doing more with less: advanced contract management strategies in a new economic era november 11,...
TRANSCRIPT
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 MyersSenior Corporate Counsel, Kia Motors America
Jean SchanbergerAxiom Attorney (Current Client: AeroVironment)
Moderator – Anne JacobyHead of Southern California Practice, Axiom
HOSTED BY:
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
Introductions – Topic
Introductions – Panelists
• John Corcoran Senior Director and General CounselCisco-Linksys
• Susan Myers Senior Corporate CounselKia Motors America
• Jean Schanberger Axiom Attorney (Current Client: AeroVironment)
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!
Contract Evolution
RISK MANAGEMENT
Before Beyond
LEGAL CONTROLS
RISK MANAGEMENT
CONTROL COMPLIANCE
RISK MANAGEMENT
LEGAL CONTROLS
CONTROL ENABLEMENTCONTROL COMPLIANCE
RISK MANAGEMENT
LEGAL CONTROLS
CONTRACT FULFILLMENT
CONTROL ENABLEMENT
CONTROL COMPLIANCE
RISK MANAGEMENT
LEGAL CONTROLS
CISCO CONFIDENTIAL
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
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
Enterprise Contract Lifecycle Management
Pla
n
Sea
rch
Cre
ate
/ Dra
ft
Neg
otia
te
App
rove
Cap
ture
/ S
tore
Aud
it / C
ompl
y
Tra
nsac
t(Q
TC
, P2R
, I2R
, M2O
)
Mod
ify /
Ter
min
ate
Ana
lyze
Enterprise Data Hierarchies Party (Partner / Customer) Product
Administration
LegalDocumentTypes
CISCO CONFIDENTIAL
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
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
CISCO CONFIDENTIAL
ECLM Definition of Success
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
Functional Fit
CostTime to
ImplementOngoing Mtc. Cost
Enhancement Costs
Flexibility
Build
Buy
Fit and alignment with program objectives and value case:
Excellent Average Poor
CISCO CONFIDENTIAL
ECLM Buy vs. Build Estimates
Base Fit
Dev / Lic Cost Est.
Time to Implement
Key BenefitsKey Gaps / Challenges
Build$1,100,000 – $2,000,000
18 – 24months
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 – 12months
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
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
CISCO CONFIDENTIAL
ECLM AssessmentBuy 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:
Ariba
Emptoris (diCarta)
Frictionless
Hummingbird
I-many
Nextance
Oracle
Procuri
Selectica
Serengeti
Upside Software
VerticalNet
Initial Packaged Software List*
Ariba
Emptoris (diCarta)
Nextance
Oracle
Upside Software
*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
Ariba
Emptoris (diCarta)
Upside Software
Vendor Demo Down-Select List
Request for Information (RFI) and First-Round Vendor
Demos
Ariba
Emptoris (diCarta)
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
Key Evaluation Factors:
R1 process fit
Usability
Data architecture & integration fit
CISCO CONFIDENTIAL
ECLM AssessmentBuy Decision – Vendor Recommendation
Investigate Ariba and Emptoris as solution options in the next phase (ID & Assess)
Base Capability Fit
KM FitContract Arch Fit
Future Capability Fit
Cost UsabilitySell-side Installs
Ariba
Emptoris
Upside
CMS
Vendor Assessment Summary :
Excellent Average Poor
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
Buy Decision – Subjective Vendor Analysis
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%
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
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
CISCO CONFIDENTIAL
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
Timeout: Questions?
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
Contract Tools For Your Business Clients
• Traps– Limitation of liability– Battle of forms– Automatic renewals– Termination for convenience/penalty
Timeout: Questions?
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 6th Annual Litigation Trends Survey Report published October 2009 (survey of 408 General Counsel in U.S. and UK)
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 6th Annual Litigation Trends Survey Report published October 2009 (survey of 408 General Counsel in U.S. and UK)
Avoiding Litigation: Minimizing Disputes
• The Legal SideThe Legal Side– Contract milestone admin Contract milestone admin
processprocess– Avoid “Death in the Avoid “Death in the
Drawer”Drawer”– Leverage technologyLeverage technology– Gov’t contracts approachGov’t contracts approach
– UCC Provisions for sale of goodsUCC Provisions for sale of goods– Attorneys’ Fees ProvisionsAttorneys’ Fees Provisions– Integration clausesIntegration clauses– Choice of applicable lawChoice of applicable law– Choice of forumChoice of forum– Acceptance of jurisdictionAcceptance of jurisdiction– Language throughout contractsLanguage throughout contracts
• The Business SideThe Business Side– Clarity of business termsClarity of business terms– Ensure everyone understands Ensure everyone understands
deal (business & legal)deal (business & legal)– MOUs and LOIsMOUs and LOIs– Anticipate/plan for end game Anticipate/plan for end game
at beginning – what can go at beginning – what can go wrong?wrong?
– ID most likely issues? Worst ID most likely issues? Worst Issues?Issues?
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)
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
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
Lessons Learned
• Hat sharingHat sharing– Lawyers need business knowledge and involvementLawyers need business knowledge and involvement– Clients need some exposure to legal risks and implicationsClients need some exposure to legal risks and implications
• Plan for a rainy dayPlan for a rainy day– Potential disputes and resolution processPotential disputes and resolution process– Litigation scenariosLitigation scenarios– Exit strategyExit strategy
• The old adages apply…The old adages apply…– A stitch in time saves nine… An ounce of prevention is worth a A stitch in time saves nine… An ounce of prevention is worth a
pound of curepound of cure– Well worth front end investment in business and legal issues Well worth front end investment in business and legal issues
plus dispute resolution process to avoid litigation plus dispute resolution process to avoid litigation
Timeout: Questions?
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