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Total Asset Management Solutions

Contract Management
The Mavericks Wont Like This!
Keith Wallis

How Much Did That Project Cost?


Real Life Example

Original contract amount $500K Variations scope changes not visible Total variations = $2m Contract delivery and performance monitoring negligible Only when project was completed was the disaster discovered

Your contracts are your business


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Agenda
Take The Contracts Test What is Contract Management? The Golden Triangle Key Statistics Contract Management Business Processes The Solution Contract Management Some Key Rules Benefits Implementation
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Take The Contracts Test 90% of enterprises view effective creation, monitoring and management of contracts as either very important or critical to their overall business success.
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Take The Contracts Test


Can you see all your contracts, consumption & spend against each contract? Can you find your contracts at any point in time? How much did you spend against any specific contract last year? Do you have full visibility of agreed service levels? Are your suppliers invoicing accurately based upon the contracted pricing? Are your purchase orders raised prior to the contract being approved? Can your organisation gain efficiencies through process standardisation? Do you want to reduce contract negotiation timelines? How easy is it for you to update all contracts with a single clause?

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Key Principles for Successful Projects

Contract Management Scope Management Schedule Management Procurement Management Cost Management Dispute Management

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What is Contract Management?

Studies have shown that more than half of all companies cannot even locate signed copies of 10% or more of their contracts!

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The Contract
A contract is a mutually binding agreement that obligates the seller to provide the specified products or services obligating the buyer to pay for them Contracts clarify responsibilities and define key deliverables Contracts are used because they are more legally binding, there is more accountability There is a current trend to outsource work subsequently requiring a contract
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What is Contract Management?

The process of managing the contract and the relationship between the buyer and the seller, managing contract related changes and when appropriate, managing the contractual relationship with the outside buyer of the project.
PMBOK (3rd Edition)

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Project Contract Management


Begins at project inception
with the appointment of project manager and team with development of projects outputs, benchmarks and risk allocation with an understanding that things will change down the road

Success depends on planning, good monitoring and flexibility from all parties involved
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Collaboration

OLD WAY minimal collaboration

NEW WAY collaboration access to contracts portal


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Key Contract Management Functions

Partnership Management
Corporate governance Risk management

Relationship assessment Dispute resolution

Performance management

Service Delivery Management

Variation management

Contract maintenance Financial administration

Contract Administration
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Contract Administration (PMBOK)


Inputs
Outputs

Contract

Contract Documentation

Contract Management Plan

Requested Changes

Selected Sellers

Recommended Corrective Actions Tools & Techniques

Performance Reports

Organisational Process Updates

Approved Change Requests

Work Performance Information

Contract Change Control System

Buyer Conducted Performance Review

Inspections & Audits

Procurement Management Plan Performance Reporting Payment System Claims Admin Contract Management Plan

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The Golden Triangle Key Statistics


Most organisations have multiple contracts with the same vendor stored in filing cabinets at different locations. These contracts often expire at different times, have been negotiated for different prices, and apply to different territories.
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The Golden Triangle


Strategic Planning Resource Portfolio Management Investment Management Business Planning & Consolidation

Module

Maverick
Spending Fragments Supplier Leveraging

Labour 20%

Services 30% Materials 50%


Project Systems cProjects

Asset Accounting Plant Maintenance

Best Practice - 70% of spend is on contract


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Contract Management

Aberdeen report 2007

Your contracts are your business


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Contract Management

Aberdeen report 2007

Your contracts are your business


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Contract Spend Analysis - Benefits


Contract Analysis
Annual spend Non contract spend On Contract Spend Purchasing transactions compliant Purchasing transactions not compliant Move to contract 5% savings - based upon increased compliance and move to contract

Best in Class
500m 161m 339m 300m 39m

Industry Average
500m 219m 281m 180m 101m 59m 6M

Laggards
500m 308m 192m 93m 99m 147m 10M

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Contract Management Business Processes

Procurement organisations believe that 70% of negotiated savings are actually realised. Chief Financial Officers view savings with only 35% realised.
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Contract Business Process


Templates / Libraries Renewal or Termination System Alerts / Paramaters Negotiation Guidelines Contract Adjustment & Extensions Change Guidelines New Contract Creation

Contract Negotiation

Enterprise Contract Repository

Contract Review / Approval Workflow

SAP ERP

MM

PS

Contract Storage & Access User Groups

Notification & Contract Distribution Distribution Lists

Contract Execution Signatories

SD

HCM

PM

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Procurement Process

Identification of need

Specification

Supplier qualification and appraisal

Accounting: whole life costing

Contract management and review

Tendering and tender evaluation

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The Solution Contract Management Consider a $200 million spend agreement which offers a 10% discount on contract spend. Reducing maverick spend in this case by just 10% yields $2 million in real savings.
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Contract Management Components

Contract Management

Contract Creation

Contract Repository

Contract Negotiation

Contract Types Supported

Contract Approval

Contract Monitoring

Contract Optimisation

Integration

Hosting

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Contract Management Key Features Generate, negotiate and manage contracts with a single searchable contract repository Create a library of standard clauses & contract templates enforces legal standards Workflow based approval Automate all contract activity Track rebates and thresholds Executive dashboards Multiple reporting options
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Contract Management Key Features Packaged integration


Requirements, awards and contracts to ensure employees maximise leverage negotiated contracts and purchase from preferred suppliers

Supplier collaboration
Discussions Respond to bid requests Auction functionality Scorecard performance Negotiate contract terms

Supplier Performance Management


Analysis by activity and defined metrics
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Contract Management

Integration of all Project contracts and documents (drawings, scope, plans, risk analysis) Reality Check Side Issues Contract Administration
Notice Changes Performance

Reporting/Monitoring
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Reporting

Regular/ad-hoc reporting on various aspects of contracts, including:


Supplier information Contract value Usage Savings Performance Improvement opportunities Key performance indicators Exceptions
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Simple Consultant Contract


Identify Business Requirement Standard Contract

Record Discussion

Workflow Approval Consultant Portal

All Online, real time, full history recorded Information to relevant departments

Discussion

Accepted / Returned With Documents Workflow to Security / IT

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RFP / Tender Based Process


Need Develop Tender /RFP

Online / Templates / Libraries Auto / manual assignment

Source Market Open / Closed Business Case

Tender Conference / Discussions

All records recorder Online / supplier portal

Scope of Work

Bids / Responses

Contracting strategy / Types of Contract

Online scoring, weighting showstoppers

Evaluation / Negotiation / Short List Contractors Presentation

Discussions, opinions recorded Reasons

Contractor Award / Debrief

Contract Management Process


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Variations

May be necessary due to contractual arrangements:


Changes to specified personnel; Changes to contract milestone dates; Changes to supplies quantities; Change in scope of the requirement Changes to specifications; and Introduction of new technology.

Stakeholder consultation required


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Variations Example SAP PS


Simulate variation Gain approval (CM) Update project
Plan Budget Schedule

Contract Management
Create variation to contract Workflow Approve Supplier Approval Execute Monitor

Execute Monitor

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Some Key Rules

An organisations proactive management of the creation, execution and analysis of its contracts will increase its financial and operational performance while reducing risks. Todays highly competitive economy demands contract management become a core competency.
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Contract Management Activities


Activities include:
Keep documentation up to date Establish administrative processes around documentation and processes Managing the relationship Identify and manage of risks Monitoring Key Performance Indicators (KPIs) Motivate suppliers Protect the interests of the organisation Document and report on contract performance
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Monitor Performance

Effective Performance Monitoring requires the Contract Manager to:


Advise Contractor of performance issues Develop effective feedback mechanisms Keep written records of all dealings with Contractor and administration of the contract Maintain comprehensive documentation
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Benefits Studies have shown that for each dollar earned by an organisation, as much as 80 cents can be lost to procurement costs. The strategic importance of contracts becomes immediately apparent.
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Contract Management Optimisation


Standardisation templates / terms Enterprise wide contract process Enterprise repository Collaboration between buyer and seller Improve ability to analyse contract performance, compliance and risk Automation of lifecycle
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F i n a n c e

L o g i s t i c s

L e g a l

O p s

U n k n o w n

Enterprise Contract Repository


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Benefits Improved compliance with procurement terms Reconciliation of procurement and sales orders to the contracts Reduced legal support through standardisation Reduced time to contract & contract research time More efficient audit processes internal / external Visibility and transparency of the process Reduction in quick renewals and maverick buying Platform for customer and vendor profitability performance
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Implementation Discussion
Surveys indicate approximately 67% of company revenues are based on contracts. Revenue leakage, estimated at 5% to 9% of revenues, was at the top of the list of concerns driving these organisations toward improved contract management.
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Implementation Low Cost quick payback immediate benefits Short duration - e.g. 3 - 6 months Staggered rollout of functionality Unique implementation methodology
Trained up front maximise knowledge transfer Preconfigured data load templates Value prototyping using your data
reducing implementation costs (Go / No Go decision)

Only experienced consultants SAP relationship / delivery partnership


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Questions
Delivering PS Solutions
Methodology Portfolio and Program Management
Investment Management RPM and cProjects

Keith Wallis Keith Wallis TAMS TAMS

Managing Director Managing Director 8A Rosebery Street 8A Rosebery Street Mosman NSW 2088 Mosman NSW 2088 Australia Australia M: 0404 024 789 M: 0404 024 789 E: keith.wallis@tamsconsulting.com.au E: keith.wallis@tamsconsulting.com.au W: www.tamsconsulting.com.au W: www.tamsconsulting.com.au
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Structuring Projects Scheduling Solutions Lifecycle Budgeting, Planning and Forecasting Integration Reporting Entire PLM Solution Map
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