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© CGI Group Inc. CONFIDENTIAL
Knowing and Managing What’s been Agreed: The Case for Contract Management Canadian Legal Technology Forum St. Andrews Club & Conference Centre, Toronto, ON
Richard AustinDeeth Williams Wall LLP
Eric Notkin, Vice-President, Legal Affairs CGI
September 22-23, 2014
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“After all, how hard can it really be?”
“My job is to get the signed contract. Your job is to deliver it.”
“It has to be signed today if we’re to get it into this quarter.”______________________________
“If I’d know the contract said that, I never would have agreed to do that change order for that price.”
“Who’s the idiot who agreed to that?”
“There’s no way I can deliver what you have committed us to in the time we have to do it/for the price you have negotiated.”
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Agenda
I. The Context of Contract Management
II. Expectations and Performance Gaps
II. Ideas, Initiatives and Improvements
I. The Context of Contract Management
II. Expectations and Performance Gaps
II. Ideas, Initiatives and Improvements
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I. The Context of Contract Management
More rigorous contract management regimes - beyond standard invoicing and service-level performance inquiries – emerging because:
Outsourcing industry is maturing
Outsourcing industry is maturing
• Customers are getting smarter• Outsourcing transactions (including
BPO) are more complicated • Large full service providers and small
niche players• Superior contract performance
becoming a key differentiator
• Customers are getting smarter• Outsourcing transactions (including
BPO) are more complicated • Large full service providers and small
niche players• Superior contract performance
becoming a key differentiator
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I. The Contract Management Context cont’d
Increased regulatory pressure for proper contract management
Increased regulatory pressure for proper contract management
“7.3.2 Monitoring the Outsourcing ArrangementThe FRE should monitor all material outsourcing arrangements to ensure that the service is being delivered in the manner expected and in accordance with the terms of the contract or outsourcing agreement. Monitoring may take the form of regular, formal meetings with the service provider and/or periodic reviews of the outsourcing arrangement’s performance measures. …”OSFI Guideline B-10, Outsourcing of Business Activities, Functions and Processes
“7.3.2 Monitoring the Outsourcing ArrangementThe FRE should monitor all material outsourcing arrangements to ensure that the service is being delivered in the manner expected and in accordance with the terms of the contract or outsourcing agreement. Monitoring may take the form of regular, formal meetings with the service provider and/or periodic reviews of the outsourcing arrangement’s performance measures. …”OSFI Guideline B-10, Outsourcing of Business Activities, Functions and Processes
Rigorous audit requirements
Rigorous audit requirements
CSAE 3416 Audits require Management Assertion that controls are fairly presented, suitably designed and operating effectively and that management have a reasonable basis for its assertions.
CSAE 3416 Audits require Management Assertion that controls are fairly presented, suitably designed and operating effectively and that management have a reasonable basis for its assertions.
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I. The Contract Management Context cont’d
Privacy and security breaches
Privacy and security breaches
• Winners/TJX• Heartland Payment Systems• Target• Home Depot
• Winners/TJX• Heartland Payment Systems• Target• Home Depot
Customer reputational risk from subcontractor performance issues
Customer reputational risk from subcontractor performance issues
• Collapse of OSI Group’s China business• April 24, 2013 Rana Plaza garment factory collapse
in Dhaka, Bangladesh• “Target Hackers Broke in Via HVAC Company”
• Collapse of OSI Group’s China business• April 24, 2013 Rana Plaza garment factory collapse
in Dhaka, Bangladesh• “Target Hackers Broke in Via HVAC Company”
Better contract management software
Better contract management software
Increased focus by outside counsel
Increased focus by outside counsel
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II. Gap Risk: Negotiations <> Post-Negotiations
Discussion: How to bridge the gap?
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Dissecting the Expectations Gap (*)
• Conflicting/badly defined objectives
• Badly managed due diligence and negotiating processes
• Not involving all stakeholders as well as Delivery, Security, Finance & Audit
• Lack of proper resources
• Inadequate issue tracking (for resolved and unresolved issues)
• Poorly defined governance
(*) Not dealing with bad contracting/negotiations process
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Dissecting the Expectations Gap cont’d
• Deadlines (for completion of due diligence, contract negotiations, signing, etc.)
• Poor and poorly-timed approval processes
• Inappropriate Service Levels (not measuring the right things or no input from the right teams)
• Poorly defined SOWs
• Ongoing business and technology change
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Dissecting the Performance Gap
READING THE CONTRACTS…
• Contracts reflect high level of complexity
• What desk drawers were made for …[insert contract here]
• Someone else wrote it and contracts are “legal stuff”
• Negotiation specialists needed (we all have day jobs)
• “That’s not my understanding of what we agreed.”
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Dissecting the Performance Gap cont’d
• “That’s not how we do it here (and why would I change?).”
• Age/attention gap (tools only seem to work for those who use them regularly)
• Key personnel continuity (promotions, terminations and resignations happen/no knowledge transfer)
• “Out of Sync” subcontractors
• Lack of proper Change Control processes or poor implementation
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III. Ideas, Initiatives and Improvements
BUILD RELATIONSHIPS (along with contract obligations)
BUILD RELATIONSHIPS (along with contract obligations)
Align the parties’ interests Establish rules for the negotiations Put some “relationship” into “relationship management”,
e.g. utilizing Advisory Boards and social functions
Align the parties’ interests Establish rules for the negotiations Put some “relationship” into “relationship management”,
e.g. utilizing Advisory Boards and social functions
INTRODUCE the right resources early and for the duration
INTRODUCE the right resources early and for the duration
More than the Sales:o Subject Matter Experts (SMEs) including Legalo Delivery leadso Finance and HR supporto Executive approvers/strategists
Use separate teams to negotiate different types of issues Focus internal-approvers on mitigations & options Be adaptive; accommodate for skills gaps at the “table”
(not everyone is comfortable in the negotiations arena)
More than the Sales:o Subject Matter Experts (SMEs) including Legalo Delivery leadso Finance and HR supporto Executive approvers/strategists
Use separate teams to negotiate different types of issues Focus internal-approvers on mitigations & options Be adaptive; accommodate for skills gaps at the “table”
(not everyone is comfortable in the negotiations arena)
MAINTAIN continuity of key personnel throughout negotiations and into operations
MAINTAIN continuity of key personnel throughout negotiations and into operations
Applies to both Customer and Service Provider Involve the Customer personnel who will manage delivery
and the Service Provider personnel who will deliver at an early stage of the negotiations
Avoids “bait and switch” Implement knowledge transfer processes
Applies to both Customer and Service Provider Involve the Customer personnel who will manage delivery
and the Service Provider personnel who will deliver at an early stage of the negotiations
Avoids “bait and switch” Implement knowledge transfer processes
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Ideas, Initiatives and Improvements cont’d
MANAGE the issuesMANAGE the issues
Discuss the issues before negotiating them Track open and resolved issues using defined processes
and shared technology tools Consider using a facilitator, “single text” or other
negotiating tools and techniques “It ain’t over till it’s over.” Document key discussions and side conversations
during contract negotiation that might lead to additional unwritten expectations in future
Use an issues log aligned with Governance Committees in the post-signing period
Discuss the issues before negotiating them Track open and resolved issues using defined processes
and shared technology tools Consider using a facilitator, “single text” or other
negotiating tools and techniques “It ain’t over till it’s over.” Document key discussions and side conversations
during contract negotiation that might lead to additional unwritten expectations in future
Use an issues log aligned with Governance Committees in the post-signing period
RE-VISIT the solution or cost-model
RE-VISIT the solution or cost-model
Customer and Service Provider should develop a solution or cost model at an early stage
Use the models during and after negotiations and in the approval processes
Incorporate appropriate Customer and Service Provider Contract Management resources and their costs in the solution and cost models
Customer and Service Provider should develop a solution or cost model at an early stage
Use the models during and after negotiations and in the approval processes
Incorporate appropriate Customer and Service Provider Contract Management resources and their costs in the solution and cost models
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Ideas, Initiatives and Improvements cont’d
ROBUST internal approval processes that approve the contract to be signed
ROBUST internal approval processes that approve the contract to be signed
Initial and final approvals against defined metrics, mitigations and risk measures
Involve internal stakeholders wherever practical or circle-back to get buy-in from Team participants (including flow-down commitments from subcontractors)
Consider a separate contract review pre-signing: the “second set of eyes”
Avoid artificial signing deadlines
Initial and final approvals against defined metrics, mitigations and risk measures
Involve internal stakeholders wherever practical or circle-back to get buy-in from Team participants (including flow-down commitments from subcontractors)
Consider a separate contract review pre-signing: the “second set of eyes”
Avoid artificial signing deadlines
CONTRACT TRANSPARENCY
CONTRACT TRANSPARENCY
Make accessible and distribute all collateral including lessons learned, negotiations issue tracking and conditional approval documentation
Consider a Transition memo from Legal Counsel:o Identifies participants in the negotiating processo Highlights gaps and deltaso Overrides deferred to other contract parts/layers;
mandated or prudent flow-downs for Subcontractso Identifies all one-time and periodic contract
deliverables and their timingo Summarizes Change Control Processes and
issues to be considered for each Change Order
Make accessible and distribute all collateral including lessons learned, negotiations issue tracking and conditional approval documentation
Consider a Transition memo from Legal Counsel:o Identifies participants in the negotiating processo Highlights gaps and deltaso Overrides deferred to other contract parts/layers;
mandated or prudent flow-downs for Subcontractso Identifies all one-time and periodic contract
deliverables and their timingo Summarizes Change Control Processes and
issues to be considered for each Change Order
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Ideas, Initiatives and Improvements cont’d
MANAGE the post-signing period
MANAGE the post-signing period
Implement the Governance Process that was agreed to Identify the Customer and Service Provider Personnel
who are responsible for success and meeting obligations Hand-off and train the Customer Contract Management
and Service Provider Delivery organizations Consider joint (Customer and Service Provider) walk-
throughs of contract terms Collect, promptly after signing, and retain the
negotiations record along with approval trails
Implement the Governance Process that was agreed to Identify the Customer and Service Provider Personnel
who are responsible for success and meeting obligations Hand-off and train the Customer Contract Management
and Service Provider Delivery organizations Consider joint (Customer and Service Provider) walk-
throughs of contract terms Collect, promptly after signing, and retain the
negotiations record along with approval trails
ASSUME a living contract
ASSUME a living contract
Utilize appropriate Contract Management resources or software (the other party probably is)
Implement comprehensive Change Control procedures Different procedures for different types of change All changes to be documented Honor timelines (but remain flexible for quality response)
Utilize appropriate Contract Management resources or software (the other party probably is)
Implement comprehensive Change Control procedures Different procedures for different types of change All changes to be documented Honor timelines (but remain flexible for quality response)
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Ideas, Initiatives and Improvements cont’d
COMPENSATION / PROMOTION
(the “Stock Options” problem)
COMPENSATION / PROMOTION
(the “Stock Options” problem)
Based on margin (not revenue) After successful transition and over multiple years
Based on margin (not revenue) After successful transition and over multiple years
IDENTIFY Lessons Learned
IDENTIFY Lessons Learned
Conduct a post mortem for each transaction:o What have we missed?o How was that resolved before? Or Why doesn’t
that (old) solution work here?o Who knows better? (other interests / stakeholders
views are important)o What compounds that decision? (or no decision)o Where’s your leverage (or loss thereof)
Conduct a post mortem for each transaction:o What have we missed?o How was that resolved before? Or Why doesn’t
that (old) solution work here?o Who knows better? (other interests / stakeholders
views are important)o What compounds that decision? (or no decision)o Where’s your leverage (or loss thereof)
INCENTIVIZE for Innovation
INCENTIVIZE for Innovation
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Ideas, Initiatives and Improvements cont’d
CONDUCT periodic contract and delivery reviews
CONDUCT periodic contract and delivery reviews
Identify early risk indicators that can be used to identify problems in the making
Perform a comprehensive review of performance against contract obligations on a regular basis; (including distilling lessons learned)
Incorporate Customer satisfaction surveys into the review process
Identify early risk indicators that can be used to identify problems in the making
Perform a comprehensive review of performance against contract obligations on a regular basis; (including distilling lessons learned)
Incorporate Customer satisfaction surveys into the review process
INVOLVE counselINVOLVE counsel
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Questions?
Richard Austin
Deeth Williams Wall [email protected]
416-941-8210
Eric Notkin
905-762-4963
