Business Week Magazine reports this week that the Pentagon is proposing a rule in the Federal Register that will prevent or withold payment to defense contractors where poor contract management and oversight can be identified.
The proposed rule would give the Pentagon the right “to withhold a percentage of payments under certain conditions, when a contractor’s business system contains deficiencies.”
The rule would cover most defense contracts, as well as other contracts that reimburse companies for costs or pay incentive fees for hitting cost and schedule targets, or those that base payments on time, materials or labor hours.
This is seen as a move by US Defense Secretary Robert Gates to tighten up contract oversight practices to reduce contract overspending.
This clearly means that government contractors are going to have to have much greater control over their contract management processes and how they manage Federal Acquisition FAR and DFAR clauses and obligations. Government contractors should urgently consider the deployment of contract management systems that will help them to streamline their contract processes and provide greater oversight in to contract obligations. Solutions like Dolphin Contract Manager, provide full contract lifecycle management funcitonality as well as FAR and DFAR clause and Obligation Management.
This staggering claim was made by the General Counsel of a global Marketing Services agency that Dolphin Software met earlier this week and highlights the very real issue facing legal teams and contract managers around the world.
Perhaps this is a statistic that not many General Counsels will admit to, but it is a well known fact that, despite all of the time and effort that goes in to the drafting and internal approval process for contracts and agreements, once a contract is sent to a third party (customer, partner, supplier, etc) you lose almost all of the control that you had.
For many companies, contracts are drafted manually in Microsoft Word, emailed as attachments to internal colleagues for reveiw and approval and then emailed to the external party. This is where things can often go wrong. The process is inherently inefficient. By emailing contracts outside of your organisation, you are effectively giving up any hope of controlling the contracting process. You are dependent on the external party following your guidance on timelines, information security and amending drafts – not to mind the administrative burden of having to deal with mutiple versions of draft contracts been sent back to you via email. In fact, the external contract negotiation phase in the contacting process is one of the biggest causes of delay in contract cyle times.
Lets face it, it is inconvenient to print out contracts, sign them, and scan them. Many signed paper contracts sit on the desks of managers for days, and in some cases, weeks before they are forwarded on in an email or uploaded in to a contract repository. This is bad news for commercial contractors who are looking to conclude business and bad news for purchasers who are looking to bring a new supplier on board.
A new generation of contract management software solutions, like Dolphin Contract Manager, aim to make this process easier for contracting parties and more efficient. Rather than attaching draft contracts to emails for internal approval, many contract management solutions facilitate this process through a managed approval workflow process, where managers access a single copy of the contract that is stored in a central repository; and rather than emailing external parties, secure external workspaces can be created so that contract documents can be uploaded and external parties can collaborate and negotiate amendments to contracts in a secure and time-controlled environment.
Digital Signature solutions, like CoSign from Arx, can also play a big part in reducing cycle time by allowing both internal staff and external parties to review contracts electronically and digitally sign them without having to print, scan and upload.
It is no wonder then, that contracts that are sent to third parties are often not counter-signed and returned. The current way of doing things is just too inconvenient.
Is this an issue for you too? Take part in our poll below:
In the latest in a long list of poor contract governance and oversight examples relating to US government contractors, a report will be published early next week by the Special Inspector General for Iraq Reconstruction.
Stuart Bowen, Special Inspector General for Iraq Reconstruction, will strongly criticize the US State Department for failings in contract management and contract oversight in relation to the award of a contract to DynCorp International to provide training services to the Iraqi Police force. The report suggests that some $2.5 billion has been wasted through poor contract management practices.
It is well known that there is a chronic shortage of qualified contract management personnel in the US Government. Last year President Obama called for the recruitment of 19,000 new contract managers to improve government contract oversight with external vendors; but technology can also play a part in making government contract management more effective.
US government contracts are governed by a strict set of rules and regulations, called Federal Acquisition Regulations, or FARs. FARs contain both clauses that need to be included in government contractor agreements (and in some cases, flow down to sub-contractors) as well as guidelines and regulations that need to be adhered to to.
Contract Management software solutions, like Dolphin Contract Manager, facilitate the effective management of FAR (and Department of Defense – DFAR) clauses and regulations through its unique FAR Clause Library and FAR Obligation Management functionality. When coupled with contract milestone data management and management reports and alerts, contract managers are able to gain much greater visibility and control over contracted commitments and critical milestones.
If you were to disect the contents of an average contract, you will likely find a mix of legal clauses, terms and conditions … and obligations. Obligations that either you want a supplier or vendor to comply to, or obligations that you commit to from a customer or other third party.
Why is it then that contract obligations get such poor air-time from legal departments and other stakeholders who are tasked with contract management activities.
From Dolphin Software’s experience, Microsoft Excel appears to be the de facto contract data repository for most in-house legal departments, where key contract milestone data is held in a spreadsheet in an attempt to provide more structure and control over the tracking of contract terms and conditions. Spreadsheets become limited in their ability to manage contracts when the volume of contract data gets too much, when managers expect to be proactively rather than reactively alerted to a key contract event or when you need to find the original or electronic copy of the contract in a hurry.
So what about contract obligations data and information – are these held in these spreadsheets alongside contract milestone data, like key dates, contract parties, monetary values, etc.? In most cases, the answer is no. This is probably due to the fact that the owner of the spreasheet is rarely the same person who is personally responsible for executing or overseeing the process of contract obligation management.
Contract obligations can include anything from service level agreements and delivery times to customer service targets and can be directly linked to penalties for non-performance; or even bonus payments for achieving targets. This is what NASA has to say about contract obligation management:
Unrecorded or inaccurate obligation record keeping can distort the accuracy of available appropriation balances. Failure to record obligations and adjustments in a timely manner increases the risk of overobligation and the risk that program officials will not have accurate information to use in decision making.
A contract obligation may be identified by a legal specialist or a contract manager, but in most cases the responsibility for ensuring on-time delivery or vendor invoice accuracy is not that of the contract manager, but of other business colleagues.
Effective contract management systems should be able to provide greater visibility and control over the contract process by not only providing a more logical environment to manage contract documents and milestone data, but also an environment where contract obligations can be tracked and adhered to.
Contract Management solutions, like Dolphin Contract Manager, allow obligations to be allocated to business users, who are then automatically alerted when a relevant obligation is due. Best-practice procedures and KPIs can be linked to contract obligations and these should form part of a comprehensive programme of contract obligation management.
Dolphin Software recently took part in the inaugural European Corporate Counsel Exchange conference in the Hague, Netherlands, which was attended by the heads of legal of many of Europe’s leading corporations.
A consistent theme of the event was of course the impact of the economy on the legal operations of companies in Europe, but also how this has forced legal departments to become much more efficient and business focused than ever before.
Aligning strategy and execution with the core business strategy is something that CIOs and IT Departments have heard for the last ten years, but it was surprising to hear the number of General Counsels urging the same message and to become ‘more visible’ in the business.
Topics like Litigation support, eDiscovery, Legal Spend Management and Contract Management appear to be the primary interest and focus areas for European GC’s in the next 12 months.
With regards to Contract Management, it was surprising to witness so much support for ’self-service contracting’, where the drafting of standard contracts and agreements is pushed out to business users through the use of contract automation technologies, where previously many internal legal departments would have insisted that all contracting is conducted within their own department.
With legal departments having to downsize, or cut their budgets, they are looking for new ways in which to deliver the same workload with fewer resources, and at the same time, demonstrate increased value to the business. Contract Management solutions are well placed to deliver on these goals since they generally automate and control the contracting process, which up to this point in many companies, has remained a manual and inefficient process, while delivering true cost savings to the business by allowing contracts to be managed in the way that they were negotiated.
The bad news however, is that although economists and the media seem to be convincing us that the worst of the recession is over, the general expectation is that budgets for 2010 will continue to be cut, which will compel General Counsels to spend their money more wisely on products and services that add true value to their business, reduce inefficiencies and that will raise the profile of legal operations within the enterprise.
2009 has been an ‘annus horribilis’ for many, with the deepest recession and toughest trading conditions in living memory, that nobody had accurately predicted; but a new survey published by the IACCM (International Association for Contract and Commercial Management) indicates that market conditions are beginning to stabilise.
More than half of the top contract negotiators and managers who were polled by the IACCM expected economic conditions to improve in the next six months.
The research shows that 50% of the respondents noted that they were still experiencing significant pressure to reduce or renegotiate prices on existing agreements, with the same proportion of contract professionals entering in to new contract negotiations.
However, the IACCM research indicates that much of this new activity is due to buyers entering in to negotiations with vendors to switch incumbent suppliers in an attempt to reduce and streamline procurement spend.
The big casualty of the economic recession seems to have been corporate ethics – with 34% of the survey respondents suggesting that ethical standards in contract negotiation had fallen since the beginning of the recession. The main ethical issues at stake here are:
customers who unilaterally extend payment terms
unreasonable pressure to cut prices on existing agreements, and
overselling by salespeople to win business
Many companies are now looking ahead to what 2010 will bring and best-in-class organisations are already positioning themselves to take advantage of new opportunities to streamline their contracting processes as trading conditions improve. This will lead to a flurry of activity to improve and streamline contracting processes with tools, like Contract Management solutions, that help to automate and manage contract commitments and obligations more effectively.
If you are planning your 2010 budgets right now, don’t forget to include a contract management software project in to your strategic plans.
The IACCM research was conducted in September 2009 and surveyed 13,000 business negotiators and contract management professionals from 2,000 companies worldwide.
Despite the recession, spending on eProcurement and Contract Management solutions is expected to increase by 2% in 2009, according to Forrester Research.
“What we’re seeing right now is two conflicting forces at work,” says Andrew Bartels, VP and principal analyst, Forrester Research. “One is obviously the desire of companies to try and save money through the use of technology. The other is that their technology budgets and particularly their capital budgets are facing incredible constraints.”
Operational efficiency has taken on a new importance in the current economic climate and many organisations are looking to streamline supply chain processes, eradicate unnecessary costs and keep a tighter control on contract-related spending. This is all good news for Contract Management software vendors, like Dolphin Software.
IT budgets will continue to be squeezed over the next year and CIOs will have to weigh up what investments in technology will produce the greatest returns, while delivering effective cost savings to the business.
According to Forrester Research, the primary emphasis for many organisations in 2010 will be on cost savings and the use of technology solutions to enable teams to identify and manage cost saving opportunities.
Contract Management software plays a critical part in achieving this as most business-to-business transactions are underpinned by legal contracts and agreements. Being able to provide Procurement professionals and other business stakeholders with management information to enable contracts to be managed in the way that they were negotiated will mark the difference between success and failure for many organisations as we emerge from the current economic recession.
In this day and age few General Counsel would imagine managing the legal affairs of their employer without the aid of technology. However, legal operations inside public and private sector organisations remain largely manual, costly and inefficient due to the poor adoption of technology solutions to support their work.
It is not the fault of in-house legal teams in many cases. It is actually a failing of the large enterprise software vendors, who have for many years, assumed that the needs and requirements for in-house legal teams were the same as those for large commercial law firms. The clear feedback that we have received at Dolphin Software, is that they are not.
There are a number of key technology solutions that General Counsel in both the public and private sector need to consider and evaluate for their organisations. These are:
Document and Records Management
Legal Matter Management
Contract Lifecycle Management
Time recording/billing (if you are considering implementing a cross-charging regime)
eDiscovery/Litigation Support systems
Looking strategically about how technology solutions can support the legal operations of an organisation, it is important to consider the needs and requirements of the legal function itself, but also how this strategy is going to impact the rest of the business.
There are a number of routes that IT and Legal teams can go down. They can …
select best-of-breed vendors in each category
select a single vendor solution or technology platform that can span several core solution areas, while complying to corporate standards on IT infrastructure
attempt to develop their own in-house solutions (If you select this route, be aware of the hidden costs in building your own solution. Management time required to design the solution, the cost of development, support and providing enhancements and updates are only some factors that can end up costing more than a Commercial Off-the-shelf solution).
Then there is the issue of the wider picture. One critical error that Legal teams often make is the limited belief that solutions like eDiscovery or Contract Management systems are only to be used by legal specialists. There are many other key stakeholder groups, in the contracting process, for instance, who could benefit from access to contract documents and management information.
In this age of regulation and risk management, the legal department is rapidly becoming the guardian of key technology solutions for the enterprise. The General Counsel and the CIO need to work together in ensuring that the solutions that they evaluate and implement are the best and most effective for their business.
Law firms around the world are experiencing some of the toughest times in recent history, with billable work declining as a result of the recession.
Some innovative law firms are beginning to think out-of-the-box when it comes to new business development and revenue generating ideas. Dolphin Software has been working with a number of law firms and legal process outsourcing providers to offer corporate clients a software solution for managing and automating their contracting processes, combined with the value-adding legal services that the law firm provides.
Focus on streamlining the contracting process, which remains a largely manual and inefficient process in many organisations, has become more important for both private and public sector organisations as they strive to reduce costs, avoid unnecessary contract-related penalties and maximise revenues.
Contract work remains the staple service offering of many law firms and there is a growing trend to providing a more complete and value adding service through the use of Contract Lifecycle Management software solutions.
Contract Management-as-a-Service By providing Contract Management-as-a-Service to their clients, Law firms can find new ways of generating revenue.
Contract Lifecycle Management solutions help organisations to streamline their contract drafting, approval and archiving processes, as well as allowing key business managers to manage key contract milestones and obligations more effectively through the use of advanced reporting and analytics.
Maintaining a portfolio of contract templates and legal clauses can be a significant overhead for in-house legal teams and is an area where law firms can identify potential new revenue streams by outsourcing this work on behalf of their clients.
Through the provision of a Contract Management service, law firms can gain predictable on-going subscription revenue from their client base and a platform to promote other value-adding services.
Dolphin Software provides a cost effective Microsoft SharePoint-based Contract Management solution for law firms that can be easily installed and configured, and is made available on a revenue-share model.
The writing is on the wall for UK Local Government organisations: public spending will fall over the next three years regardless of whether Labour remains in power, or whether the Conservative party wins the next general election. This will have huge strategic implications on how Local Government organisations provide services to the public and must surely now be the primary issue on the minds of local government Chief Executives.
The UK now has record levels of public debt, which is set to increase to £175 billion ($289 billion) in the current financial year. Gordon Brown has recently been forced to modify his planned public spending efficiency gains, which aimed to save £35 billion ($58 billion) to extract even greater cost savings; while the Conservatives, under David Cameron, have already made clear that they intend to reduce the onus on the public purse to support services provided to the public.
Some local authorities have already acted in anticipation of wide-ranging spending cuts and lower tax revenues that have resulted from the current recession.
Norfolk County Council has recently announced plans to review the roles of 600 of its most well paid employees in an attempt to find additional cost savings; while Barnet Council announced plans last week to embark on a radical overhaul of it public service provision by reducing the services that it provides to a core, and charging fees for enhanced services – something akin to the low-cost airline industry.
In all likelihood, this will result in a much greater emphasis on the outsourcing of core services to external providers. The need to manage these contractor contracts and agreements will be more important than ever. A point not missed by Liberal Democrat MP, Paul Morse, who states:
“I have no problem with the vision, but what I can’t see is how it’s going to be delivered. It seems like we are going to have further contracting out and if they are going to do that, they’ve got to improve their contract management”.
The UK National Audit Office earlier this year issued a damning report on Central Government mis-management of supplier contracts that has led to over £290 million being wasted on IT Services contracts alone, caused primarily through poor management of contract terms and obligations.
If more public services are going to be provided by external parties, then it is clearly critical to be able to manage and control those supplier contracts effectively to ensure the quality of service provided and to control contract-related costs.
Contract Management software solutions, like those provided by Dolphin Software, have the potential to help local government organisations to streamline and control their contract management processes by providing managers with the right management information to manage contract milestones and obligations, and to allow contracts to be managed in the way in which they were negotiated.
reports this week that the Pentagon is proposing a rule in the Federal Register that will prevent or withold payment to defense contractors where poor contract management and oversight can be identified.
Posted by dolphinsoftware 
The writing is on the wall for UK Local Government organisations: 
