C o n s u l t i n g . Te c h n o l o g y. S e r v i c e s . F o r L a w.

Recapturing Millions of Dollars

by Leak-Proofing
Your Contract Processes
Bill Mooz | Senior Consultant, Elevate
Hannah Dixon | Manager, Commercial Contracting, DaVita Kidney Care
Tim Cummins | President, IACCM

May 8, 2018
Introductions

May 8, 2018
Leak-Proofing Your Contracts Processes
Bill Mooz Hannah Dixon
Senior Consultant Contracts Manager
Elevate DaVita

1
Tim Cummins
President
IACCM
 Consideration = $100

Leak-Proofing Your Contracts Processes May 8, 2018

2
Question:
How much value does each party actually get?

May 8, 2018
A. $94

Leak-Proofing Your Contracts Processes

B. $88

C. $60 (or less)

3
Average Contract Value Leakage
All Companies Best in Class All the Rest Bottom quintile

May 8, 2018
0%

-5% -6.2%
-9.3%

Leak-Proofing Your Contracts Processes

-10% -12.4%
-15%

-20%

-25%

-30%

-35%
-40.0%
-40%

-45%

Numbers include only direct leakage and not consequential losses 4

Sources: Tim Cummins, Poor Contract Management Costs Companies 9% – Bottom Line (IACCM, October 29, 2012);
Supporting Local Public Services Through Change, Contract Optimization (Ernst & Young 2016) at 2; KPMG:LLP Strategic
Sourcing Point of View: Shared Services, Outsourcing Contracts Can Hinder Business Plans Without Proper Governance
(Feb. 23, 2012).
Impact on the Bottom Line
Company A and Company B are competitors who have
identical revenues but manage contracts differently.

May 8, 2018
Company A Company B

Leak-Proofing Your Contracts Processes

Annual Revenues $1,000,000,000 $1,000,000,000

Gross Margin 20% 20%

(excluding contract value leakage) $200,000,000 $200,000,000

Operational Maturity Level Top Performer All the Rest

6.2% 12.4%
Contract Leakage $62,000,000 $124,000,000
5
Gross Margin 13.8% 7.6%
(including contract value leakage) $138,000,000 $76,000,000
Sources of Value Leakage

May 8, 2018
Poor

Leak-Proofing Your Contracts Processes

Contracting
contract
costs
quality

6
Inadequate
contract management
Nobel Prize in Economics 2016
for their contributions to contract theory

May 8, 2018
Leak-Proofing Your Contracts Processes
Oliver Hart
Harvard

7
Bengt Holmström
MIT
Contract Quality
Between 1/2 and 2/3 of leakage traces back to issues of
contract quality, mainly incompleteness and ambiguity.

May 8, 2018
Leak-Proofing Your Contracts Processes
8
See Tim Cummins, Poor Contract Management Costs Companies 9% – Bottom Line (IACCN, October 20, 2012); Supporting Local
Public Services Through Change, Contract Optimisation (Ernst & Young 2016)
Sources of Quality Issues

May 8, 2018
Initial Contract Template

Leak-Proofing Your Contracts Processes

Negotiated Agreements

9
 Plugging the Quality Leak
Standardization and discipline are the keys to quality contracts

May 8, 2018
Quality Defect Impact Solution

Leak-Proofing Your Contracts Processes

Contract is not fit for Fails to address important Use tailored agreement
purpose elements of relationship, templates; avoid generic
impeding effective purchase agreements
contract management
Contract template is Makes contract difficult to Use quality templates
ambiguous manage
Negotiations cause strong Makes contract difficult to (1) Use click accepts
template to become manage where possible
ambiguous (2) Use playbooks
(3) Stop needless
negotiations 10
Unclear remedies Make contract difficult to Have clear SLAs and
manage remedies
 Contracting Costs and Cycle Times

May 8, 2018
Top
Others Delta
Performers

Leak-Proofing Your Contracts Processes

Transaction Cycle Time 11.5 days 21.2 days 46%

Cost of Completing Simple Contract $3,800 $6,900 45%

Cost of Completing Medium Contract $14,000 $23,000 39%

Cost of Completing Complex Contract $49,000 $100,000+ 51%+

11

Sources: Bryan Ball, Contract Management: How the Best-in-Class Maximize Their Potential (Aberdeen Group, July 2017);
Tim Cummins, The Cost of a Contract (IACCM, November 20, 2017).
Contracting Cost and Time Drivers
• Poor quality templates

May 8, 2018
• Needless negotiations
• Lack of defined process

Leak-Proofing Your Contracts Processes

• Authority matrix
• Playbooks/fallbacks
• Escalation paths
• Lack of tools
• Repository
• Workflow
• Doc assembly 12
• eSignature
Extended Impact
• The typical law department’s budget is

May 8, 2018
around 1% of revenues.

Leak-Proofing Your Contracts Processes

• Direct impact of higher contracting costs is
relatively small.
• Indirect impact can be huge as the same
things that lead to contracting cost and
time increases also impact quality.

13
 Contract Management
The business case
“Value Expected”

May 8, 2018
Value captured during
procurement
“Value Promised”
Value

12%

Leak-Proofing Your Contracts Processes

hard
leakage

20%
8%
soft
leakage

What was delivered

“Value Realized”

Pre-contract award Post-contract award Time

(procurement) (supplier governance) 14

Sources: Jason Donner & Claude Marais, Redefining CLM to Realize the Power of the Connected Enterprise, slide 11
(presentation to IACCM Americas Conference, October 11–13, 2017).
Examples of Leakage

May 8, 2018
Hard Leakage Soft Leakage
• Invoicing errors • Delivery failures

Leak-Proofing Your Contracts Processes

• Unrealized pricing • Poor customer
adjustments experience
• Non-compliant work • Lost renewal
opportunities
• Lost business

15
Managing Contracts

May 8, 2018
Individual Contracts Contract Portfolios
• Event-based notifications • Risk profile reviews

Leak-Proofing Your Contracts Processes

• Renewals • Negotiated terms review
• Pricing adjustments • Profitability reviews by
• Delivery milestones deal type, business unit,
• Delivery compliance region, etc.
reviews • Transaction cycle times
• Invoice compliance by deal type, business
reviews unit, region, etc.

16
Portfolio Review: The Next Frontier
Contracts may be your company’s biggest asset.

May 8, 2018
• Over 80% of the value of the Fortune 500 is
attributable to intangible assets.

Leak-Proofing Your Contracts Processes

• Many of these assets are embodied in contracts.
• A robust contract repository arguably contains
more data about the business than the
company’s financial systems.
• You cannot harness that data unless you have the
systems and processes in place to collect and
analyze it. 17
 Optimized Approach to Contracts
Traditional Request, Generate Review, Negotiate Sign, Store Contract
Model and Deliver and Approve and Search Management

May 8, 2018
Use data from
Analyze install base
downstream analytics Use management Advanced analytics
of contracts to
Event driven tools to drive intelligence from tools, including
manage obligations,
Analytics manual continuous workflow to reporting, pattern
manage risk profile,
undertakings improvement in continuously improve recognition and

Leak-Proofing Your Contracts Processes

and improve
templates and process predictive analytics
templates/playbooks
playbooks

E-signature and
Contract authoring Event-based
Microsoft Workflow and contract secure, scalable,
Technology Office
and/or click accept;
authoring searchable
notifications, vendor
workflow management tools
repository

Automated where Automated where

Right sourcing including
possible, with right possible, with right
Lawyers do contract managers
People everything
Self-service model
within the business,
sourced contract sourced contract
admin center management center
onshore, offshore
support as needed support as needed

Standard obligation
Defined
and template
Simplified, approval/escalation
management
Process Ad hoc standardized templates process with negotiators Centralized process
processes; mix of
and playbooks having authority to use
centralized and
standard fallbacks
decentralized 18

Leak-proofing your contract processes requires a holistic approach

Case Study: DaVita
Leak-proofing contracting processes with a vendor portal.

May 8, 2018
• One of the largest kidney care providers in the US
• Identified need to improve process to keep up with growth

Leak-Proofing Your Contracts Processes

Issue Solution
De-centralized processes

Vendors without appropriate terms in place

Vendor Portal
Lack of process automation

High risk profile

• Vendor Portal can be foundation for portfolio contract 19

management
Case Study: DaVita (cont’d)
DaVita Vendor Portal – Solution

May 8, 2018
• Implement a vendor registration solution which will
formally onboard new vendors.

Leak-Proofing Your Contracts Processes

• This solution will improve compliance, reduce enterprise
risk, provide visibility across AP and Legal, and improve
process efficiency.

Legal AP Compliance
• Reduce risk • Reduce burden via • Reduce risk of doing
• Lower costs increased process business with excluded
• Improve transaction efficiency vendors
cycle times • Reduce risk of billing
fraud 20
Case Study: DaVita (cont’d)
DaVita Vendor Portal – Challenges

May 8, 2018
• Process change and buy-in
• Platform selection

Leak-Proofing Your Contracts Processes

• Integrating technologies
• Funding source identification

AP Legal
IT
Compliance Procurement Vendor
Management 21
 Questions and Discussion

Leak-Proofing Your Contracts Processes May 8, 2018

22
 C o n s u l t i n g . Te c h n o l o g y. S e r v i c e s . F o r L a w.

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