Getting the most out of your contracts

Gary Traynor11th July 2013

PerformanceMonitoring Contractor

Outline

• Maximising performance through contract structure

• What to manage

• Key metrics

• Reporting: achieving a balance

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What is a Contract?

“A valid contract is an agreement made between two or more parties whereby legal rights and obligations are created which the law will enforce”

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What to manage ?

Contractor Performance Cycle

4

Governance structure

• Monitor performance against the KPIs• Drive continuous improvement in service delivery• Compliance • Approve budgets • Manage change control process & escalations

• Monitor operational deliverables• Resolve delivery issues• Review monthly scorecard• Innovate service delivery

Monthly

Quarterly

Semi-Annual/ Annually

• Strategic alignment and overall direction

• Innovation

• Approve annual strategic plan

• Review financial and operational objectives

• Baseline Review

OperationalOperational

ManagementManagement

StrategicStrategic

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What to manage

1. Service requirements

2. Service quality

3. Value for money and price creep

4. Innovation and continuous improvement

5. Vendor management & vendor development

6. Performance management frameworks

7. Effective KPI measurement

8. Technology & reporting

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1 - Service Requirements

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• receiving less than what is in scope• vendor disputing what is in scope• vendor providing more than scope and

claiming additional fees

understand the scope for the contracts you are managing

manage disputes quickly and seek advice from your Contract Manager

adjust scope if required with a contract change notice

Things to look out for

What to do

2 - Service Quality

• number of complaints received• time for vendor to respond• number of repeat complaints• subjective or objective situations

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raise during the contract management meetings

reflect in KPI scoring

escalate if there is an ongoing problem

Things to look out for

What to do

Things to look out for

What to do

3 - Value for Money and Price Creep

• requests for additional fees• large ad hoc spend• requests for change• monitor regularly

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request quote and check it against the contract rates

review volume of adhoc services for the vendor and assess the level of ad hoc spend

make vendor accountable for recommendation to control

3 - Example A – Low Value Opex spend

Situation• National office portfolio with filtered water taps on adhoc reactive call

outs• 933 works orders issued in 1 year total approx. cost $317K (aver $347)• Excessive call out costs and repair costs

Scope• Review of adhoc spend identified and analysed

• Consultation with vendor to agree solution

Results• Planned maintenance activity agreed with vendor accountable

• 40% savings made in first year• Filter change programme agreed with minor repairs• Cost creep contained and managed

3 - Example B – High Customer Visibility

Situation

• New cleaning company introduced for national commercial portfolio

• 3 month into contract variation requested for scope and shift changes

• An additional shift was requested to cover the gap between 2pm and 5pm

Scope• Service specification review identified changes could be made to scope

and alteration to shifts• Changes jointly agreed with no negative impact

Results• Shift planning adjusted • 10% Supervision variation rejected • Quality of day cleaning improved

3 - Example C – Mechanical Reactive Spend

Situation

• Client historical spend review completed

• 12 months of incumbent HVAC reactive spend analysed:- 2,885 work orders- total additional cost of $833,000 (aver $288)

• No accountability for reactive spend

Scope• Review ‘too hot / too cold’ reporting• Adjust frequency of maintenance activity

• Quality of the maintenance received?

Results• 30% reduction in reactive calls• Improved customer satisfaction

• Lifespan of equipment improved

4 - Innovation and Continuous Improvement

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Business Benefit

identify new opportunity for ways to benefit your

business

21 3

new skills, methodologies and capabilities in service

delivery

better, more efficient and cheaper services through

economy of scale, process improvement

or rationalisation

Capacity / Capability Economy

What are the new technologies available in the

market?

4 - Innovation and Continuous Improvement

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What upcoming legislative or Australian

Standard changes should you be aware

of?

Are there any trends in ad hoc

issues and how can these better be

addressed?

Are there any potential

savings?

What recommendations does the vendor have for how to better deliver the

service?

Does the vendor have any new

additional service offerings?

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Value

Time

Contract Signed

1. Without active management

2.Vendor Managementto maintain and gradually improve value

3. Vendor DevelopmentTo create new value from vendors beyond that which is in the contract

Vendor Development

AdditionalValue

Vendor Management

Expected Value

Time to Contracts

5 - Vendor Management & Development

6 - Performance Management Frameworks

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7 - Effective KPI measurement

• Set KPIs collaboratively

• Create realistic and effective KPIs

• Ensure clear categorisation of KPIs

• Measure correctly

• Address problems early

• Open and honest

• Goal is joint

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8 - Technology & Reporting

What is the correct level of reporting?

• Achieving a balance on reporting frameworks

• Demonstrate the value of your metrics

• Be fair and reasonable with your expectations

• Develop correct level for contract size

• Ensure quality of reporting within your KPIs

• Understand time required by both parties

• Do not report for reporting sake…it costs you $

Tier I: Executive Dashboards Tier II: Performance Reports

Tier III: Detailed Scorecards incorporating the performance plans

Property Management

Work Order Performance to SLA Over Time

99.88%99.90%99.92%99.94%99.96%99.98%

100.00%

Time

% W

ithin

Spe

cific

atio

n

Work Order Performanceto SLA (P1 Cycle Timefrom Creation toCustomer Contact %within Spec)

Work Order Performanceto SLA (Cycle Time fromCreation to Completion% Within Spec)

As of 12/1/2006

May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06Work Order Performance to SLA (P1 Cycle Time from Creation to Customer Contact % within Spec) 99.95% 99.96% 99.94% 99.99% 99.98% 99.95%Work Order Performance to SLA (Cycle Time from Creation to Completion % Within Spec 99.97% 99.98% 99.95% 99.97% 99.90% 99.99%First Time Completion (Ave # Calls Per Problem)

2.98 1.18 2.70 1.04 1.88 2.56Variance to Operating Budget ($ Over or Under)

66,670$ 9,291$ 66,032$ 98,826$ 62,585$ 5,909$

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8 - Technology & Reporting

Wrapping Up – Key things to remember

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Structured engagement and reporting is baseline for

success

No Surprisesmanage

contractual changes

Innovate and always looks

to raise benchmark

Contract Management

takes timeand effort

Its all about building

relationships

KPIS are reflection of

how contracts working

Wrapping Up – Key things to remember

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Celebrate Success it’s a Long

Term Relationship

Questions?

Copyright © Jones Lang LaSalle, 2013