This document discusses linking contracts to project economics and value. It covers managing value throughout the contract lifecycle, from pre-award sourcing options and contract types to pricing terms and post-award contract management using KPIs and managing risks from "black swan" events. Specific topics covered include analyzing the risk-reward profile of sourcing options, choosing contract types based on risk tolerance, using pricing clauses to reallocate risks and sharing upside, leveraging payment terms for both parties' benefit, and valuing intangible factors. The document emphasizes managing value from a commercial perspective throughout the contracting process.

1. Money Talk – Linking contracts to Project
Economics (and Value$$)
Peter Woon (pwoon@iaccm.com)

2. Not all contracting activities are linked to
Money !
Recent local news ….

3. Agenda
Value and Risk –
End to EndValue
Management
Pre Award :
Sourcing Options
Contract Types
Pricing
Post Award Contract
Management: KPIs and
Black Swan Events
Looking at linking money / value with contracts from a
commercial / BUY perspective

4. Managing Value throughout the Lifecycle
Using the IACCM e-learning contract phases of Contract Lifecycle :

5. Managing Value throughout the Lifecycle
0%
50%
100%
20%
80%
Post - AwardPre - Award
Potential for Financial Gains
Potential for Cost Savings
Committed Cost
%ofTotalTCO
Sourcing Structure
The ContractType
PricingTerms
PaymentTerms
Managing KPIs
Managing Black Swan RisksAward
$$$ impact start

6. Pre Award
Value and Risk –
End to EndValue
Management
Pre Award :
Sourcing Options
Contract Types
Pricing
Post Award Contract
Management: KPIs and
Black Swan Events

7. Pre award: Risk -Reward profile of sourcing options/Risk
Src : http://www.ey.com/Publication/vwLUAssets/20_issues_on_outsourcing_and_offshoring/$FILE/Business_Briefing_Series.pdf

8. Pre Award : The Contract Type
Low Moderate High
Low
Time/Material
( eg Consultant / prof
services)
Moderate
High
Fixed Bid
Contract
(Lump sum /
“NOT to
exceed”)
Fixed Labor
Contract
Fixed Fee Contract
Risk
ToleranceReq.
Detailing
Incentive Contracts
(eg Gain Sharing)

9. Pre Award : The Pricing Clauses
80
60
20
100
40
0%
50%
100%
Buyer Buyer Supplier
Fixed Variable
Outsource
Pricing this risk reallocation for both upside and downside risks
Sharing the Upside through
VolumeTier Pricing
Insuring the Supplier Against
Downside Risk

10. Pre Award: Payment Clause – An End to End View
Increasing Payments terms from NT 30 to NT 60 in a typical Big Buyer / Small Supplier
Reln
Big Buyer : Cost of
Working Capital : X
$YY
($2YY)
($YY)
Total Supply
ChainValue
Lost
This loss ofValue gets
transferred back to
the buyer through bad
service quality
IncrementalValue to
Buyer
Small Supplier : Cost of
Working Capital : 2X
Incremental Loss to
Supplier

11. Pre Award: Payment Clause – An End to End View
Reducing Payments terms from NT 60 to NT 30 in a typical Big Buyer / Small Supplier
Reln
$YY
($Y)
PotentialValue that
can be transferred to
Buyer through
Discounts
Working Capital
Charge at NT 60
Lets not leave $$$ on the table
$Y
Working Capital
Charge at NT 30

12. Pre Award :Valuing the Intangibles
Lets not leave $$$ on the table
Small
Supplier
Big
Buyer
BrandValue of
Relationship
Rebates
Co Marketing Co Branding
Leveraging on Customer’s Brand Equity :
“It pays to have the Top Dog on your
side.”
Img Source: timsackett.com

13. Agenda
Value and Risk –
End to EndValue
Management
Pre Award :
Sourcing Options
Contract Types
Pricing
Post Award Contract
Management: KPIs and
Black Swan Events
Looking at linking money / value with contracts from a
commercial perspective.(Buy).

14. Using KPIs to Manage Non Price Attributes
Price
Rework
Scrap
Warranty
Scope
Creep
Supply
KPIS
Linking Supply Management KPIs to Corporate
Strategy Map

15. Using KPIs to Manage Non Price Attributes
Price
Rework
Scrap
Warranty
Scope
Creep
Leveraging Systems :“ What cant be measured
and tracked cant be managed “
Img Source: adapttds.com

16. Using KPIs to Manage Non Price Attributes
Using systems to accurately report
and aid communications
Img Source: IACCM – Tim Cummins
Tim Cummins – Future of Contracting

17. Managing Black Swan Events
EventType Risk Effect Mitigation
White Swan Known Known
Insurance ( E.g.
Maritime Insurance,
Labor )
Grey Swan Known
Unknow
n
Third Party
Liability Protection
( E.g. Market Disruption
Clauses)
Black Swan Unknown
Unknow
n
Force Majeure
;Managing
Contagion
Source: Thebs.com, Micheal Smith

18. IACCM Singapore members meeting
Network <===> Share <===> Learn
Quarterly Members meeting :
- free of charge .. Informal mini forum format
- organised by members, for members and “members to be”
- To promote networking, Share “best” practices, Increase learnings
Welcome members who would like to offer to host these events and / or to share their
experiences, present & speak
Proposed Next Members Meeting :
Date : 2 November 2012
Venue : John Deere office (Alexander Point)
Proposed themes : Risk Management andTalent management
Peter Woon
pwoon@iaccm.com

19. Thank You
Questions ?
Peter Woon
pwoon@iaccm.com