doing more with less: advanced contract management strategies

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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:

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Page 1: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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:

Page 2: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 3: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

Introductions – Topic

Page 4: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

Introductions – Panelists

• John Corcoran Senior Director and General CounselCisco-Linksys

• Susan Myers Senior Corporate CounselKia Motors America

• Jean Schanberger Axiom Attorney (Current Client: AeroVironment)

Page 5: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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!

Page 6: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 7: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 8: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 9: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 10: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 11: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 12: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 13: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

CISCO CONFIDENTIAL

Page 14: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 15: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 16: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 17: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 18: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 19: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

Timeout: Questions?

Page 20: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 21: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

Contract Tools For Your Business Clients

• Traps– Limitation of liability– Battle of forms– Automatic renewals– Termination for convenience/penalty

Page 22: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

Timeout: Questions?

Page 23: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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)

Page 24: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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)

Page 25: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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?

Page 26: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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)

Page 27: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 28: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 29: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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

Page 30: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

Timeout: Questions?

Page 31: DOING MORE WITH LESS: ADVANCED CONTRACT MANAGEMENT STRATEGIES

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 www.axiomlaw.com.