Contracts and Procurement: Are They Giving You Proper Value?

Walsh Enterprises Business & Financial Advisors Huntington Beach, California USA http://www.awalsh.us walshal1@aol.com (714) 465-2749 Contracts and Procurement Are They Giving You Proper Value? Al Walsh, CEO Walsh Enterprises

Introduction One of the many concentrations I have when entering a new company is determining if the various functions are providing appropriate value to the whole business organism. Contracts and Procurement are the two areas where I’ve generally found the most waste and lost opportunities. Every company is structured differently, but these two functions tend to be treated as “backwater” departments. Therefore, they don’t receive the appropriate level of scrutiny, and they’re not motivated to excel.

Examples I’ve witnessed many boondoggles over the course of my career. Here are a few of the choicer examples: • I conducted a contracts audit at a division of a major hi-tech firm, finding $10 Million in unbilled delivered line items on contracts that had been marked “Closed” and put in the dead file archives. The Contracts Manager hated me for it, and fought me through the entire audit. I don’t know if he retained his job, but he sure made a fool of himself at a summation meeting with the General Manager. • I walked into one aerospace firm and discovered that they had six months sales in uncollected receivables because the billings were being improperly prepared. The company was in a severe cash flow bind because of it, but no one was doing anything. • We acquired a company, and soon discovered that they had been signing field service contracts for years which contained insurance clauses that made them responsible if anything went wrong; regardless of who was at fault. The customer could screw up and blow up their own facility, and we’d get the bill merely for being on- site.

Giving Value Contracts and Procurement are critical functions. The can make the difference between a successful job and losing your butt. They can make the difference between business success and failure. Give these functions the scrutiny they deserve. Make them a dynamic part of your business. • Are your Procurement personnel just order-givers, or are they actively shopping for the best product / price mix? • Are your Contracts personnel mere clerks, or are they actively involved?

Get Them Involved In order for you to get the most from these functions, you need to include them from the bid stage all the way through to completion and closure. • Your Contracts personnel and your Lawyers should be the ultimate experts in contract matters; and should be working closely together. • Don’t just drop a shopping list on your Procurement personnel after planning a job and expect them to deliver per your arbitrary timing & specifications. They have marketplace realities to deal with too. • Management, Manufacturing, Engineering, Procurement, Contracts, Finance, and your other functions should all be working closely together from first step to last on any job. • Many companies treat contracts like rare books; hiding them away. Many people in your company need to see them because they’re responsible for bidding, winning, performing, enforcing, and billing them. Distribute the contracts to those who have a legitimate need to know.

Conclusion I’ve just scratched the surface of what you should be looking for, but hopefully I’ve given you some constructive food for thought to do your own internal assessment. If you treat them like “backwater” administrative functions, you’ll probably get what you deserve. If you let them “step up to the plate” and they come up short - maybe you need new leadership. Be sure you give them the resources the need to do their jobs too. Don’t expect them to support complex operations with rudimentary tools.

Contracts and Procurement: Are They Giving You Proper Value?

by Alan Walsh on Jul 18, 2009

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Contracts and Procurement: Are They Giving You Proper Value? — Presentation Transcript

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