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  • 1. DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES IN A NEW ECONOMIC ERA November 11, 2009 John Corcoran Senior Director and General Counsel, Cisco-Linksys Susan Myers Senior Corporate Counsel, Kia Motors America Jean Schanberger Axiom Attorney (Current Client: AeroVironment) Moderator – Anne Jacoby Head of Southern California Practice, Axiom HOSTED BY:
  • 2. Agenda
    • Introduction (topic and panelists)
    • Goal: provide specific, practical initiatives on how to increase efficiency through contracts
      • Contract Management Systems
      • Contract Tools for Your Business Clients
      • Avoiding Litigation
    • Q&A Throughout Program
  • 3. Introductions – Topic
  • 4. Introductions – Panelists
    • John Corcoran Senior Director and General Counsel Cisco-Linksys
    • Susan Myers Senior Corporate Counsel Kia Motors America
    • Jean Schanberger Axiom Attorney (Current Client: AeroVironment)
  • 5. Contract Management Systems (“CMS”)
    • CMS – what is it?
    • Value Proposition/Identifying Success Factors
    • Buy vs. Build decision
    • Vendor selection and due diligence
    • Things to remember!
  • 7. ECLM Opportunity The benefits of ECLM will be realized across the organization
    • Single searchable, self-service sell-side contracts repository
    • Simplified revenue control environment
    • Simplified field/partner contract engagement & transparency
    • Accurate identification of entitled customer/partner & affiliates
    • Secure & simple virtual restatement of contract for ease of integration
    • Vast majority of contracts with complete & accurate terms required for deal-order-contract linkage
    • Effective & efficient contract approval process
    • End-to-end solution for contract engagement with partners/ customers
    • Improved negotiator experience, productivity, workflow & business controls
    Cisco Cross-Functional Legal DMS Transactional (inc. pricing service) CISCO CONFIDENTIAL
  • 8. What is CMS at Cisco? Enterprise Contract Lifecycle Management (ECLM) is the capability to manage multiple legal document types through each stage in the contract lifecycle and transact across Cisco operational processes. Prior to ECLM Cisco had the legacy contract management system to perform many of these activities.
      • Sales Contracts
      • Licensing / IP
      • Non-Disclosure Agreements
      • Other
    CISCO CONFIDENTIAL Enterprise Contract Lifecycle Management Plan Search Create / Draft Negotiate Approve Capture / Store Audit / Comply Transact (QTC, P2R, I2R, M2O) Modify / Terminate Analyze Enterprise Data Hierarchies Administration
  • 9. ECLM Value Enhance Creation / Drafting Reduce Cost of Ongoing Enhancements Reduce Application Support Costs Search for Contract Details Improve Contract Data Accuracy Improve Contract Performance Total ECLM Value Opportunities Increase Productivity Decrease IT Maintenance & Support Costs Improve Quality & Controls Top Benefit Areas
    • Reduced time for approvals when non-standard terms are integrated into the automated approval workflow
    • Streamlined parallel and sequential approval hierarchies for SOWs
    • Reduced time to find agreements and associated contract details
    • Reduced time supporting contract inquiries
    • Reduced time finding SOW information
    • Reduced time re-entering contract details
    • Reduced time creating contracts due to integrated templates and T&Cs
    • Reduced time creating/drafting SOWs
    • Improved data integrity between contract data and downstream systems
    • Improved tracking of contract changes
    • Improved consistency of contract terms
    • Improved use of standard terms
    • Reduce FTE support for ongoing enhancements
    • Packaged software releases provide future enhancements
    • Elimination of annual support and maintenance for CMS
    Streamline Approval Process Est. Impact
    • 1M – 2M annual cost savings
    • 1M – 2M annual cost savings
    • 400 – 800K annual cost savings
    • Improved version control and data integrity
    • ~400K annual cost savings
    • ~350K annual cost savings
    • Greater use of standard terms
    Eliminate CMS Pipeline Project Costs
    • Cancellation of current CMS pipeline projects
    • ~750K one-time cost savings
    Improve Margin Protection Enhance Order to Contract Linkage
    • Better visibility and integration of discount information
    • Improved integration between deal master and contract information
    • Improved visibility to contract discounts
  • 10. ECLM Definition of Success CISCO CONFIDENTIAL Success Targets Expected Results Increase Productivity
    • Employee Productivity
    • Cycle Times
    • Approvals & Signatures
    • Reduce file room activities for Contract Administrators
    • Reduce manual control costs & edit/fix costs
    • Improve search capability for CS to find all contracts associated with a customer/partner
    • Track negotiation & post-negotiation cycle times
    • Increase volume of automated approvals; decrease need for escalation
    • Increase volume of contracts signed electronically
    Improve Quality & Controls
    • Templates/Clauses
    • Business Compliance
    • Track default & fallback position usage & deviations
    • Increase insight into revenue impacting clauses
    • Increase usage of online templates ensuring same foundation for all contracts
    • Maintain ‘all’ templates in ECLM, Create new contract types w/o IT
    • Increase ability of finding clauses subject to audit (i.e. revenue impacting clauses)
    Improve Margin Protection
    • Customer Data Availability
    • Order to Contract Linkage
    • Revenue Compliance
    • Increase percentage of contracts with accurate & complete customer data
    • Increase percentage of contracts with expected contractual terms available for downstream system integration
    • Decrease number of contracts put on ‘contract hold
    • Simplify ‘evidence of arrangement’ identification (ICA/C2A)
    • Decrease volume of contracts requiring revenue review
  • 11. ECLM Buy vs. Build Recommendation
    • The ECLM team recommends the Buy option.
    • Key Factors:
    • Nearly all needed base functionality offered out of the box
    • Faster time to availability
    • Enhancements and updates are continually released by vendor
    • Reduced IT maintenance and support costs
    • Controllable and known functionality release cycle from packaged software vendor
    Fit and alignment with program objectives and value case: CISCO CONFIDENTIAL Functional Fit Cost Time to Implement Ongoing Mtc. Cost Enhancement Costs Flexibility Build Buy Excellent Average Poor
  • 12. ECLM Buy vs. Build Estimates The main differentiators between the Build vs. Buy decision is the speed for implementation and the ability to support future enhancements in parity with industry and technological advancements. CISCO CONFIDENTIAL Base Fit Dev / Lic Cost Est. Time to Implement Key Benefits Key Gaps / Challenges Build $1,100,000 – $2,000,000 18 – 24 months
    • Ability to design and implement solution to specific Cisco needs
    • Complete control over future solution roadmap
    • No migration needed for existing agreements
    • Ability to rollout additional features and enhancements cannot compete with vendor
    • Time to implementation is vastly increased
    • IT spends time on non-core competency projects
    Buy $0 – $915,000 9 – 12 months
    • Nearly all needed base functionality offered OOB
    • Time to implementation dependent only on Cisco business readiness
    • Enhancements and updates are continually released by vendor
    • Need to work with vendors to develop future functionality roadmap
    • Current functionality does not meet all needs of the Contract Architecture vision
    • Current functionality does not meet all Knowledge Management needs
  • 14. ECLM Assessment Buy vs. Build Software Evaluation Process The software evaluation process followed a structured process to narrow the field of candidate vendors and reach a Buy recommendation: Initial Packaged Software List* *Based on Forrester industry rankings and packaged software vendors incumbent at Cisco Software Vendor Short-List Process Packaged Software Short List Second-Round Vendor Demos, Functional and Technical Assessment, and Reference Calls Vendor Demo Down-Select List Request for Information (RFI) and First-Round Vendor Demos Next Step: Proof-of-Concept (POC) Activity: Assessment Phase Recommendation: Buy Packaged SW Comparison of Legacy system upgrade options to packaged software Final Vendor Selection CISCO CONFIDENTIAL Ariba Emptoris (diCarta) Frictionless Hummingbird I-many Nextance Oracle Procuri Selectica Serengeti Upside Software VerticalNet Ariba Emptoris (diCarta) Nextance Oracle Upside Software Ariba Emptoris (diCarta) Upside Software Ariba Emptoris (diCarta) Key Evaluation Factors: R1 process fit Usability Data architecture & integration fit
  • 15. ECLM Assessment Buy Decision – Vendor Recommendation Investigate Ariba and Emptoris as solution options in the next phase (ID & Assess) Vendor Assessment Summary :
    • Ariba
    • Cisco owns license and currently uses Ariba for buy-side contracts
    • Ariba has a limited track record with sell-side contract management
    • Concerns about data architecture fit (ability to capture business variables at contract clause level)
    • Emptoris
    • Leading sell-side contract management tool in the industry
    • Strong sell-side functionality, including capability to handle business variables at the clause level
    • Higher license costs
    N/A CISCO CONFIDENTIAL Base Capability Fit KM Fit Contract Arch Fit Future Capability Fit Cost Usability Sell-side Installs Ariba Emptoris Upside CMS Excellent Average Poor
  • 16. Buy Decision – Subjective Vendor Analysis The subjective analysis enables a weighting for each vendor across a number of assessment areas that are relative to each other. SMEs were called upon to assess the vendors where needed. CISCO CONFIDENTIAL Current Needs (50%) Future Needs (50%) Base Fit (40%) KM Fit (10%) Contract Arch Fit (20%) Future Needs Fit (15%) Roadmap Synergy (15%) Overall Ariba 66% Emptoris 81% Upside 73% CMS (Today) 44%
  • 17. ECLM Lessons Learned
    • Start simple – don’t over-engineer
    • Be careful of over enthusiastic marketing claims – it’s all in the detail
    • Open up to Negotiators early for adoption and feedback
    • On-going training and support is a must
    • Focus on the functionality that’s important to you and not the vendor
    • Don’t be pushed into a rapid implementation
  • 18. Know Your Users Do the right thing for Cisco, customers and business Contract Negotiators Revenue Review Specialist Team* Follows established policies to assess contract for potential Rev Rec Implications Revenue Accounting Operations (RAO)* Follow Rev Rec assessment to set up accounting treatment Responsible for the deal economics and contract approval Controller Initiates the contractual process Account Team Channels* Uses contracts to structure programs ERP* Uses contracts to set up discounts, other * Specific to Legal Sales CISCO CONFIDENTIAL
  • 19. Timeout: Questions?
  • 20. Contract Tools For Your Business Clients
    • Talking about contracts to non-lawyers
      • Why do I need a contract?
      • What is a contract anyway?
    • Key Legal Terms
      • Indemnification
      • Confidentiality
      • Integration clause
      • Ownership of IP created or disclosed during contract performance
  • 21. Contract Tools For Your Business Clients
    • Traps
      • Limitation of liability
      • Battle of forms
      • Automatic renewals
      • Termination for convenience/penalty
  • 22. Timeout: Questions?
  • 23. Current State of Contract Litigation
    • 28% of companies report increase in contract litigation from last year due to recession
    • 53% of all companies spend $1M or more on litigation
      • 13% of small companies
      • 38% of midsized companies
    • Highest litigation bills are in health care, insurance, energy and tech/communications industries
    • 43% of companies expect the number of legal disputes faced to increase in 2010 due to global economic conditions (53% stay the same)
      • 52% of large companies
      • 30% of small companies (up dramatically from 5% in 2007, 22% in 2008)
    Source : Fulbright & Jaworski 6 th Annual Litigation Trends Survey Report published October 2009 (survey of 408 General Counsel in U.S. and UK)
  • 24. Current State of Contract Litigation
    • Main corporate litigation types pending in 2009:
      • Contracts (45%)
      • Labor/employment (45%)
      • Personal injury (13%)
    • Companies turning away from arbitration in domestic disputes
      • 55% prefer litigation; 32% prefer arbitration
      • Reasons to favor LIT: ARB is splitting the baby, not faster or less expensive, no right of appeal/too limiting
      • Reasons to favor ARB: Typical venues subject to jurisdiction not favorable to judge or jury trials; specialized nature warrants experienced decision makers
    Source : Fulbright & Jaworski 6 th Annual Litigation Trends Survey Report published October 2009 (survey of 408 General Counsel in U.S. and UK)
  • 25. Avoiding Litigation: Minimizing Disputes
    • The Business Side
      • Clarity of business terms
      • Ensure everyone understands deal (business & legal)
      • MOUs and LOIs
      • Anticipate/plan for end game at beginning – what can go wrong?
      • ID most likely issues? Worst Issues?
    • The Legal Side
      • Contract milestone admin process
        • Avoid “Death in the Drawer”
        • Leverage technology
        • Gov’t contracts approach
      • UCC Provisions for sale of goods
      • Attorneys’ Fees Provisions
      • Integration clauses
      • Choice of applicable law
      • Choice of forum
      • Acceptance of jurisdiction
      • Language throughout contracts
  • 26. To Litigate Or Not To Litigate… That Is The Question
    • Subject matter of potential contract dispute affects dispute resolution approach
      • Failure to perform
      • Intellectual Property misuse/NDA Violation/IP Ownership
      • Collections 
    • Potentially problematic contract provisions
      • Limitation of liability provisions (parties; third party)
      • Insurance coverage/duty to defend/control of defense
      • Indemnification clauses
      • Limitation of warranties (tech services or delivery of product)
  • 27. Dispute Resolution Mechanisms: Escalation Mix n’ Match
    • Between the companies (choose 1 or more levels)
      • Unspecified participants
      • Participants who are not directly involved with the contract
      • Senior management
      • Process
    • Mediation
      • Identify organization – JAMS? AAA? INTA? ICC? WIPO?
      • Location
      • Mediation selection process
      • Good faith participation requirement
      • Costs
      • Confidentiality/non-admissibility of proceedings, negotiations
  • 28. Dispute Resolution Mechanisms: Escalation Mix n’ Match
    • Arbitration
      • Identify organization
      • Location
      • Arbitrator selection process
      • Enforceability/binding nature of arbitrator’s award
      • Costs
    • International Dispute Special Considerations
      • Governing laws (to each his own?)
      • Forum selection (when in Rome…)
      • Mutual inconvenience of location
      • Language
  • 29. Lessons Learned
    • Hat sharing
      • Lawyers need business knowledge and involvement
      • Clients need some exposure to legal risks and implications
    • Plan for a rainy day
      • Potential disputes and resolution process
      • Litigation scenarios
      • Exit strategy
    • The old adages apply…
      • A stitch in time saves nine… An ounce of prevention is worth a pound of cure
      • Well worth front end investment in business and legal issues plus dispute resolution process to avoid litigation
  • 30. Timeout: Questions?
  • 31. Thanks for joining us! Axiom is a firm of experienced lawyers liberated from the unnecessary overhead and inefficiency of Big Law. Clients turn to us to reduce their dependence on outside counsel, achieve greater flexibility, and expand their in-house team’s capacity. Attorneys come to us for a challenging, yet more satisfying practice that offers variety and self-determination. We are the first real alternative to the traditional law firm for complex legal work. We call it Law 2.0. Check us out at .