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The Attributes of effective contract management?

Reading a cemetery contracting audit report - we really do love procurement here at Brian Farrington:) - can confirm that procurement principles apply in all situations where third party expenditure is involved.


The audit comments are thought-provoking – here are 6 examples:




1.       “We found that due to the City’s weak contract management and oversight over the cemetery contract, the City has no assurance that the contractor is providing all the services for which the City is paying??


 2.       “Since we are unable to identify all of the elements that constitute the cemetery contract, we recommend that PARD [the buy-side organisation] management coordinates with the Purchasing Office and the Law Department to determine what constitutes the cemetery contract??


 3.       “During our review, we were unable to identify what constitutes the contract because different parties provided different sets of documents; additionally, documents provided in the same set contained conflicting information.??


 4.       “The cemetery contract did not include the ‘integration clause’ which clarifies which document has priority in case of conflicting information, nor was the contract reviewed by the Law Department prior to being presented to the City Council for approval??


 5.       “Lack of a clear contract impairs the City’s ability to enforce contract terms and limits its ability to obtain legal recourse.??


 6.       “On site reviews had rarely been performed and documented.??



A litany of failings, highlighting, yet again, the virtues of audit, contract management, and robust processes.


The Take-away:   Effective Contract Management is essentially a PRO-ACTIVE process demanding ‘commercial awareness’.


An appropriate definition of commercial awareness is the ability to understand and act on general business principles and practices and to make the most of available opportunities to deliver the business benefits required from contract performance.


The disciplines of effective Contract Management therefore need to be employed throughout the contract cycle – underpinned by commercial awareness. 


This requires a concentration and provision for the subsequent management of the contract PRIOR to it being tendered or let.  These preventative steps will help ensure that the contract, once let, and the Contractor once chosen, perform effectively and efficiently.  Contract Management generally and specifically for the subject contract has major implications on budgeting and finance within organisations.


When the contract is let, Contract Management requires a professional focus upon monitoring, measurement, reporting, milestone achievement, relationship management, risk management, contractual compliance and achievement of required performance.


Knowledge, skills and behaviour of contract management are challenging! How is its effectiveness being addressed in your organisation?


Thanks

Steve

 

www.Procurisk.com - The evolution of risk management For more information and instant access to the free demo site please contact Ray Gambell on 01744 20698, or r.gambell@brianfarrington.com

Interested in insight on managing supplier performance? We recommend reading: “Contract Management failures again???

To meet the needs of thoughtful people, Brian Farrington’s “Think Procurement?? can be sent straight to your inbox – exclusive advice and tips on procurement, risk and negotiation.

It’s free. See bottom of the page for a quick and easy sign up.
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Why negotiation skills are key to loyalty and retention success
Customer and Loyalty Retention has invited Stephen Ashcroft to the Kensington Close Hotel, 26 March 2014 to share his experience and insight on why negotiation skills are key to loyalty and retention success.

Stephen Ashcroft will be covering the following points at the event:

  • Focusing the negotiation on the customer’s needs whether they be performance, contractual, price, or relationships

  • Determining a strategy that convinces the customer we have their interests at heart

  • Statements and words to avoid at all costs!

  • Focusing tactics on partnering in business, creating trust and understanding

  • Devising tactics to positively impact on the customer's key personnel's motivations and characters

  • Adopting negotiation tactics that have their foundation in the long-term, rather than merely the current live issue


 "The Customer Loyalty and Retention Summit 2014 will enable your organisation to develop plans, policies and methods into how to retain, secure and upsell you your customer to increase profit, customer base and ROI."

Here are some of the key topics that will be covered at the whole event:

  • Increase customer engagement to enhance loyalty and drive profits

  • Put a halt to attrition in order to enhance your customer base

  • Improve your culture to focus on customer centricity and increase retention

  • Understand how technology can help loyalty and retention grow your business

  • Utilise social media to increase loyalty and make informed decisions on the future of your business



Here’s the Speaker Biography:

Stephen Ashcroft BEng, MSc, MCIPS, is a Procurement and Proposals Coach who helps Directors and Managers align their tendering performance with their stakeholders’ needs. He works with professionals who are brilliant at what they do, but want to get better at managing tenders. Benefitting for the perspective of “buyer’s eyes?? he coaches IT and professional services firms (e.g. architects, engineering practices, aerospace/defence contractors, solicitors, accountants, consultants, software/digital specialists) bidding for major contracts – RFI/PQQ, Tender/RFP, including presentation rehearsals. His proven methodologies provide a stimulus to strive for more wins

Stephen is a visiting lecturer at the University of Manchester on their Engineering Doctorate programme. He is also co-author of “Contracting in the Public Sector?? and a contributor to the Lysons/Farrington 8th Edition of “Purchasing and Supply Chain Management“.  Which is nice. But his real pride is in the feedback and results achieved by his clients.

He is (avidly!) on Twitter

If you would like to attend the event, as a guest of Brian Farrington Ltd, please drop an email to Steve - or to request our guide on “Sharpening up your commercial negotiation skills.??

More details on tendering and proposals



 
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Marketing and Partnerships Assistant
Marketing and Partnerships Assistant - 3 month project appointment

Brian Farrington Ltd is one of the world's longest established consultants specialising in procurement.

This is an exciting opportunity to work with a dynamic and expanding SME providing high quality executive programmes, consultancy and specialist procurement risk software. Brian Farrington Ltd (www.brianfarrington.com) is internationally recognised for its work with leading corporate firms and government organisations as well as with SMEs, third sector organisations and social enterprises. The experienced team provides consultancy, a range of training programmes and software solutions (Procurisk®) focused on procurement, risk, business development, negotiation and related skills development. It is a fast paced, dynamic and commercially focussed environment. This will be a suitable role for someone looking to embark on a career within marketing and communications.

You will gain practical experience of how to implement a marketing and communications strategy. You will deploy a variety of marketing tactics and tools, including Social Media, PR, e-mailshots, marketing initiatives, website etc. As part of a team, you will use and manage a Customer Relationship Management (CRM) system, which includes how to monitor and analyse the effectiveness of a marketing campaign. Working with Brian Farrington Ltd is a unique opportunity to work with industry recognised procurement and business specialists. You will be working alongside a successful team that use their research and knowledge in a commercially driven environment. You will be based at Rainford Hall, St Helens. This is an excellent opportunity to gain meaningful work experience and enhance your long-term career prospects.

Your overall objective is to ‘raise the visibility of Brian Farrington Ltd’.

You will contribute to the overall Marketing and Communications Strategy of Procurisk®, as well as wider projects that aim to improve current processes and materials.

On a day-to-day basis, you will oversee marketing activity, this will include:

- Managing our Social Media streams (including Twitter and LinkedIn)

- Identifying and differentiation of targeted client organisations

- Sending regular e-Mailshots to the businesses we work with and targeted organisations

- Driving traffic to our website

- Management of client engagement with Procurisk

- Promote our series of events at the International Festival for Business

For an informal discussion regarding the requirements of the 3 month (fixed term) paid role, commencing April 2014, please contact: Stephen Ashcroft, Procurisk® Specialist (s.ashcroft@brianfarrington.com)

Brian Farrington Ltd is committed to creating a diverse environment where everybody is treated with dignity, fairness and respect. We welcome applications from all potential candidates.
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Not another IT procurement disaster?- Part 2
Our previous emphasis (read part 1 here) was on financial outcomes, which, of course, take place within the context of the contract.

Typically, contracts are negotiated and, when signed, will be meticulously managed by whoever is accountable on the project team.

In regard to the lump sum price, the contract specified,
"no amounts whatsoever, other than those mentioned in the price schedule, would be paid by the owner."

So, what did the price schedule say?

Regardless, the attitude of some IT suppliers will be to use the contract change process to increase prices.

The audit report provides an insight into the "work schedule." Article 6 of the specific terms and conditions allows the Metro to postpone completion of work by a month without compensating the supplier. Beyond the one month period, any delay is subject to the contract change process and involves compensating the supplier, unless it can be shown that the latter caused the delay.

In that case, the supplier would be required to provide solutions to mitigate the delays and submit a catch-up plan for lost time that would not incur additional costs for the metro.The emphasis (underlined) is ours and focuses on the effectiveness of contract management. Monitoring a supplier's activities is a detailed task, for example, tracking their provision of resources against their plan that should have been provided with the tender.

The contract also provided that in the event of a delay in implementing the system caused by the supplier, the supplier would have to pay the Metro a cash fine for damages plus interest, calculated on the basis of the number of days of delay up to 10% of the value of the contract.

The operative words are 'caused by the supplier.'

The proof of this will require comprehensive documentation. The provision for liquidated damages lacks detail in the above explanation but the maximum is 10%.

Why?

Bearing in mind the 7.5 year delay; the detail beggars belief.

There can be little doubt that serious disputes arose and, the contract wasn't terminated. Various claims were made by the supplier, including a request to review contract dates and work progress.

The audit report observes,
" A contentious environment quickly developed between the parties."

That will surprise no-one but eyebrows will raise at the fact that,
"a negotiating committee was formed to attempt to resolve most of the claims."

This report is an excellent case study, highlighting typical issues on IT contracts. The skill is to identify how to mitigate the risks that materialised. Procurisk would be of material assistance.

Thanks

Steve

 

www.Procurisk.com - The evolution of risk management For more information and instant access to the free demo site please contact Ray Gambell on 01744 20698, or r.gambell@brianfarrington.com

Interested in insight on managing supplier performance? We recommend reading: “Contract Management failures again???

To meet the needs of thoughtful people, Brian Farrington’s “Think Procurement?? can be sent straight to your inbox – exclusive advice and tips on procurement, risk and negotiation.

It’s free. See bottom of the page for a quick and easy sign up.

 
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Occupational fraud: the tell-tale signs?
There is an excellent report titled, ‘Report to the Nations on occupational fraud and abuse’ published by the Association of Certified Fraud Examiners.

It is directly relevant to auditing and directing the engagement and management of your suppliers and contractors. 

The "corruption scheme" category addresses  activities in which an employee misuses his or her influence in a business transaction in a way that violates his or her duty to the employer in order to gain a direct or indirect benefit (e.g., schemes involving bribery or conflicts of interest).

The Report identifies 16 behavioural red flags of perpetrators. These are by ranking:

  • Living beyond means - 35.6%

  • Financial difficulties – 27.1%

  • Unusually close association with vendor/customer - 19.2%

  • Control issues, unwillingness to share duties – 18.2%

  • Divorce/Family problems – 14.8%

  • Wheeler-Dealer Attitude – 14.8%

  • Irritability, suspiciousness or defensiveness – 12.6%

  • Addiction problems – 8.4%

  • Past employment-related problems – 8.1%

  • Complained about inadequate pay – 7.9%

  • Refusal to take vacations – 6.5%

  • Excessive pressure from within organisation – 6.5%

  • Past legal problems – 5.3%

  • Complained about lack of authority – 4.8%

  • Excessive family/peer pressure for success – 4.7%

  • Instability in life circumstances – 4.1%


 Third party expenditure is a ripe area for an opportunity to engage in occupational fraud. 

Brian Farrington Ltd has produced a range of indicators that may indicate fraud. These include:

  • Reluctance to change suppliers

  • Refusal to issue invitations to tender

  • Single source decisions

  • Insistence on sole contact with suppliers

  • Price increases being granted without justification

  • Change orders issued that do not comply with procedures

  • Insistence on approving selected invoices

  • Regular hospitality at sporting and social events

  • Acceptance of low quality goods and services

  • Disclosure of budgets to selected supplier(s)

  • Verbal purchase orders, confirmed upon receipt of an invoice


What initial steps can you take to identify  and mitigate the risk of occupational fraud? 

We have found seeking answers to the following 7 questions provides some assurance:

  1. What are the arrangements for whistleblowing in your organisation?

  2. When did internal audit last conduct a detailed review of procurement practices?

  3. Are the buyers rotated across commodity categories?

  4. Is there a register to record acceptance of moderate hospitality?

  5. Are there financial sign-off limits for the award of contracts?

  6. Which supplier(s) are long-term entrenched in our business?

  7. How do we evaluate genuine tenders?


A Call to action #1

So do this right now: make a resolution to seek answers to the 7 questions this week. Implement something you've been thinking of for a while but haven't pulled the trigger on. What's the worst that can happen?  You find evidence assuring  you that there are policies, tools and processes in place mitigating occupational fraud.

 

Have you found this post helpful? We now recommend you read "Most Favoured Nations Clause- Climbing the Mountain".


 

A call to action #2

No doubt your processes to engage and manage suppliers and contractors have served you well. Is it now time to confirm they are fit for purpose and capable of supporting your objectives during the next phase of your organisation's development?

Working with you and your stakeholders including project managers and legal teams, the key activities of our proven approach include;

  • Review the current processes

  • Determine future contracting requirements

  • Propose and recommend the most appropriate process

  • Develop or revise the document/s  e.g. risk mitigation

  • Create guidance documents for internal and external use


Want to know more? For further information please call 01744 20698 or email Steve Ashcroft.

Thanks for your interest in mitigating occupational fraud.

 

To meet the needs of thoughtful people, Brian Farrington publishes a short, sharp e-newsletter .

It's free. See bottom of the page for a quick and easy sign-up to bring it to you.

Let's connect on Twitter and LinkedIn


 

 


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Not Another IT Procurement Disaster?
This IT procurement involved replacing the existing integrated control system (ICS) and its computer components for the Montreal metro lines. The audit report argues that replacing the computer components was justified by their obsolescence. It would, from a risk point of view, be interesting to know what the supplier's contractual obligations were for component obsolescence and the circumstances for withdrawing support.

In the meantime, let us feast our eyes on the 'financials.'

A public call for tenders to award a lump-sum contract for the replacement of the ICS, was issued. Bids were required to include a technical proposal for software and a technical proposal for equipment. Prices quoted had to be firm and include all direct and indirect costs built into the contract. The statement of work included design, manufacture, delivery, installation and integration of equipment and systems. The contract was awarded on June 3, 2003 to the company that had achieved the highest point score. The price totalled $36,100,000, i.e. a maximum of $32,819,714 and a contingency provision of $3,281,971 equal to 10% of the value of the contract.

The audit report stated that,

'since awarding the contract, costs and delays have steadily increased.'


The report says that at December 31, 2010, the project was still in the development and testing stage. The final cost had risen to almost $200,000,000. Of this figure, $63,700,000 is in-house costs. Also, $12,800,000 is provided as a contingency.

You will note the elapsed time of 7.5 years.

The planned completion was originally set at 31 months from the date of awarding the contract.

In summary the supplier costs have quadrupled from $32,800,000 to $120,300,000.

There is, unfortunately, a familiar ring to this story. There are many questions, here's seven to get us started:

  1. Was there a planned programme of work with the tender?

  2. If so, who conducted due diligence?

  3. Who checked if the appointed supplier had the skills and resources?

  4. How did project management permit 7.5 years to elapse without decisive action?

  5. How were costs allowed to escalate and what was the charge process adopted?

  6. Why wasn't the contract terminated?

  7. Who managed the contingency fund?


We'll come back to how to better address IT Procurement in our next piece.

Meantime, what other questions are you thinking need answering?

Thanks

Steve

 

www.Procurisk.com - The evolution of risk management For more information and instant access to the free demo site please contact Ray Gambell on 01744 20698, or r.gambell@brianfarrington.com

Interested in insight on managing supplier performance? We recommend reading: “Contract Management failures again???

To meet the needs of thoughtful people, Brian Farrington’s “Think Procurement.??  can be sent straight to your inbox – exclusive advice and tips on procurement, risk and negotiation.

It’s free. See bottom of the page for a quick and easy sign up.

 
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The Alaskan Story That Will Change The Way You Approach High-Risk High-Value Projects
High value projects present potentially financial, operational and legal risks. What can we learn from a deep-water port in Alaska, regarding the way we approach these type of projects?

The U.S. Department of Transportation has shed light on the development and modernisation of the Port of Anchorage, and comments on the other projects at Hawaii and Guan.

The results of the audit, in brief, were that MARAD (Maritime Administration) did not:

  • establish effective oversight mechanisms when it initiated its port infrastructure development responsibilities



  • adequately define its port project oversight responsibilities or provide guidance to contractors for developing program management plans



  • establish a sound risk management process consistent with industry best practices



  • have a process to systematically store, maintain, and track project progress and funds


For example, MARAD did not develop a risk management process for the Port of Anchorage project until almost seven years after the project began.

What is the bottom line?

Between 2003 and 2011 the Port of Anchorage's project's cost estimate grew over four and half times from $211 million to $1 billion, with scheduled completion time slipping eight years.

Staggering by any standards!

The report states that MARAD settled two claims with the contractor for the Port of Anchorage project for $11.3 million. These claims cited problems such as changing contract requirements, delayed work and an alleged detective design. There is nothing novel about the contractor's claim. Indeed, some contractors are expert at generating claims; taking advantage of any loopholes in a contract or inadequate supervision of projects (these comments make no allegations regarding the above projects).

The MARAD acquisition plans received comment about a budgeting statement:

                "it is anticipated that the annual costs for environmental/design engineering, and construction efforts                                                 will vary between $10 million and $30 million."


Obvious questions include:

  • Why this enormous gap?

  • Where was the detail of the estimates?

  • Who tested the estimates?

  • Who signed them off?


Events in Alaska certainly suggests some quiet reflection on the knowledge, skills and behaviour of your own key people.

Two questions to inform your thinking:

How will this Alaskan story change the way you approach High-Risk High-Value projects?

and related to that

How are you enabling and equipping your people to assess the risks impacting your organisation?

If you’ve got any questions or comments, be great to here from you.

Thanks

Steve

PS the photo is of an Alaskan Moose :)

 

www.Procurisk.com - The evolution of risk management For more information and instant access to the free demo site please contact Ray Gambell on 01744 20698, or r.gambell@brianfarrington.com

Interested in insight on managing supplier performance? We recommend reading: “Contract Management failures again???

To meet the needs of thoughtful people, Brian Farrington’s “Think Procurement.??  can be sent straight to your inbox – exclusive advice and tips on procurement, risk and negotiation.

It’s free. See bottom of the page for a quick and easy sign up.

 
Read More >
Contract Management failures again?
We regularly encounter failures in contract management. The problems are not focused on any type of organisation or what they purchase. A report to the Montana Legislative, "Contract Management- Department of Military Affairs", reference 11P-06 is enlightening.

All contracts designate a contract liaison. This person serves as the department's representative for the duration of the contract and is the primary contact for contractors. Their duties include oversight of the provision of goods and services, approval of contractors payments and assistance of compliance with contract terms. So far, so good! What happened in practice includes the points below:

  • Despite having millions of dollars worth of contracts, the department does not know how many contracts in which it is currently engaged. This is a common problem we encounter, exacerbated by not having a system to track contractor's financial commitments, thereby making cash flow projections almost impossible.



  • The department does not have an effective method of maintaining proof of insurance documents it receives from contractors. This is potentially a significant corporate risk. Many procurement departments abdicate accountability for assuring contractor's insurance provision, once the contract has been let.



  • 15% of contracts in the sample audit had amendments which were not signed by the contractor. The transfer of learning to other organisations is that ineffective amendment of contracts presents the risk of fraud. It is not unknown for amendments to be used to circumvent financial limits on individuals within the procurement chain.



  • We also identified on instance in which a contract worth nearly $1.6 million was modified without a formal amendment. It goes on to say that the contract liaison allowed the contractor to be paid for partial completion of a milestone. The contract liaison stated an amendment was not necessary because payment milestones were "subjective". There are significant risks for every organisation making milestone payments. How is the milestone identified? Will title and risk pass to the buying organisation when payment is made? Will a vesting certificate be signed? Will we make a retention against the payment?


The failure to put in place effective contract management is a chilling thought for organisations. It has risk stamped all over it.

How are you enabling and equipping your people to assess the risks impacting your organisation?

If you've got any questions or comments, be great to here from you.

Thanks

Steve

 

www.Procurisk.com - The evolution of risk management For more information and a free trial please contact me, Ray Gambell on 01744 20698, or r.gambell@brianfarrington.com

Interested in insight on managing supplier performance? We recommend reading “Do you believe in the reliability, truth and ability of your suppliers? Do you trust them???

To meet the needs of thoughtful people, Brian Farrington's “Think Procurement.??  can be sent straight to your inbox - exclusive advice and tips on procurement, risk and negotiation.

It’s free. See bottom of the page for a quick and easy sign up.

 
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