contracting best practices - institute for supply management · •mob/demob for labor &...
TRANSCRIPT
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Contracting Best Practices
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Agenda
• Introduction• Contract Goal• Contract Ambiguity
• Auditors Perspective
• Keys to Best Practices
• Common Issues by clause
• Common Issues by spend category
• Implementation
• Why implement best practices
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What is the goal of a contract?
A) To slow down Operations and make them mad
B) To give Supply Chain practitioners something to do so they don’t have to become Engineers
C) To establish a legally binding agreement between two or more parties that clearly define each parties obligations and responsibilities.
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Contract Ambiguity
From Tails Magazine… “Rachel Ray finds inspiration in cooking her family and her dog”
Are there flaws with these contract clauses?
MRO ContractRebateA rebate of 5% shall be credited to Client once $1,000,000.00 shall be invoiced by Supplier annually.
EPC Contract1.A. Offshore LaborProfessional Office Services hours for all offshore personnel actively engaged in project work… shall be charged at the following all-inclusive labor rates, without additional allowances for fringes, benefits and overhead:
1.A.1 EPC Supplier IndiaThe EPC Supplier India rate for Client Project is $55/hr.
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Auditors Perspective
Why is an audit firm talking about contracting best practices?
An auditors job is to:
• Ensure the client is receiving the “deal” they signed up for
• Identify non-compliance to the contract – both overbills and underbills
• Interpret contracts that may have been written decades earlier
• Interpret contracts written by people who no longer work for the company
• Interpret contracts without any history/bias
•Must add “structure” to sometimes fluid contracts.
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Keys to Best
Not every clause needs to be perfect, until it needs to be perfect
1. Inclusionary, Exclusionary, and Silent Language• Inclusionary: Licensing agreement• Exclusionary: Insurance clause• Silent: Per diem
2. Examples or Scenarios• Volume discount
3. Validation• Contract kick-off meeting• Invoice validation
4. Incorporate Lessons Learned
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Common Issues (by clause)
Labor Rate Build-Up
• Insufficient documentation of overtime, double time
• Improper / Insufficient information regarding build-up
• Overhead definition/ambiguity
• Insufficient wage classifications/ definitions
Travel
• Per diem qualification
•Mobilization vsDemobilization
•Definition of allowable expenses
• Billable hours for travel related time
Audit Rights
•Missing or limiting audit capability
• Insufficient time to perform audit
• Limits audit to at supplier site without data removal
•Does not allow for audit support
Cost Plus
• Vague / missing definition of overhead costs
•Missing reconciliation clause for statutory drop-offs (SUTA/FUTA/FICA) and Insurance
• Included/Excluded labor costs (roles, time, Exempt/Non-Exempt)
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Common Issues (by spend category)
Construction/Maint
• Statutory drop-offs
•Wage classifications
• ST/OT/DT/Holiday
• Small tools and consumables
•Mob/Demob for labor & equipment
• Administration
MRO/Material
• Non-catalog/ Description purchase
• Economic price adjustments / CPI / Index
• Credits and Rebates
• Freight charges
Corporate/Staff Aug
• Statutory drop-offs
• Mark-ups
• Warranty work
• Managed assets fully deployed and billed
• Labor rates
• Rebates, discounts, and program compliance
Veg Management
• Idle equipment
• Straight time / overtime
• Crew makeup
• Wage classifications
• Adders
• Incentive (KPI’s) compensation
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ImplementationHow to systemically implement best class language into standard operating procedures
• Clause Library
• Contract Quality Program• “Peer Reviews”
• Formal classroom training
• “Informal” training (Lunch and Learns, CPO Forums, Roundtables, Audit feedback)
• Monitor progress
• Training, Training, and more Training
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Why Implement?An Aberdeen report states “Industry estimates are that 30% to 70% of negotiated
savings are lost due to poor contract management and non-compliance”
AMS-PAR has helped clients recover over $1.4B in lost profits
614-634-3396
Russ Steward
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IMPORTANT
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brief survey.
Survey link:
www.instituteforsupplymanagement.org/DA17or Scan the QR code on your smartphone.