Metronet collapse blamed on poor contract management

March 2, 2010

The UK Department for Transport has come under heavy critisism recently following a Public Accounts Committee report that found that the  £410 million ($612 million) collapse of Metronet, an organisation established to oversee the renovation of London Underground’s tracks and stations, was largely due to ‘inadquate’ contract management.

The government entered into three 30-year contacts to improve the tube network in 2003.  But in 2007, two of the contractors – Metronet BCV and Metronet SSL – went into administration, resulting in delays to the renovation programme and losses of between £170m and £410m.

The Department for Transport was particularly singled out for its ‘hands off’ approach to contract management, despite official warnings from the National Audit Office in 2004 that it should manage the Metronet contract more closely.

The report also pointed out that London authorities were unable to provide adequate contract oversight because they did not have timely information about the performance of the Metronet contract.

This situation is likely to be played out more and more in the future as central and local government authorities look to external contractors to provide key services.  It is common for organisations to put all of their effort in to the contract drafting and negotiation stage of the contract process, but not in the proactive management of contract milestones, obligations and commitments after contracts have been agreed to.

Contract Management software solutions like Dolphin Contract Manager, allow key stakeholders to better manage contract milestones, obligations and commitments by providing key stakeholders with timely management information.

Contract Management systems should include the following common features:

  • automated contract authoring
  • legal clause libraries
  • central repository for contracts
  • electronic workflow for internal reviews and approvals
  • obligation and commitment management
  • external workspaces for external party negotiation
  • critial milestone alerts
  • management reports and dashboards

Better contract oversight cannot be achieved using manual means alone and equally, contract management software cannot replace the requirement for contract managers, but together, the discipline of contract management can be made more effective.


Pentagon to withold payments to vendors with poor contract management systems.

January 28, 2010

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.


“Only 50% of contracts are counter-signed” …

January 26, 2010

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. 

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Contract oversight for US Government contractors in the spotlight.

January 26, 2010

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.


Contract obligation management

January 10, 2010

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.

 
 

 


Contract Management on the government’s radar

June 29, 2009

329px-Official_seal_of_the_American_Recovery_and_Reinvestment_Act_of_2009_svgSince the creation of the US government Stimulation Package, or American Recovery and Reinvestment Act 2009 to be precise, there has been a noted increase in activity and interest in the discipline contract management.  Interest in Contract Management has largely been driven by pressure from the public to force government agencies to provide greater transparency and justification for the vast sums of taxpayer’s money being spent to bolster the fragile economy.

It may have been a coincidence, but the topic of contract management in the military has also come to the fore in recent weeks, with the publishing of a highly critical report by the Wartime Contracting Commisssion on the wastage of public funds in Afghanistan and Iraq, where billlions of dollars have been unaccounted for and certain defense contractors, like KBR Inc., have scooped millions of dollars in performance bonuses because of poor contract oversight.

“One example of wasted money cited by the commission involves construction of a $30 million dining facility at a U.S. base in Iraq scheduled to be completed Dec. 25. The decision to build it was based on bad planning and botched paperwork. Yet the project is too far along to stop, making the mess hall a future monument to the waste and inefficiency plaguing the war effort”, says Richard Lardner of the Associated Press.  The US Army is due to withdraw from that location before that date.

With a bit of luck, increased visibility in to contract management issues at these governmental levels will be akin to new technological developments in the car industry through Nascar or Formula One, where the benefits technological developments infiltrate down to production vehicles; so in the world of contract management, hopefully greater attention on contract management issues at a governmental level will infiltrate down to other government organizations on a local level, and companies in the private sector.

The role of Contract Management software in Government contracting oversight
Contract Management in the public sector remains a  largely manual and inefficient process.  President Obama and the UK government have already gone on record in recent months bemoaning the lack of skilled and qualified resources to provide effective contract oversight needed to track government contracting.

Contract Management software solutions are not, in general, designed to eliminate people from the contract management process, but can provide significant efficiency gains and greater management information to allow more effective contract oversight and management.

Contract Management systems effectively allow organizations to track and manage contract obligations, spending and commitments, as well as helping to streamline the contract drafting, review, external negotiation and archiving process.

Many people and organizations understand that they need to manage and control their contract processes more effectively, but few are aware that there are robust technology solutions to streamline this effort.  Contract Management software systems should generally provide the following core areas of functionality:

  1. Contract Authoring, to streamline the contract creation process
  2. Internal approval workflows
  3. Central electronic contract repository
  4. External secure workspaces for contract negotiation
  5. Reporting and analytics, to track and manage contract milestones and commitments

With greater attention on where and how taxpayer’s money is spent, government agencies that contract with external parties to provide services to the public will need to become much more efficient in the way that contracts are created and managed in the future.


Can technology play a role in easing the skills shortage in Contract Management?

March 11, 2009

robot_300Just as Contract Management was gaining the strategic recognition that it deserves in streamling the contract process, managing contracted risks and costs and providing greater transparency in both public sector and private sector organisations, there appears to be a major problem looming in the industry. 

Recent comments by US President Obama and Geri McLeary from the UK Office of Government Commerce would indicate that although policy and intention might attempt to make government contracting with external product and service providers more efficient, there appears to be a significant skills gap in the market for experienced Contract Management staff.  It is feared that the shortage in Contract Management skills could have serious implications for the effectiveness and success of government Contract Management strategy.

Although technology can never truly replace the value of an experienced human being, it can at least play an important role in the future of contract management, by allowing Contract Management specialists to do more with fewer resources and by sharing the burden of managing contract risks and obligations with other key stakeholders within the organisation.

A second generation of Contract Lifecyle Mangagment software solutions is able to make Contract Management specialist’s lives easier by automating and managing the key stages of the contract lifecycle process.  Contract Management software reduces the costs and risks associated with contracting by streamlining the contract drafting and approval process, providing a single repository for contracts and associated documents, provide secure workspaces for external party collaboration and by allowing contract management specialists and non-specialist staff – who may be in other functions of the organisation, to have access to real-time management reports and alerts, so that contract obligations, risks and milestones can be managed across the organisation more effectively.

So, if you are a Contract Manager and you are not already using a Contract Management system to streamline your workload and to communicate the value of your work to the key stakeholders in your organisation, perhaps 2009 is the time when you should start to evaluate the market for Contract Lifecycle Management software?