As a Director in SC&H Group’s Contract Compliance Audit Services practice, Patrick has a few key professional motivations with all of his clients: increasing third-party transparency, optimizing supplier relationships, and improving governance. He works with Fortune 100 companies to evaluate contract compliance in categories such as marketing and advertising, contingent staffing, facilities management, construction, computer hardware/software, MRO, security, events, and office supplies. Projects under Patrick’s leadership have resulted in client savings of over $150 million in addition to practical control developments, valuable process improvements, enhanced earnings, and proven cost-savings initiatives. He is very passionate about helping to influence the operations and cultures of global enterprises, and one of his greatest professional achievements was being able to hand over a $1 million recovery check to his client.
According to reports authored by the International Association of Contract and Commercial Management, the Aberdeen Group, and the International Association of Outsourcing Professionals, the average contract loses approximately 17% to 40% of its value from the time of execution through to close-out. Value leakage can range from things like low adoption rates, non-value-added change orders, lack of innovation, poor governance, etc. This blog post will help contract professionals understand how customer-supplier relationships lose value and three best practices to preserve value.
Move Beyond Deal Points
Typically, negotiators think in terms of “getting the best deal”, meaning, financial and legal Terms that are favorable to the negotiator’s organization. Here is the problem: if businesspeople accept this premise, they are negotiating short-term “deals” in a complex, long-term business environment.
Focusing on the “deal” often leads to losing focus on the larger business goal(s) that a customer-supplier relationship seeks to address. For example, an overemphasis on “getting the best deal” often results in failing to fully document costly aspects of the work in the Statement of Work, failing to include adequate inspection, testing and cure processes, and failing to document and control common risk events.
Furthermore, focusing on the “deal” also precludes the inclusion of innovation in the delivery of goods and services. Buying emerging technologies like artificial intelligence, robotic process automation, cloud computing, or cognitive automation is the new norm, yet only 21% of respondents in Deloitte’s 2016 Global Outsourcing Survey reported that innovation was a key part of their contracts.
Jeanette Nyden is an internationally recognized contract negotiation expert. She’s written and co-authored three books to date. Jeanette provides tactical, customized contract drafting, negotiation and management training, coaching and mentoring programs to both sales and purchasing teams.
Jeanette has taught at major corporations, Seattle University and the University of Tennessee’s Center for Executive Education. While no longer practicing law in a traditional manner, she is a lawyer and holds a license to practice law in Washington.
Your presentation at the Western Regional SIGnature Event is about reducing value leakage in complex contracts--why is this such an important topic?
Industry studies demonstrate contract value leakage is from 17% to as high as 40%. Typically, value leakage comes from things like low adoption rates, non-value-added change orders, lack of innovation, etc. Performance- and outcome-based contracting best practices can dramatically reduce value leakage.
Additionally, businesses are seeking greater returns from their customer-supplier relationships at the same time many younger professionals are entering the field. This is a perfect time in the market to emphasize ways to implement performance- and outcome-based principles to reduce value leakage.
Edward J. Hansen brings more than 20 years of experience representing clients in technology transactions that involve significant business change. If you’ve attended a SIG Summit, then you are likely familiar with Ed and his work. In addition to being an active speaker at industry conferences, he has authored and presents the “terms and conditions” module of the SIG University certification program, regularly conducts contracting master classes (including for SIG’s Executive Immersion Program), serves on the advisory board of the Shared Services and Outsourcing Network, and is a regular guest lecturer at New York University’s Executive Master of Business Administration program.
You have a lot of experience representing clients in technology transactions. What are some examples of how technology has changed or impacted the way you approach your job?
The technology in place at any given time actually has little impact on how I approach my job. What does impact my job is the fact that the technology landscape when the deal is two years old may not be the same as it was when we went out to RFx.
I started working in the technology space in 1993 and spent almost a decade working with companies who were undertaking reengineering efforts. What I learned, mostly through trial and error, is that the process you go through in procuring and contracting for transformational technology is at least as important as the contract that emerges. Because of the velocity of change, the relationship you form during the process is often what carries the deal, and the contract has to reflect that.
Contracting is one of the most important parts of the sourcing process – this is one of the final steps in the process before (or in parallel with) implementation and it documents all terms and conditions agreed to by both parties throughout the sourcing engagement. While it is one of the most important steps in a sourcing engagement, it can also be one of the most painful with numerous rounds of revisions and reviewing legalese that can extend out a project timeline substantially at times. As a Sourcing professional, I’ve reviewed my share of contracts ranging from one page agreements to lengthy contracts with multiple attachments and exhibits. Each contracting experience is different, some have gone smoothly and are wrapped up in a few days’ time, while others took months to come to agreement on the final language. I will highlight a few recent experiences with contracting and some of the lessons learned that can be applied to others in similar situations.
Don’t skip the contract just because of a low spend figure.
On a recent project, my team was brought in to negotiate with a local hardware store that was used regularly for as needed supplies at a local manufacturing plant. Upon further investigation, we learned that the client had already negotiated a discount structure with this supplier earlier in the year, but there was no formal documentation because the annual spend with the supplier was below the threshold when contracts are required.
With global sports industry revenues over $145Bn and growing at a rate of 3.7% over the past 4 years, it is evident now more than ever, that behind the tackles and buzzer beaters, sports remains a business. Negotiations in business are usually governed by several tangible measurable data points that are indicative of future performance. Given below are a few aspects that are unique to negotiations in the sports industry: