Repeated project delays and cost overruns in Government contracts have turned the spotlight onto core issues of supplier selection, supplier integrity and supplier competence. Increasingly, Government agencies will test for a supplier’s capability to define and meet their contracted commitments – and this will include the need to demonstrate a robust commercial assurance and contract management process. For suppliers, this represents an opportunity to pro-actively demonstrate capability. This session will discuss the steps your organization could take to establish competitive advantage. After years of practice and experience, the IACCM has brought together best practices in government contracting from around the globe. Paired with the former procurement officer of the U.S. Department of Homeland Security, this session will combine what best practices can be applied toward contracting with DHS and the Defense Department. About our Speakers: Tim Cummins President & CEO, IACCM In his role as President/CEO of IACCM, Tim works with leading corporations, public and academic bodies, supporting executive awareness and understanding of the role that procurement, contracting and relationship management increasingly play in 21st century business performance and public policy. Prior to IACCM, Tim's business career included executive roles at IBM and a period on the Chairman's staff, leading studies on the impacts of globalization and the reengineering of IBM's global contracting processes. His earlier career involved the banking, automotive and aerospace industries, initially in Corporate Finance and later in commercial and business development. He led negotiations up to $1.5bn in value and his work has taken him to over 40 countries. Tim's writing is extensively published and he has acted in an advisory capacity to government bodies in countries that include the US, UK, Australia, Canada and Japan, as well as regular briefings to senior managers at many of the world's largest companies.

1. Commercial and Contracting Competence as a
source of competitive advantage
Presented for the
Government Technology & Services Coalition
Tim Cummins, IACCM
2.21.14

4. A more complicated environment

5. New attitudes and expectations
Shared
responsibility &
risk
Customer responsible for
outcomes
Late ‘90s
80s/90s
Today
Supplier at risk for
outcomes
Inputs
Price
Outcomes
Value

6. How contracts can underpin
constructive working relationships
Defining clear mutually understood
objectives
Appropriate risk allocation based on
common understanding
Enshrining common performance
measurement
Link the contract to the agreement of
desired behaviors
99%
95%
88%
88%
Enable application of contractual remedies
83%
Establish codes of behavior
80%
Pain / Gain sharing
Not Important
Important
75%
-40
-20
0
20
40
60
80
100

7. The influence of contracting on
successful project delivery
• The majority consider that contracting should support
effective delivery in the following areas:
– Realistic understanding (74%)
– Positive relationships (63%)
– Selection of right supplier (62%)
• However 23% of respondents commonly/frequently
experienced problems caused by contracting and negotiation

8. The influence of contracting on
successful project delivery
It results in a realistic understanding for
all parties of what is desired
25%
74%
The contract and its negotiation
contribute positively to the relationship
between the parties
35%
63%
It results in the selection of the right
supplier
35%
62%
The contract and its negotiation
undermine efforts to generate successful
results
Never
60%
0
50
23%
100

9. Constraints to success
• Significant issue with scope uncertainty (61%)
– Inappropriate risk transfer (38%)
– Not adopting a “whole team approach” (36%)
– Not considering commercial issues early enough (35%)
• Noticeable difference between Government and private
sector
– Seeking inappropriate risk transfer (Government less likely to consider a
constraint)
– Failure to consider commercial issues early enough ( Government less likely to
consider a constraint )
– Lack of commercial awareness skills and or staff continuity in client
organisation ( Government more likely to consider a constraint )

10. Constraints to negotiating and
managing successful contracts
Scope uncertainty
61%
Seeking inappropriate risk transfer
38%
Failure to adopt a “whole team” approach to negotiation
36%
Failure to consider commercial issues early enough
35%
Lack of commercial awareness, skills and/or staff continuity in…
Not testing understanding of the contract between parties
33%
30%
Insufficient senior management engagement
24%
Misaligned reward structures/incentives
21%
Legislative and regulatory requirements and/or fear of legal
14%
Lack of commercial awareness, skills and/or staff continuity in… 11%
Other (please specify)
10%
0
50
100

11. Collaboration and joint working
• There is extensive understanding of the attributes needed for
successful relationships
BUT ......
• Contract negotiators make limited use of the mechanisms that
drive performance
• A failure to develop the competencies to structure and
manage the right commitment contracts will undermine your
success

12. Collaboration and joint working
Performance measurements
72%
25%
Communication
62%
35%
Joint working
Mutual objectives
44%
48%
46%
Dispute resolution in a non-confrontational…
46%
Problem solving
Continuous improvement
No-blame culture
Never
Occasionally
41%
49%
13%
36%
51%
Gain-pain sharing 11%
Trust
49%
46%
30%
59%
25%
37%
0
Frequently
27%
49%
45%
50
18%
100

13. Cause of disputes
• Over three quarters of respondents (77%) highlighted scope
or goal change as frequent sources of dispute
• Over half highlighted responsibilities of parties (55%)
• 48% of respondents frequently experienced contention over
price change (due to inaccurate estimates or scope change)
• Weaknesses in change management and problem solving
often result in escalation

14. What goes wrong?
Scope or goal change
21%
77%
Responsibilities of the parties
43%
Price changes
Delivery/acceptance
44%
48%
48%
47%
8%
5%
Change management procedures
13%
Invoices/late payments
15%
Performance/guarantees
37%
49%
33%
57%
20
Ocasionally
30%
52%
32%
0
36%
58%
12%
Liquidated damages
Never
50%
9%
Service levels and warranties
55%
40
60
Frequently
16%
80
100

15. Impact of weaknesses in contracts and
negotiation
• Most frequently experienced issue: cost overruns
(63%), closely followed by;
– Project delays (59%)
– Failure to deliver client business benefits (43%)
• Fundamental breakdowns are less common
– Early termination of contract (5%)
– Third party dispute resolution (9%)
Regional differences between North America and Asia,
compared to Europe and the sample average

16. Impact of weaknesses
Cost overruns
33%
Project delays
39%
Failure to deliver the anticipated client
42%
benefits
Failure to deliver supplier business
11%
54%
benefits
Reputational risk/reduced future
15%
57%
business opportunities
Losses from claims/disputes/liquidated
16%
57%
damages
Litigation, arbitration, mediation of
37%
another third party dispute resolution…
Early termination of contract
Never
Occasionally
42%
62%
58%
50%
35%
28%
28%
55%
53%
9%
5%
0 10 20 30 40 50 60 70 80 90 100
Frequently

17. Learning from Experience
• 29% of respondents do not have a system to capture and
share learning
• Of those that do, only 27% consider it works well
29%
27%
11%
33%
Yes, and it works
well
Yes, but not
effective
Yes, but it is not
used

18. Key Steps
•
•
•
•
•
•
•
•
•
Establish technical and commercial requirements
Define type of relationship and agreement
Select appropriate terms and conditions
Plan and conduct negotiation
Oversee transition
Manage performance
Ensure governance
Plan exit or migration to new supplier
Learn from experience

19. Only 16% feel that the
contracting process consistently
achieves a positive impact on the
supply relationship.