST at the end of the sourcing process. On average, only 65% of procurement transactions are compliant with contracts. Lost Savings and Revenue Opportunities On average, companies track only 68% of all sales contracts. 18 Source : SAP

19 End of Session 1 Let us Have a Look at the Sessions 19

20 Contract Management Overview of the sessions Session 1 - Introduction Contract Management What does it mean? Why Contract management? We need a new type of management! We need to set up a link between purchasing and marketing&sales, to exchange the experience of purchasers with that of marketing. Every year, the enterprises lose billions, because of : Loss of contracts, Discounts not applied, Inefficient processes, Inadequate contractual provisions Contracts make or break your business! Your company reputation is at stake! 10 Risks pertaining to a bad management of contracts Operational Criteria : Operations / Suppliers / Regulations Sarbanes-Oxley Act (1992) Not managing contracts opens companies to risk and unrealized contract value 20

21 Contract Management Overview of the sessions Session 2 Contracting What is a Contract? Commitment Management Taxonomy of Contracts - Contracts can be classified according to scope, type, purpose, financial qualification, project view, etc. Blanket Orders and Umbrella/Frame Contracts Escrow Agreements Non Disclosure Agreements SLA - Service Level Agreements Architecture of Contracts What is a «good contract»? 21

22 Contract Management Overview of the sessions Session 3 SLA (Service Level Agreements) Definition What Services? Service Levels : actual / target / progressive Measuring Reporting Monitoring Quality Improvement (internal / external) Incentives : Penalties and/or Bonus 22

23 Contract Management Overview of the sessions Session 4 Operational Model Contracting Process Before Signature Operating Model The Contracting Process before Signature At what stage in your procurement process do you start thinking of the contract? Content of the contract Lean Contracting Revenue Recognition (Un)Liquidated Damages / Penalties Contract Negotiation Process KPI / Measurements Some interesting questions Authoring : Facing a Monopolist / Negotiation Strategy Blanket Orders and Umbrella/Frame Contracts The top 10 negotiated Terms Negotiation styles Failures and Tricks in Negotiation 23

24 Contract Management Overview of the sessions Session 5 Operational Model After Signature Reap the value : Immediately / During the Project Role of the Contract Manager after signature Would you pay that invoice? Events happen! Do you need to improve the Management of your Contracts? The dimensions of Contract Management : the Contract / All Contracts the Contract Management Processes 24

25 Contract Management Overview of the sessions Session 6 Management of Risks in Contracts Consequences of Contract Risk The Contract Risk Management Process : Identification / Evaluation / Choice of Risk Management Method (accept avoid reduce transfer) Monitoring Anticipation and prevention beat detection and cure 25

26 Contract Management Overview of the sessions Session 7 Your Contract Lifecycle Management Project Enterprise Contract Management CLM Application Overview Case study : Belgian Life Sciences company Components of an Enterprise Contract Management Tool Business Case : o Why? o Stakeholder map o Project domains Conclusion Wrap-up 26

27 Rendez-vous at Session 2 27