Loading...
 
IACCM - International Association for Contract & Commercial Management Contracting Excellence Magazine
 

September/October 2015 Edition

 

 

 
Editorial Comment

Stepping up to the new opportunities and threats - is our profession ready?

 
Cyber security, data privacy, global trade deals, payment by results, agile contracts, user-based design - the list is unending. Innovation and change are affecting every corner of commercial practice and contract management. The demands for our skills - and on our skills - have never been greater.
 
 

Over the last 18 months, IACCM has been working with industry leaders and academics to develop exciting new programs of learning and development. Our new, advanced level curriculum builds on our well-established and highly respected “body of knowledge,” and will equip practitioners and experts with the insights, facts and know-how that they need to excel. A set of almost 30 on-line modules is supplemented by a wealth of background reference material, providing a combination of structured learning and a library of outstanding back-up content.

Businesses today are seeking commercial leaders. The scale of opportunity is clear in the conversations we have with executives, governments and search firms and our new programs have anticipated this. We want IACCM members to be equipped for the exciting career opportunities that are fast emerging.

IACCM's new Contract and Commercial Management (CCM) professional certification programs, released this month, include robust solutions for responding to the new risks and the challenges of today's complex business environment. Re-designed with new, forward-thinking content, they focus on collaborative business relationships, aimed at creating the strongest possible cross-partnership links and structures whose combined strength will offer our best defense.

The new programs build on the solid foundations of their predecessors - they don't replace them. The addition of this dynamic and challenging content will ensure that contracts and commercial managers are equipped for career growth. Coordinating stakeholders in our own organizations and acting as a key interface with suppliers, customers and markets, we are uniquely placed to ensure our systems and processes defend business integrity and deliver value.

The threats and opportunities are growing

Returning to our introduction, the importance of research, market intelligence and analysis are daily more evident. Citing just a few examples:

  • A top law school is leading work for the US administration on cybersecurity – and has requested links with IACCM to establish best commercial practices in handling this ever-present threat.
  • The General Counsel of one of the world's largest telecoms companies is asking what techniques contract managers are using to ensure back-to-back compliance with data privacy commitments across large and fragmented supply networks.
  • The banking industry is discussing the need for contract management capability assessments to ensure regulatory compliance.
  • Defense departments in several countries are working to improve contracting models, with a focus on performance-based and relational contracts.

The role of contract and commercial management is increasingly critical to both protecting business assets and integrity and in enabling innovation and change. These twin objectives demand new levels of creativity and judgment – and it is these that the updated learning curriculum offers, supplemented by a wealth of background reference material.

A great example of this is the ground covered during a recent IACCM Ask the Expert webinar which looked at the impact of cybersecurity on the role of contract managers. As a result, IACCM members have access to a paper titled Cybersecurity: Combating Data Risk Exposure with Third Party Partners1. This examines the nature of the threat and provides an overview of practical management systems and monitoring that can be put in place to help our organizations and partners remain vigilant against a threat that can take many forms. It also addresses the new cybersecurity capabilities that are required and which are supported via our new certification programs.

Also in this edition Know Your Intellectual Property – or Gift Trade Secrets to your Competitor shows the extent to which some businesses may still be unaware of the vulnerability of their critical information. As always it is true that unless we understand what the risks are, we cannot protect ourselves from them.

Grasping the opportunity

And speaking of risks, the obvious challenge facing contract and commercial managers is that their skills and knowledge can rapidly become outdated. However, we already have a solution – the new IACCM learning curriculum means that you can immediately protect yourself and ensure your readiness for today's volatile and dynamic business needs – and opportunities!

END NOTE

1. Ask the Expert - Cybersecurity: Combating Data Risk Exposure with Third Party Partners 

 
 

Mobile, cloud, analytics - why data security is now everyone's business

 
Giant leaps in the use of mobile, cloud and SaaS (software-as-a-service) technologies, have exponentially increased the number of software applications used to perform daily work - but they have also massively ramped up the security threat, making it much easier for breaches to occur. Now security programs long held to be the task of IT are becoming 'core business' at the demand of customers.
 
 

​Recent high profile breaches are driving ever more stringent customer standards and expectations. Customer-driven security clauses in service-based contracts are becoming much more onerous. This trend has a domino effect of imposing customer security programs on service providers – and their suppliers. 

The problem is growing. In this era of big data, powerful analytics are enabling organizations to control their own analysis and service organizations from banking to the health industry are now collecting, gathering and analyzing data, and then transmitting it to customers in return for a fee. As new technologies make this process faster and more efficient, organizations must go to great lengths to manage and prove adherence and compliance to customer and international standards across the multiple underlying systems, infrastructure, processes and applications that enable this service.  

Customers demand reassurance

Faced with these challenges, and to protect customer data, service providers are establishing company-wide security programs that not only outline these customer driven procedures and standards, but demonstrate governance and compliance across the organization and often also downstream to their suppliers. All are becoming increasingly involved in the continuum of security management - checking compliance, implementing policy and tracking corrective action.

As the body of data and its uses grows, customers are increasingly demanding additional standards and controls on all aspects of procedural, physical and network security. So as well as demonstrating that their own services comply with global standards and guidelines, organizations must demonstrate that the systems and applications underpinning that service are also secure, creating an added layer of complexity.

However, there are often great variations in customer security programs, posing a growing challenge for organizations to conform.

Recent breaches highlight threat

Recent high profile breaches at large credit card and retail companies1 highlight the ever increasing threat from both internal and external forces. In 2014, over half of all organizations reported one security breach,while in the UK alone, 90% of large businesses have experienced at least one breach in the last year.Management is increasingly scrutinized and held to account to ensure appropriate controls are in place to prevent future breaches arising from rogue employees and new technologies.

Structures changing to meet security challenge

Faced with these challenges, providers are establishing company-wide security programs and other measures to protect customer data and ensure procedural, physical and network security.  As examples they are doing the following:

  • Implementing comprehensive security programs across the IT function and engaging operational departments to help protect data and systems for both internal and external threats.
  • Appointing a security officer to ensure effective governance of and compliance to the security program, and to assume responsibility for the overall implementation of the policy across the organization as well as liaising with other departments, such as Data Protection, HR, Training and Corporate Management.
  • Establishing a regular program to scan infrastructure for malware and unlicensed software and establish an audit program to ensure systems and processes are reviewed regularly by internal (and external) bodies, so that the provider is constantly audit-ready through a program of continuous oversight and maintenance.
  • Obtaining external accreditation of systems and processes by an international body such as ISO27001.4
  • Establishing a dedicated security team to implement the security program and to develop and maintain policies and standards; and to assist with governance, management of risk and to oversee the implementation of a secure systems architecture (see Fig. 1 below).


    Figure 1 Dedicated Security Team

The role of Chief Security Officer (CSO) is gaining momentum and prominence at senior management and board level. There were 200 US-based companies with CSO roles in 2002,5 but this number is estimated to have grown into the thousands today, as more companies recognize and place greater emphasis on the importance of securing customer data.6

Contracts increasingly security-driven

As well as using increasingly onerous security clauses, service based contracts are now stipulating what technologies should be used, and how providers need to manage and organize data security and controls to implement their services. Before the tendering process begins, assessments are made on areas such as caliber and qualification level of staff, how inactive data is handled (“data at rest”) and how mobile or cloud policy is being implemented. Often providers are mandated to complete detailed questionnaires relating to system and data security and pre-contract onsite audits are performed against the security questionnaire to ensure compliance.

If the provider proceeds through the selection process, it must adhere to legally binding terms and conditions relating to security management. Detailed customer policy documents are appended to master legal agreements, often with little room for negotiation.

Typical customer security prerequisites include:

  • Ownership and procedural controls – providers must ensure that data is appropriately classified; that data collection systems must have sufficient controls in place, and are maintained, to protect and retain the confidentiality and integrity of data, thus ensuring that data is only accessed by authorized and trained personnel on a need-to-know basis. Secure data exchange protocols must be in place for data transmission, and data must be stored and disposed of appropriately and adequate back-up, retention and data recovery policies must be in place. In addition, the provider's incident handling procedure must outline the process for notifying the customer of a potential exposure or breach.
  • Access control and physical security – providers must stipulate that systems are password protected with access settings specified by user type. Systems must have appropriate audit trails to identify the history of any changes, and an inventory of the IT estate must be maintained including details of media, workstations, and servers. Portable devices must be encrypted and the physical security of servers maintained within controlled environments.
  • Application management and network security – providers must implement comprehensive security monitoring controls and individual application controls, such as virtualized and physical partitioning, high availability firewalls, vulnerability scanning and penetration tests, three-factor authentication for remote access, and anti-virus, web and email content filtering solutions; and ensure that change management procedures for system changes and policies relating to the use of freeware are in place.

END NOTES

  1. http://www.huffingtonpost.com/kyle-mccarthy/32-data-breaches-larger-t_b_6427010.html
  2. http://www.itbusinessedge.com/slideshows/six-data-breach-predictions-for-2015-02.html
  3. http://www.pwc.co.uk/assets/pdf/2015-ISBS-Technical-Report-blue-digital.pdf
  4. http://www.iso.org/iso/home/standards/management-standards/iso27001.htm
  5. http://searchsecurity.techtarget.com/definition/CSO
  6. http://www.scmagazineuk.com/protecting-data--the-changing-role-of-the-cso/article/357216/

ABOUT THE AUTHORS

Sheila Kelly is the IT Commercial Director, and Stephen Boyle currently holds the position of Senior Director, IT Security (both at ICON plc). Sheila has over 16 years' experience in the clinical research services industry across various operational and commercial functions. Stephen has over 25 years' experience in data and systems security, and is a member of the Information Systems Security Association (issa.org)

 
 

The art of bouncing back - resilient contracting in difficult markets

 
If you think your business cannot survive tough times, author Joanne Simpson has a different view. She explains the risks and challenges then unpacks a new toolbox containing things you need to do differently to thrive even when unexpected events occur. Her experience and research proves that resilient contracting is easier than you might think.
 
 

Volatility is tough during times of economic decline. Not every business providing contracting services will survive it, and some will fail catastrophically.1 But some, paradoxically, will thrive. What makes some contractors resilient and others fail?

Faced with deep cuts in revenue, resource companies seek to cut their operating costs. For organizations that depend on that business, this means both reduced volumes and pressure to cut rates.

A volatile environment will challenge even the most resilient firm. And few industries have experienced the same pressures that the resources industry has been facing recently. Commodity prices have fallen dramatically in the last two years and are not expected to recover in the short term.

The purpose of this article is to argue that resilience is the “X-factor” that makes survivors different.2 But the rules for resilience are not that complex. Applying the rules makes it more likely a contractor will both survive and thrive.

The dark side is fragility

Resilience is an organizational characteristic. We can define organizational resilience as the ability to respond to both expected and unexpected threats, to perform reliably in the face of volatility, to adapt and take advantage of extreme unforeseen circumstances. The dark side of resilience is fragility. Fragility is a consequence of over-reliance on, or over-adaptation to, a limited set of environmental conditions (e.g. a sustained period of high commodity prices).2

A principal trying to decide which contractors will be around for the long-term, and a contractor trying to be that long-term provider, can both benefit from thinking about resilience and fragility, the two opposing sides of the survival coin.

Contractors put themselves at risk

Research shows that external economic conditions are not usually the main reason for contractor failure.3 Rarely will one factor alone make a contractor fragile. Contractors make themselves fragile when their willingness to take risks is greater than their ability to predict and understand them or their capacity to absorb the consequences if market conditions change. Contractors can also put themselves at risk if their patterns of thinking, organizational structures and attitudes to uncertainty are too rigid to enable them to react quickly to a changing environment.4

The risk-seeking behavior of some contractors is much like that of a gambler who continues to place risky bets without the spare cash to cover them. Or a homebuyer who borrows to the limit of his debt-servicing capacity when interest rates are low, trusting that rates will not go up, or that personal circumstances will not change.

A delicate balancing act

Patterns of fragility and resilience can emerge in any part of a contractor's business. A contractor's organizational capacity in terms of which services, people and equipment the firm can supply at a given moment, is a major factor in determining which markets it can enter and which clients it can service. One would imagine that the more resources a contractor can muster, the more capable the firm will become to win work. A contractor faces a delicate balancing act between having access to resources and paying for resources that are unproductive. Having too many people, too much capital equipment, and too many fixed costs means that the contractor will be carrying too much overhead in a falling market. But not having the capacity available means a contractor will not be able to respond to short-term opportunities. And in a rising market, a contractor may have to pay a premium to access resources on a short-term basis.

Trading flexibility for certainty?

Contractors tend to adopt a mixed model where some people and equipment are part of the firm's permanent resource, but others are leased or hired in on short notice as required. The contractor trades flexibility for certainty, exchanging the risk of exposure to demand volatility for an exposure to supply volatility.

But although outsourcing a big part of its workforce makes the contractor less exposed to shifts in demand, outsourcing can also weaken the firm's adaptive capacity and make it fragile. Investment in staff, their engagement, involvement and empowerment, and the institutionalization of their knowledge are all factors contributing to adaptive capacity and thus resilience.5

Contractors can balance their risk by entering into employment arrangements with long-term personnel that keep them on retainer, allow them to work on a part-time basis or take extended leave when work is limited, but include a commitment for them to be available if work returns. Alternatively, they can enter into long-term agreements with contingent workforce and equipment providers, who then take on the risk of supplying a variable demand in return for a fee. The contractor is able to transfer the demand risk but will then generally retain most of the quality risk.

Spotting early warning signs vital

If a contractor's control systems are not responsive, problems and crises will not be visible until a contractor is deep into them. One factor in resilience is the capacity of a contractor's systems to amplify “weak signals” -- the subtle indicators of impending disruption. For instance, if your long-term client stops returning phone calls you may have an emerging problem.

Contractors need to have enough commercial buffers to cope with frequent changes and failures. They need to understand their risk appetite and their capacity to accept risk. They need to have a deep understanding of their capacity to rebound in the face of repeated shocks and losses, and to consider these questions:

  • Can they survive winning only one in ten bids?
  • Can they ride out a year of no revenue?
  • If they lose their profit entirely on half the jobs they take, can they still give their shareholders an adequate return?
  • Would they have to go into debt to maintain their dividend policy?
  • How far can they pursue a dispute or a claim before they have to give up?

Spread the risk

Resilient contractors are conservative about their working capital needs. The tendency of many firms in a rising market is to either return funds to shareholders or spend spare cash on growth and acquisition. In a volatile market, the resilient contractor will retain above-average returns, rather than paying them out. Then, in a falling market, the contractor has ample cash reserves to cover its overhead and take advantage of discounted acquisition opportunities.

Resilient contractors maintain some diversity in their activities, so that one single outlier event does not prevent them from doing any income-producing work.6 They also seek to spread their client base by both industry and geography, so that a downturn in one industry or region does not necessarily affect all of their clients.

Balancing the cost of bidding

Construction contracting is a highly competitive market, especially in hard economic times. The cost of bidding for work is a significant proportion of a contractor's operating costs. Anything a contractor can do to both reduce the cost of bidding and the probability of success creates a competitive advantage. A contractor needs to balance inexpensive but low-probability bidding strategies against costly but high-probability strategies. A resilient contractor will not only adapt its bidding strategies to the environment, it will consciously seek to reframe the environment to make alternative strategies viable.

Whichever strategy a contractor selects, it is still in a position of asymmetric information. The principal will always know more about the job than the contractor. The contractor's challenge is to maximize its knowledge of the job at minimum cost to investigate. How effectively the contractor can judge what the principal requires will influence how accurately they price and scope the work.

The contractor also needs to consider the terms and conditions required by the principal. Whatever indemnities, warranties and limits to liability the principal requires, the contractor has to be confident that they will be able to afford or offset the consequences if any of those indemnities or liabilities are triggered. And further, the contractor needs good intelligence on aggregate exposure across its entire portfolio, both from a likelihood and consequence perspective.

Understanding risk trade-offs

Fragile contractors either undervalue their exposure, underestimate the likelihood of a triggering event, or consciously under-insure to save cost. Resilient contractors make conscious decisions about the trade-offs between the consequences of accepting risks and the costs of offsetting.

Prior to commencing work, a resilient contractor:

  • has efficient methods for investigating and estimating site costs, including escalation;
  • can judge the quality and completeness of the information provided by the principal;
  • understands the likely risks and their likelihood of occuring;
  • has buffer in their margin for unforeseen events.

But even the most perfect pre-award preparation may not prevent failures in execution. For instance, it is not uncommon in falling markets for clients to reduce scope, defer, or even cancel projects, even well into execution. The resilient contractor will ensure that it is well-protected contractually from the costs of suspension or premature termination, and that it can promptly and cleanly unwind.

What's inside the resilient contractors' toolbox?

No one factor makes a contractor resilient. Resilience emerges when a contractor has a toolbox of strategies that enable them to respond to an extreme event or a generally hostile environment.

Resilient contractors, being qualitatively different from their peers, do the following:

  • Maintain core expertise in-house, but adopt a range of measures to manage short-term demand volatility.
  • Grow cautiously, and within their capacity to manage the most extreme failure scenarios on that growth path.
  • Eschew rapid growth in favor of trusted relationships with their clients.
  • Adopt appropriate bidding strategies for their bidding environment.
  • Concentrate on developing strategic and unique expertise in niche markets.
  • Carve out islands of stability through long-term relationships with preferred clients.
  • Operate on the lowest possible overheads and with a flexible organization structure that can grow and shrink with demand.
  • Look after their people and maintain a network of past and potential employees and affiliates.
  • Actively monitor the environment for opportunities and risks.
  • Remain well within their potential capacity to service debt.
  • Maintain excess cash reserves.
  • Protect themselves contractually from unreasonable risks and abrupt shifts in demand by their clients.

END NOTES

  1. Gary D. Holt (2013) Construction Business Failure: Conceptual Synthesis of Causal Agents, Construction Innovation, Vol. 13 Iss: 1, pp.50 – 76.
  2. Taleb, Nassim Nicholas, Anti-fragile: How to Live in a World We Don't Understand, Vol. 3. Allen Lane, 2012.
  3. Rice, Hugh and Arthur Heimbach, Why Contractors Fail: A Causal Analysis of Large Contractor Bankruptcies,FMI Quarterly, 2007 Issue 2- see more at: http://www.fmiquarterly.com/2007/04/why-contractors-fail-a-causal-analysis-of-large-contractor-bankruptcies/#sthash.KjizevWz.dpuf (free registration required).
  4. Allen, Kathleen Change Leaders: Creating Resilience in Uncertain Times (2012) 2012 Leader to Leader 13 http://doi.wiley.com/10.1002/ltl.20004
  5. Lee, Amy V, John Vargo and Erica Seville, Developing a Tool to Measure and Compare Organizations' Resilience (2013) 14 Natural hazards review 29 http://resorgs.org.nz/images/stories/pdfs/journal/developing_a_tool_to_measure.pdf
  6. Wedawatta G and B Ingirige, Coping with Extreme Weather: Strategies of Construction SMEs , International Conference on Construction in a Changing World (2014)

ABOUT THE AUTHOR

Joanne Simpson is Director of Corvative Pty Ltd, a contract and commercial services consultancy based in Perth, Western Australia. She has 20+ years of procurement, contracts and commercial experience in major studies, projects and operations in the resources industry. She holds Masters Degrees in Business Administration from the University of Western Australia and in Construction Law from the University of Melbourne in Australia.

 

 
 

Know your Intellectual Property - or gift trade secrets to your competitor

 
Scouting for potential partnership with a competitor? Think twice before believing confidentiality promises - or you may find they've beaten you to the patent register. But what if you don't know - or even recognize - your intellectual property (IP) and what it's worth? In this article Anumoni Joshi steps through the IP basics and reveals the risks.
 
 

Trade secrets and vital information can be easily lost while dealing with potential partners, customers or suppliers if not protected by a signed confidentiality or non-disclosure agreement (NDA). Beware of potential partners who procrastinate when asked to execute the NDA, because “the main contract will include a confidentiality clause anyway.” Do not be fooled by this kind of statement!

Practically speaking, your organization may not reach the deal stage, but in the process you may part with your organization's vital information and valuable ideas and find them already patented by your competitors.

Know your valuable information or risk gifting it to your competitor

Intellectual property rights take center stage in most corporate transactions. IP assets are the most valued of any organization or industry, be it information technology (IT), manufacturing, educational institutions, fashion or service industries. IP protection allows creators/innovators to share the benefits of their innovation or creative activity, encouraging research and development, innovation – and commercial gains.

To protect your information, it's vital that you're able to identify it so you can build in appropriate clauses and future-proof your contract. Would you know the difference between background IP and forward IP for instance?

First, know your IP terminology

It's important to know what constitutes intellectual property rights (IPR) and the IP terminologies that are used in a commercial contract:

  • Forward IP - refers to any and all IP that may be conceived, developed, or reduced to practice by the contracting parties in the course of fulfilling the obligations under the contract, and that is possible to patent or protect by statute.

  • Background IP - refers to existing IP that is owned by the contracting parties or a third party and is already in use or may be used in the deliverables by either party in the contract.

  • Third party IP - refers to existing IP that is not owned by the contracting parties but is owned by someone else (third party) and is used or may be used in the deliverables by either party in the contract.

  • Trade secrets - refers to any confidential business information that gives an enterprise a competitive edge. This can include things like formulae, patterns, programs, compilations, sales methods, distribution methods, consumer profiles, advertising strategies, lists of suppliers, clients or manufacturing processes etc.

Know your Intellectual Property

It goes without saying that it is essential to define and explain the ownership and use of all IP assets used in a contract, such as background IP. In particular:

  • Ensure all third party IP used in the contract is under a valid licencse and all licenses relating to its use are included. In most cases this would be a licensed IP.
  • Read the fine print of the any licensed agreement to establish whether this is for exclusive or non-exclusive use, worldwide or restricted, royalty free or on a royalty basis, or even securitized.
  • Ensure all third party IP used in the contract has been legally procured and the owner of the forward IP created in the contract is known.

Article 39 of the TRIPS agreement1 (Trade Related Aspects of Intellectual Property Rights) clearly outlines the availability, scope and use of IPR.

Build your IP clause arsenal

In a commercial contract it is imperative to clarify what you are referring to, whether this is IP protection or commercial exploitation of the IP assets. At times it may be both.

Which party will own the forward IP?  

While fulfilling the obligations of any commercial contract, the contracting parties may create an IP knowingly or unknowingly. It's important that the contract has a provision to deal with this situation, stating clearly which of the contracting parties would own the forward IP. Generally in commercial contracts forward IP vests with the party hiring the services in the contract rather than the party creating the intellectual property. If the contracting parties have agreed to joint ownership of the forward IP then the contract must specify which party will bear the costs of protect/registration and commercialization, and also which expenses will be incurred jointly.

Protect the innocent party

Another important consideration is how IP assets will be used in fulfilling the contract obligations: often these will be third party IP assets. As mentioned above, use of any third party IP should be under a valid license or agreement to protect the contracting parties from any potential third party infringement litigation. A clause should be carved out in the contract so that, in the event either party uses any third party IP unknowingly, the potential threat of third party infringement litigation will be dealt with by the party using the infringed IP, thus protecting the innocent party in the contract.

Make sure all attributes of IPR are covered

While negotiating the contract the contract attorney must always remember all the attributes of IPR, such as exclusivity, restrictions, overlapping, transferability, territorial and volatility. Depending on the nature of deliverables, protection should be extended to all that apply.

License or assignment?

Yet another anomaly often found in the IP clauses of commercial contracts is the way IPR is treated in cases of license and assignment. License and assignment are two different aspects in legal parlance; therefore these words per se cannot be used interchangeably, at least for the existing Intellectual Property assets. Assignment is not licensing, it involves transferring or selling the IPR.

Warranty or indemnity?

In almost all commercial contracts, IPR clauses are considered boilerplate, however you should avoid using boilerplate clauses if you want to minimize your risk of infringement.

Usually no indemnity is given to IP infringement in corporate agreements but only warranties, and these warranties are limited to awareness only. Therefore there is no complete transfer of risk. However the rules of indemnity are slightly flexible in the commercial contracts. This works in two ways depending upon whether you are negotiating the contract on behalf of a customer or supplier. For instance, if you are a supplier then you are required to limit the risk by excluding the indemnity from the modifications made by the customer.

The indemnity should be restricted to the territory, in the event the customer expands its business at a later stage. The indemnity should be reasonable and practical. In some instances you will find some of the IP assets are unregistered, and in such circumstances the warranties play a great role in verifying the ownership of such IP as there is no other way to confirm it.

It is important to have the warranties as well as the representation clauses in the contract to protect the best interests of the contracting parties. In my experience I have observed that IP representation and warranties clauses are the most negotiated clauses in a contract, since these have a direct bearing on termination or value of the contract. Upon misrepresentation, the non-breaching party to the contract can void the contract and upon breach of warranties, recover damages.

Avoid treating warranties and representations as alternatives to each other at contract construction phase, and adequately provision each clause as per the requirement, depending upon the nature of transaction for which the contract is drawn.

Audit to minimize risk

Last but not the least, another way to minimize the risk of IP infringement action is by conducting an audit, particularly a software audit. It is reasonable to have a software audit clause in a commercial contract if it envisages that either party will use multiple software, including any third party or open source software. The scope of such an audit should include the ability to analyze the presence of any open source software.

END NOTE

1. Article 39 of the TRIPS agreement (TRIPS agreement defined)

Further reading

  • The Role of Intellectual Property Rights in Technology Transfer and Economic Growth: Theory and Evidence, UNIDO, 2006
  • Securitization of Intellectual Property, Stanford Law School, 2002

ABOUT THE AUTHOR

Anumoni Joshi spent 10 years as an in-house counsel. Her career path spans many industries including IT, manufacturing and law firms. Her credentials: Management and law graduate from Symbiosis Institute of Management and Pune University; MDP-IPR & Strategy from the Indian Institute of Management Ahmedabad; and Diploma in Special Corporate Laws and Consumer Protection Laws; a Patent Attorney (India) and recipient of Patent Expert Scholarship by Government of Japan. In pursuit of a higher interest, she is currently a full-time Masters Program student in International Development in an Australian University.

 
 

Public contracting - and the big benefits of being 'open'

 
Bribery, corruption, mismanagement and secrecy have long plagued public contracting the world over. Set up to tackle these global challenges, the Open Contracting Partnership of governments and businesses has now come of age. We meet its newly appointed Executive Director, Gavin Hayman, who describes a revolutionary solution to a menacing procurement problem. If you haven't guessed it, the key word is ''open.''
 
 

Bidding for public contracts can be a lengthy, frustrating process. But, hidden from public view, it's vulnerable to mismanagement and unethical practice. Across countries within the EU alone, corruption can account for an estimated 20-25% of total contract costs.1

Backed by the World Bank, the Open Contracting Partnership was set up in 2012 to make sure this massive outlay by governments delivers on its promise to provide public benefit. From small beginnings the partnership is now an independent organization involving more than 40 national governments, cities and leading businesses.

The movement has just launched its three-year strategy to transform key areas of public contracting by promoting and strengthening the implementation of open contracting.2 The aim is to tackle these global challenges through disclosure, data and participation, working together with governments, civil society, businesses and technologists worldwide to make the public procurement process more transparent. Early members of this growing community included governments in Canada, the UK, Slovakia, Paraguay, and the Ukraine, and cities such as Montreal, New York and Mexico City.

Issues are on a vast scale

From paperclips to pharmaceuticals and large-scale public private partnerships, government procurement worldwide is worth $9.5 trillion a year.3 According to the OECD (Organization for Economic Co-operation and Development), this amounts to 13%-20% of global GDP being spent on procuring basic goods and services for citizens through contracts.4

However, despite the enormity of what is at stake, or perhaps because of it, public contracting is plagued by corruption, mismanagement, and secrecy. Some 57% of foreign bribery cases prosecuted under the OECD Anti-Bribery Convention to date involved bribes to obtain public contracts.5 According to a 2013 Eurobarometer survey, more than 30% of companies participating in EU public procurement say corruption prevented them from winning a contract.6 The OECD described "lack of transparency" as the greatest weakness in procurement by its members.

A clear case for open contracting is to detect fraud and corruption. It can be used to scrutinize procurement data and documents for red flags that might indicate public monies being misused, such as persistent non-competitive awards to shell companies for contracts that are more expensive than their peers. This opens up competition and ensures all competing companies are treated fairly.

What is Open Contracting?

Open contracting involves proactively sharing information about the tendering or negotiation process, and, once an award has been made, sharing information about who won, how and why they won and what the resulting contract is. For all partners involved in a contract, being able to monitor service delivery, quality and timeliness via a common database is crucial.

At its heart is a common database achieved via the global Open Contracting Data Standard7 that allows the most important contract information to be published in a structured repeatable way, making it comparable, timely, and accessible. The standard enables any database to export existing contracts data, acquisitions databases, business processes etc. to the standard. It can be used by any organization or individual with no license fee. A pilot is currently in development by the Public Works and Government Services Canada.

Disclosure reaps big savings

When it comes to public procurement, disclosing information rather than restricting it has been shown to reap big savings. For example, by releasing the state's cost estimate for the US state of Oklahoma's highway construction work prior to bid submission, lower average bids and a lower winning bid were received.9 The more complex and uncertain the project, the larger this cost-saving effect has proved to be. It also creates a level-playing field and more opportunities for companies.

Concerns easy to address

Many businesses say they want to open up their procurement information, but they don't know how or what to share – or when. With any new approach, there will always be concerns to resolve. Whenever we speak to businesses about open contracting, we hear concerns about commercial confidentiality, the risk that publication would support collusion, and overall costs. The good news is that these are all relatively easy to address.10

Commercial confidentiality, national-security and privacy are important issues, but in reality such information is not included in most contracts. Commercial interests that might be legitimately confidential would include novel designs and technologies, financial information, and strategic plans.

As part of the tendering process, when submitting their bids, suppliers should be given the opportunity to identify which pieces of information in a contract they regard as being commercially sensitive and would not want published, and the reasons why. For the winning supplier that information should be assessed against exemptions set out in Freedom of Information legislation and other relevant regulations and redacted (censored) whenever it falls within the public interest. This would mean many defense contracts could be at least partially published, with certain information excluded under the existing rules for classification. The same would apply to legitimate privacy concerns, in particular regarding information on third parties that might receive services under a contract but are not signatories to it.

Risk of collusion

Defined as a “secret agreement between two or more parties to defraud others by fixing prices,” collusion is a risk primarily in the tendering round, rather than after the bid is awarded, and when full contract details would be published. Increased transparency would make monitoring easier, and more entrants coming into the market would be a powerful foil to cartelism.

Costs

As already highlighted, not only does proactive publication result in lower average bids, but the overall costs are also much lower. Costs of implementing the standard are offset by the savings in achieving better value for money.10

There are also significant benefits and savings for business. With bid preparation costs up to 1% of contract values on large construction contracts (and often considerably higher for smaller consulting contracts), more information on similar prior contracts can be a significant benefit. Comparable data, and the availability of unit prices, are particularly important in the preparation of bids, allowing better businesses to win better business. Analysis of trends, prices and supplier performance can be incredibly valuable in developing a sustainable business.

The value of having access to past contracts to firms considering bids is underlined by the numerous Freedom of Information requests for contracts made by firms in the United States. There are even companies dedicated to processing such requests as part of efforts to help clients win more government contracting work.

Companies that already hold government contracts will find that open contracting gives them more competitive intelligence about new opportunities and the chance to engage with governments and NGOs on standard-setting. Aspiring government contractors can take advantage of the availability of data to spot opportunities, as well as the improved contracting process, to win new business.

It will happen, but gradually

Open contracting is a journey, not a destination. Trust will be built gradually and reinforced over time. The scale of the opportunity – and the challenge – is immense. We cannot implement open contracting globally by ourselves, so we will build out the field of policy and practice that allows open contracting to flourish. There will be vested interests to overcome.

A more transparent contracting process creates trust, reliability and confidence in a fair process. Transparency allows better businesses to win better business. Businesses can better access and track contracting opportunities including information of what, when and where opportunities might be and how decisions to award contracts will be made. Information on past contracts lowers the barriers to entry for smaller businesses. Open contracting also creates a level-playing field and more opportunities for companies through better and richer data on contracting opportunities with government.

In open contracting, all parties benefit. Governments receive better value for money. Citizens receive better services and public works. And companies have a fair chance at securing a new contract, at less cost. Are governments, contractors and citizens all a little happier? Revolutionary indeed.

END NOTES

  1. https://www.iaccm.com/resources/?id=7467
  2. Open Contracting Partnership Strategy 2015-2018
  3. Kenny, C. November 2014. Publishing Government Contracts. Addressing Concerns and Easing Implementation. Center for Global Development, Washington DC. http://www.cgdev.org/sites/default/files/publishing-government-contracts-report.pdf
  4. http://www.oecd.org/gov/ethics/public-procurement.htm. This share of GDP is even higher if state-owned companies are taken into account, by 2-13% of GDP depending on the country. 
  5. OECD. December 2014. The OECD Foreign Bribery Report. An Analysis of the Crime of Bribery of Foreign Public Officials. http://www.oecd.org/corruption/oecd-foreign-bribery-report-9789264226616-en.htm, p.8.  
  6. EU Anti Corruption Report. March 2014. http://ec.europa.eu/dgs/home-affairs/e-library/documents/policies/organized-crime-and-human-trafficking/corruption/docs/acr_2014_en.pdf, p. 25. 
  7. http://standard.open-contracting.org
  8. https://buyandsell.gc.ca/procurement-data/open-contracting-data-standard-pilot
  9. http://gatton.uky.edu/faculty/lamarche/Lamarche-JPUBE-2009.pdf
  10. Kenny, C. November 2014. Publishing Government Contracts. Addressing Concerns and Easing Implementation. Center for Global Development, Washington DC. http://www.cgdev.org/sites/default/files/publishing-government-contracts-report.pdf

ABOUT THE AUTHOR

Gavin Hayman is Executive Director of the Open Contracting Partnership. Prior to that, he was Executive Director and Director of Campaigns of Global Witness where he oversaw the groundbreaking and award-winning investigative, campaigning and advocacy work uncovering secret deals, corruption and conflict around the world. Gavin helped create the international Publish What You Pay campaign and helped negotiate the intergovernmental Extractive Industries Transparency Initiative that brings together oil and mining companies, home- and host-governments and civil society to improve disclosure and oversight of over $1 trillion dollars of oil and mining money.

He has a Doctorate from the University of Reading and has worked with Chatham House in London and the United National Environmental Programme in the past on analysing and investigating global environmental crime.

ABOUT THE OPEN CONTRACTING PARTNERSHIP

The Open Contracting Partnership is opening up public contracting and procurement information around the world through improved disclosure, data and civic and business participation. Incubated by the World Bank, we are now a lean and dynamic start-up based in Washington DC. 

The Open Contracting Partnership manages a global Open Contracting Data Standard to make contracting data accessible, shareable, and usable. We provide knowledge, training, seed funding, and tools to support local champions and scale up new open contracting approaches. Through specific showcase and learning projects we help generate evidence of change. We are committed to sharing our efforts and learnings, so that our partners and a wider network of open government groups can participate, benefit and take ownership of our mission. More at www.open-contracting.org, http://standard.open-contracting.org or info@open-contracting.org

 
 

Troubled contracts - why missing these steps may trip you up

 
The ink on the contract is not yet dry - yet trouble may already be brewing. How can you make sure your contract doesn't contain the seeds of big problems ahead? Part of the answer lies in having all parties agree on the game plan during negotiations before it gets costly, time consuming and potentially embarrassing.
 
 

Agree “who does what” before signing

Author Steve Olson, who has seen many troubled contracts throughout his years of experience, believes the best way to avoid misunderstandings and conflict is to make sure from day one that everyone knows the overall game plan and their individual responsibilities.  And the best time to have everyone agree “who does what” is during contract negotiations, rather than after the contract has been signed – when it might be too late. 

The process of establishing a Relationship Charter (RC) will ensure focused discussions take place to establish roles and responsibilities ahead of time, information that can be included within the contract, and also within the Joint Governance (JG) plans that are agreed. In this article the author gives his personal perspective on the troubled contracts he has seen, and why they got that way. He also provides useful guidance for developing your RC and JG, with helpful examples and templates.

One case study highlights the risks

Over the years I've been asked to improve many Contract Administration Systems (CAS) and JG plans that were ineffective and negatively impacting relationships. Here is a case study that illustrates what can go wrong: you can apply the principles and lessons learned to your contract regardless of its size or complexity. This case was an outsourcing contract between an IT services provider and a global client with business entities in multiple countries and geographies. The contract had been in effect for just over a year and they were having multiple problems, spending too much time and resources in meetings to resolve the issues.  Here's what was happening - and the root causes of what went wrong.

  1. Unauthorized people requesting changes

In this case, joint governance roles and authorities had been defined but not effectively communicated.  Unauthorized personnel from the buyer were requesting additional services or midstream software development changes that were not included in the contract. In good faith, and wanting to please their customer, the service provider obliged, starting new projects and committing resources that weren't in their budget. When later discovered by the buyer, the projects were halted – but not before the provider had already incurred significant and unrecoverable costs.

  1. No standard forms or processes

With no standard forms or processes to use, neither the buyer's or seller's contract administrators knew where to submit requests for new services, contract changes, deliverable sign-offs, and formal contract communications. In addition, neither had adequate record-keeping systems for their contract-related activities, communications and artifacts, in some cases these were lacking completely. This was the source of several compliance issues for both parties when audited.

  1. Decisions not communicated

When roles and authorities are established, they must be communicated to all stakeholders, especially those involved in delivering services and administering the contract. In this case, although the Roles and Authorities Matrix had been developed and approved, it had not been properly disseminated - and unauthorized personnel were still making requests, providing approvals and sending formal correspondence that was binding to their company.

Everyone needs to know the game plan

This example is not unusual. I've seen many contracts that needed changes, deliverables submitted, and binding contract communications sent all in the first several weeks after signature. Not knowing who is authorized to submit or approve new requests or projects is a risk to both parties, and one that can easily be avoided.

Once you have defined, established, agreed and documented the RC and JG as part of the contract negotiation process, you will be able to communicate this key information to all stakeholders as soon as the contract is signed. And, if this isn't discussed, agreed and documented in the contract, it should be done as soon as possible after signature at the post-award kick-off meeting.  This information should be updated and re-communicated whenever any changes occur.

The importance of communication cannot be overstated. It should be done via a communication plan, as part of the overall implementation plan.  Someone needs to take ownership and responsibility for these communications, otherwise, they will fall through the cracks.  The stakeholder list should include everyone who is…

  • responsible for providing the products or services;
  • responsible for executing and administering the CAS (processes, plans, policies and forms);
  • accountable for the desired results and outcome of the contract; and
  • affected by the performance of any of the above.

Development work will inform all processes

Defining the RC and establishing the JG are linked processes: the information you establish for one will flow down into the other. This information will also help you to develop a Roles and Authorities Matrix (RAM) which takes this one step further, identifying who has binding authority to submit, approve or escalate on behalf of their respective company. Your RAM will underpin all your processes - and ensure you have full and accurate information for your stakeholder list!

Explaining the terms

The terms below have been used widely and are subject to interpretation. My objective is to clarify what they should mean and how to apply them to your contract.

A Relationship Charter

defines the intent of the relationship between the buyer and seller. It describes how two or more people or organizations regard and behave toward one another and grant authority or rights.

Joint Governance

occurs when two or more parties define and agree on how they intend to use the RC, processes, plans and policies to work together, to communicate and make decisions or escalations when needed.1

The type of RC and JG you develop will depend on the nature of the contract and intent of the relationship. The RC and JG requirements will differ for a transactional commodity-based purchase contract compared with a large and complex business process or IT outsourcing agreement where partnership and innovation is encouraged, for example.

Defining your Relationship Charter

The RC should describe the intent of the parties' relationship and desired outcomes, answering the following questions:2

  • Why are we in this relationship?
  • What is our mission, vision and what are our values?
  • What is our strategy for the goals we will set, core activities we will define, and the focus of our products or services?

It is clearly to everyone's advantage that these discussions take place as soon as possible, ideally, as part of contract negotiations, so this information can be included in the contract (not many do however). If not clearly delineated in the contract or understood from the negotiations, the parties should meet as soon after contract signature as possible. The buyer and seller need to discuss the intent of their relationship before they can develop the RC and how they will govern the contract together via the JG.

The RC can provide a global standard for both parties and all of their other businesses or subsidiaries in multiple geographies but the JG can vary widely depending on their business and autonomy.

Establishing Joint Governance

The development of JG flows down from the RC, and provides a “playbook” defining the objectives, how they will be achieved, and how the contract will be managed. It should include most if not all of the following:3

  • strategic planning;
  • delivery management (including all processes, plans, policies and forms documented in your “contract repository”);
  • risk management;
  • issues and disputes management (escalation and conflict resolution);
  • harmonization during the development, review, and approval of the processes (used to manage all contract-related activities);
  • alignment and change management;
  • performance management (relationship scorecard, meetings, reports); and
  • any specific arrangements for international organizations with decentralized decision-making.

Many contracts I've seen typically include three levels of committees for governing the contract. These are usually located in the Master Services Agreement:

  • operational (Operations Committee)
  • tactical (Management Committee)
  • strategic (Executive Committee)

Defining 'who does what' and who is responsible

Now that the RC and JG “playbook” define our relationship, roles and authorities, and how we will endeavor to manage the contract, we need to define the “players” and what they do. My best practice recommendation is to tackle this in two stages – first defining who the functional interfaces are, and then using this information to develop the RAM.

The example below defines who is carrying out each role and who they interface with across all the functions (buyer and seller) – important information for contract or program managers, enabling each party's account teams to identify their counterparts.

Functional Interfaces example:  

Functional Role

Buyer

Seller

Product or Services Manager

Name:

Title:

Email:

Phone:

Name:

Title:

Email:

Phone:

Service Delivery Manager

Name:

Title:

Email:

Phone:

Name:

Title:

Email:

Phone:

Transition Manager

Etc.

Etc.

Contract Manager

 

 

PMO Manager

 

 

Finance Manager

 

 

Other functional roles as appropriate for your contract  

 

 

 

How to build your Roles and Authorities Matrix 

The RAM extends the functional interface analysis, identifying additionally:

  • who is responsible and accountable for each role;
  • who has the binding authority to submit, approve or escalate on behalf of their respective company;
  • who needs to be consulted;
  • who needs to be informed; and
  • how each person can be reached.

The RAM also maps all processes, plans, policies and forms documented in the "contract repository," with those responsible for approving them, their owners, who are responsible for reviewing them, and those responsible for performing them.

I find the traditional RACI (roles and responsibilities) template a very useful way of doing this (see example below).

Roles and Authorities Matrix example

Role &

Description

Buyer

Seller

Responsible

Accountable

Consult

Inform

R

A

C

I

Contract Change Request - Authorized Submitter(s)

Name

Title

Email

Phone

Name

Title

Email

Phone

Name

Title

Email

Phone

Name

Title

Email

Phone

 

 

 

 

Contract Change Request - Authorized Approver(s)

Name

Title

Email

Phone

Name

Title

Email

Phone

Name

Title

Email

Phone

Name

Title

Email

Phone

 

 

 

 

New Service Request - Authorized Submitter(s)

etc.

etc.

 

etc.

 

etc.

 

 

 

 

 

New Service Request - Authorized Approver(s)

 

 

 

 

 

 

 

 

Formal Contract Communications -Authorized Submitter(s)

 

 

 

 

 

 

 

 

Formal Contract Communications -Authorized Recipients

 

 

 

 

 

 

 

 

Other role examples:

  • Risks
  • Issues / Disputes
  • Deliverables
  • Finance/Invoice
  • Contract Interpretation
  • Other roles as required for your contract

 

 

 

 

 

 

 

 


​Importance of maintaining your Contract Repository

As mentioned, each of the underpinning processes, plans, policies and forms and other documentation used to determine your RAM should be included in your contract repository. This should be held within your Contract Administration System (CAS)4 and must be kept updated with any changes. Your repository should include:

  • all CAS processes, plans and policies necessary for managing the submissions, approvals and storage of all requests, approvals, communications and artifacts;
  • all submission forms needed for submitting and approving authorized requests, approvals, or formal contract communications;
  • your governance library or project control book structure and definitions necessary for audit-compliant record keeping; and
  • all current contract documents, amendments and artifacts.

Joint Governance will evolve over time

One thing is constant in every business – change. While your RC shouldn't change much, if at all, your JG will need updated whenever there are business or environmental changes such as mergers and acquisitions, restructuring, personnel changes, new business unit requirements, new regulatory requirements, and other triggers unique to your business that you will want to identify. We need to be aware of and watch for any of these “triggers” that would require an update to our JG and, critically, make sure any changes are promptly communicated to all stakeholders and old versions deleted.

In conclusion

My best practice recommendation is to discuss relationship intent and governance during the contract negotiation and documentation so this can be written into the contract - if not before signature, then as soon as possible afterward. This makes it so much easier and quicker to get the JG developed, implemented, and ready to use. The sooner we do this, the sooner and better we are able manage the activities and issues that always seem to come up right after signature.

Each successful transaction of a contract-related activity enhances trust, confidence, and the relationship between buyer and seller, allowing both to focus on the quality of products or services, rather than having to spend time resolving problems, issues and disputes that eventually lead to degradation in performance - and their relationship.

END NOTES

  1. Joint Governance (Source: Contract Management Solutions Group, Inc. www.cms-groupinc.com )
  2. Relationship Charter (Source: Strategic Relationship Solutions, Inc. www.srscan.com)
  3. Elements of Joint Governance (Source: Strategic Relationship Solutions, Inc. www.srscan.com)
  4. Contract Administration System (Source: Contract Management Solutions Group, Inc. www.cms-groupinc.com)

ABOUT THE AUTHOR

Steve Olson is the Founder and President of Contract Management Solutions Group, Inc. (CMS Group). He previously served 15 years as IBM's lead Contract Initiation Services Manager with 114 BPO and IT outsourcing contract startups of the world's leading Fortune 500 companies and U.S. Federal and State government agencies. Steve was recently published in the August edition of Contract Management, National Contract Management Association's (NCMA) magazine, titled Start Your Contract off Right with a Post-Award Kick-Off Meeting, and will be speaking at IACCM's America's Academic Forum, October 6-8, 2015. Contact information: steveolson@cms-groupinc.com

 
 

Contract management - re-engineering success demonstrates 'power of the pull'

 
What works better - carrot or stick? One team's successful 'bottom-up' approach shows how small contract management changes can reap big rewards for the business and customers - if you do them right!
 
 

Need to re-engineer? Start with your CM processes …

The challenge is familiar: how to create more commercial capacity to grow the business. Facing this challenge, QinetiQ's commercial team started small - but their approach soon developed its own enthusiastic momentum. By involving customers they freed up important capacity and improved engagement, opportunities - and satisfaction for everyone involved. Starting out, QinetiQ's Commercial team could not have anticipated the wider impact and benefits their project – and approach - would achieve. This article reveals the key steps that made the difference.

Step 1: Draft a solution

For the commercial team to meet the business challenge of "growing the business" a new way of bidding and contracting low value, short duration and low risk contracts was needed, and an initial contracting profile was agreed.

However, pressure to resource more complex, potentially higher risk bids was growing, and it was soon realized that too many good commercial people were “bogged down” transacting low risk, low value work: 65% of the team's resources dedicated to 8% of the work by value.  A simplified bidding and contracting "front end" was needed so that a larger volume of small contracts could be dealt with more effectively.

Step 2: Make the case and get support

Having identified the real issue it was quickly realized that a multi-functional team was required, so a cross functional team which included key stakeholders in the business lifecycle, was set up, which included commercial, finance, bid & project management and engineering. It was named “Project RIO” (after the football world cup in 2014). To give the project the authority that was needed, it was important to validate the core statistics around volumes and values. The figures and issues were consistent and had been so for the previous three years. It was also necessary to gain top-level business support. At this point commercial took the "problem" and the initial solution to the Operating Committee and got CEO, CFO and Divisional MD support.

Step 3: Think carefully about “how” to go forward

A critical step in the process was to think about how the solution would be implemented. Commercial knew issuing a mandate would not work – it needed to be "pulled" by the divisions rather than "pushed" from corporate. It also needed to be time limited, so the project was given a 12-month plan. A key decision was to actively involve key customers to make sure any changes proposed worked for them with the aim of improving proactive customer engagement on the larger programs. This proved highly successful.

Step 4: Come up with a simple solution

The Project RIO team decided the best way forward would be to develop a range of simplified front-end (bidding and contracting) approaches with a simple check list to assess risk. The new, simplified toolkit involved:

  • Pre-packaged, pre-approved offers for standard services (approve once, use many times)
  • Costing libraries, enabling sharing and re-using of costing/pricing data to speed up the estimating process
  • Pre-approved staff having devolved delegation authority to bid and sign up Project RIO contracts.

Instead of issuing a mandate or offering the toolkit directly to the eight divisions, a lead division volunteered to validate the solution because they could see the potential benefits of it and could show the other divisions "what they were missing."

Step 5: Enlist an “early adopter”

The pioneering division “volunteered” a Project RIO guinea pig to road-test the proposals and identify any issues in practice. The early adopter approach quickly showed that the simplified bidding process needed to be matched with a simplified delivery process for low risk, low value, short duration Project RIO contracts.

A key change resulting from the early adopter experience was the introduction of a revised profit centre structure, focusing on contracts rather than projects. As well as giving better visibility of the contracts, this reduced intra-business trading and enabled more contract-centric budgeting and forecasting. Other delivery process changes and more efficient utilisation of ERP functionality, made as a result of the project included:

  • Simplified and streamlined financial reporting.
  • Removal of the requirement for project costing and "cost to complete." Revenue was now recognized on completion of the project.
  • Reduced number of cost centres.

Step 6: Roll out and support

Each division created a 100-day "Project RIO" plan to kick off the process. The lead division completed the rollout in six months. To support the new processes, commercial awareness training was rolled out to the wider business, as part of a devolved delegations process, requiring everyone with delegated authority to be trained and to have a licence. The Project RIO Governance Board, comprising senior stakeholders, was set up and bi-monthly meetings were scheduled.

Our biggest successes and lessons learned

Although the overall strategic aim was to save staff time to support business growth, it was also intended to drive a more effective process for managing internal risk and change control, and to engender more pro-active customer engagement on the larger programs.

The greatest success has undoubtedly been “the power of the pull.” Having a lead division to start the ball rolling and to be an early adopter rather than try to force change by mandate has had significant impact. Involving customers has also proved a major success. Engaging with the customer commercial-to-commercial and selling the Project RIO story demonstrated how much time and effort was spent buying low-value, low risk work. This has opened up a new sales initiative that will have a significant impact to the business. There is now the potential of longer-term service contracts as an alternative to lots of small contracting tasks.

Key target improvements that were achieved:

  • Risk decisions are a better targeted, commercial effort, and a marked margin improvement has been seen.
  • Bidding cycles have/are being reduced.
  • Bid quality has improved with the wider use of pre-approved templates.

Ultimately the benefits delivered from Project RIO have raised the profile of the commercial function and moved it forward in its transformational journey from that of a tactical function, to that of a valued and strategic resource within the business.

 
 

IACCM's new professional certification training program up and running!

 
Leading the way in supporting collaborative business relationships, IACCM this month released its renewed Contract and Commercial Management (CCM) professional certification program for public, private and third sector workers around the world. The new program responds to ongoing need for greater competency in commercial and contracting practices worldwide.
 
 

Research consistently shows that commercial and contracting issues lie at the heart of 70-75% of failing projects, resulting in an average of 9.2% of annual revenue leakage.In response, executives are looking to develop "commercial competency" across their organizations – beyond the context of sales alone – to ensure optimal outcomes from trading relationships. Strategic contracting practices are key elements in ensuring business engagements are achievable, sustainable and ethical.

"Even the most carefully designed contracting process supported by sophisticated information technology infrastructure will not succeed without capable Contract Management professionals. Organizations need to invest in developing the functional and interpersonal skills of their staff,” said María Arraiza-Monteux, Capability Building Program Manager at DuPont's Contract Manufacturing Center of Competency.

IACCM continuously conducts research among its global member base of 34,000 globally to define and report on good contracting and commercial management practice at an advanced level. It is this research that underpins IACCM training programs and equips IACCM members to deliver commercial excellence across their organizations.

Through the updated CCM learning program, IACCM communicates a global body of knowledge, consistent tools, methods and language to help organizations achieve successful outcomes from their trading relationships.

“Standards are critical to management, but commercial judgment is critical to market leadership. Our programs equip students with the knowledge and the confidence to understand the difference between compliance and true business value”  – Tim Cummins, CEO at IACCM.

In an environment where collaboration is increasingly prized, IACCM stands alone in challenging the traditional 'buy-side / sell-side' adversarialism that undermines business results and reputation.

The interactive, online CCM learning and certification program provides learners with dynamic content, regularly adjusted and updated to reflect the volatility of today's market conditions. To view the updated curricula: http://www.iaccm.com/downloads/1440413036_ccm-associatepractitioner-sept-2015-v2.pdf

Upon successful completion of the CCM course, learners are awarded associate, practitioner or expert professional credentials, accredited by IACCM. Graduates have a thorough understanding of:

  • How CCM practices support sustainable relationships and increased transparency between business partners
  • How to deploy CCM to manage risk as well as the challenges of doing business internationally
  • How to amend underperforming contracts and stopping revenue or value leakage.

Included in the IACCM Professional CCM Certification Program:

  • Skills Assessment: identification of personal and/or team development needs against external benchmarks in the key areas of commercial skills and knowledge
  • Development Plan: a personal report with gap analysis, together with learning and experience recommendations
  • Online Learning: a flexible yet structured online program with student and instructor interactions covering the full contract lifecycle
  • Certification: an internationally recognized certification in contract and commercial management at Associate, Practitioner or Expert level.

IACCM helps learners develop their commercial acumen by providing a global perspective on good contracting and commercial management practice at an advanced level, a common body of knowledge and consistent tools. To learn more about the CCM program: https://www.iaccm.com/training/contract-management/

Visit www.iaccm.com for more information on IACCM's learning and certification programs, research, advisory, events and networking offerings as part of an IACCM membership.

END NOTE

1. Commercial Excellence: 10 Pitfalls to Avoid in Contracting - Research report published in March 2015 by IACCM. 

 
 

Sneak preview of speakers at IACCM's 13th Americas Forum Oct 6-8

 
If you are one of over 300 participants attending IACCM's Academic Forum on Oct 6-8 in Henderson, NV, you will soon be reviewing the agenda, with over 60 presentations spanning many subjects. Chances are you'd like to know a little more about the speakers - at least a few. Here's a short foretaste of what to expect.
 
 

Keynote speaker Tommy Spaulding, New York Times bestselling author, will present his "Heart-led Leader" speech with an emphasis on collaboration through contracts. He believes you cannot build a successful client base in a silo and that relationships are not optional.  "Instead of focusing on Return on Investment (ROI) as the key to success, Return on Relationships (ROR) should be the 'currency' we trust more." And that concept becomes the title of his speech, Increase Your ROI by Investing in Your Return on Relationships.

President of the Spaulding Companies Corporation, Tommy is an internationally known speaker, executive coach, entrepreneur and leadership consultant. He teaches the value of building lasting, genuine business (and personal) relationships through his motivational and real world experiences. We have reason to believe participants will unlock new strategies for revolutionizing traditional methods.

His books published include:  

  • The Heart-Led Leader - How Living and Leading from the Heart Will Change Your Organization and Your Life - coming October 6, 2015  
  • It's Not Just Who You Know (Transform Your Life and Your Organization by Turning Colleagues and Contacts into Lasting, Genuine Relationships) - released in 2010, now a NY Times bestseller.

Dr. Barbara Chomicka is a project manager with over fifteen years of diverse business and scientific experience spanning the residential, commercial, aviation and IT sectors of the construction industry. Her various conference presentations, academic papers and publications all aim to develop new, ground-smashing proposals for the profession and the construction industry. She is a board director of the IACCM and an associate at Arcadis EC Harris.

Barbara's presentation titled Environmental Sustainability in Construction Contracts: The True Impact of Regulatory Compliance focuses on contractual strategies in response to the political consensus on climate change that exacerbate -- rather than resolve -- problems of sustainability in the built environment. "These strategies also limit capacity for improvement or any other significant change, and invariably fail to deliver what was intended," she says. "'If we are to adopt the idea of environmental sustainability constructively and take reasonable action we first need a rational way of looking at it and making sense of it."

Steve Olson founded the CMS Group after serving 15 years as IBM's lead Contract Initiation Services Manager.  CMS is an advisory and consulting group specializing in outsourcing contracts, specifically post-award startups, contract analysis and the development of contract administration systems.  It represents over 30 years' experience, lessons learned and best practices and development and implementation of over 300 of the world's leading corporations and government agency Contract Administration Systems. "I want to provide meaningful work and life balance to our group, developing innovative products and services that enable our clients to start their awarded outsourcing contracts quickly and cost-effectively, and help them realize the benefits they're expecting."

His conference session, titled Start Your Contract off Right with a Post-award Kick-off Meeting will demonstrate why it's essential to conduct this meeting as soon as possible after contract signature to avoid issues and disputes down the road.

Other speakers will also challenge participants with a host of diverse topics explaining how to:

  • Drive greater efficiency in your contracting process

Lucy Bassli of Microsoft will share how time was saved and compliance increased through Microsoft's successful outsourcing of contract review processes and contract administration tasks for over 100,000 contracts annually to a legal process outsourcer. 

  • Ensure you stay relevant in an ever-evolving world

Unlike any other time in the past, our profession is in the midst of a seismic shake-up that will not only divide but sever the procurement professionals of today and tomorrow from their predecessors. In this session, Jon Hansen will identify the critical signs of this upcoming change, and how you need to prepare for the transition to this brave new world!

  • Improve processes, collaboration and ROI

Rod Wade of Med Impact reveals how focusing on process improvement and automation - and working collaboratively with other teams - resulted in improved employee and customer satisfaction, as well as significant cost savings.

To obtain an agenda click on IACCM Academic Forum Oct 6-8 2015.  At the top, select Event Details and Conference Agenda from the menu of choices! Also see the full list of all our speakers.

 
 

IACCM's free open contract management course to run again, beginning Nov 9

 
The free-to-access open contract management course developed and offered as a result of IACCM's partnership with the UK government and Southampton University - a world first - is being repeated in November.
 
 

Described as an “outstanding event,” this popular, three-week, on-line course begins Monday, November 9, and will again be available to all. Delivered as a “Massive Open On-line Course” or MOOC1 the popular Build Relationships in Business course attracted more than 16,000 business people from around the world when it launched in April this year. It supports IACCM's commercial leadership training work with the UK government.2

Although three modules released each week can be studied any time, you will maximize interaction if you do them the week of release. Time commitment will be about three hours a week. Building on the common pitfalls in contract management, the aim is to raise contract and commercial awareness, and appreciation for the value of good contracting. Course topics include:

  • Relationship fundamentals; the things that can go right or wrong in commercial relationships
  • The rules that govern public and private sector procurement
  • The complexities of supply chains and networks that are a feature of many contracts
  • How to manage interdependencies and the needs of multiple stakeholders
  • Judgment and the data needed to inform it

The course will help you to understand:

  • what is involved in commercial business relationships;
  • the process of contractual agreements; and
  • how to achieve objectives of an organization including customers and suppliers - without threat or failure.

The course is co-delivered by IACCM's CEO Tim Cummins and Douglas Macbeth, Southampton University's Professor of Purchasing and Supply Management. Course sponsors include the UK Crown Commercial Service and Civil Service Learning.

You can register to join the course at any point throughout its three-week duration, and you will then be able to access the recorded materials beyond the end date and until further notice. Register now to receive more information nearer the time.

END NOTES

  1. A MOOC (massive open online course) is an online course aimed at unlimited participation and open access via the web, and there are now a number of MOOC providers. First developed in 2008, MOOCs provide traditional course materials and often also interactive user forums.
  2. View the course website at https://www.futurelearn.com/courses/contract-management 
 
 

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License. Based on a work by Revitas, Inc. at www.revitasinc.com/blog.