Contract Lifecycle ManagementLori Vary | Director, ePurchasing

Definition

Contract Lifecycle Management (CLM) is the management of contract creation, analysis, and execution as a systematic and connected process for the purpose of maximizing financial and operational performance and minimizing risks.

How Well Are Others Doing with CLM?● 81% said that simply finding

contracts was a concern

● 54% found it difficult to access specific terms and clauses without looking through contracts

● 40% felt that they could achieve larger savings in their contracts by managing them better

As a Result . . .

● 66% either did not or rarely tracked side letters

● 61% had no idea of the interdependencies between their contracts

● 60% did not track their contingent liabilities

● 50% had no reliable process to alert the correct people to respond to these risks

● 26% were dissatisfied with risk disclosure in their financial reporting

Contract Lifecycle

Vendor Selection

Purchasing

Risk Assessment &Third Party Due Diligence

Negotiation

Decision toRenew or Terminate

Contract Management

Create or ContinueContract

Contract Lifecycle – Vendor Selection● Always good to consider more

than one vendor● Don’t rely on feelings, rely on

what’s right for the credit union ● Conduct research to find the

vendors that offer relevant products and services

● Price is only one consideration

“Competition is on the keen cutting

edge of business, always shaving away at costs.” ~ Henry Ford

Contract Lifecycle – Risk Assessment

An ongoing process to determine the necessary activities to control risk, including:– Identification of internal and external threats– Assessment of the likelihood and potential

damage of threats– Evaluation of the sufficiency of policies,

procedures, etc. to control risk

NCUA advises it is critical to perform a risk assessment prior to implementing any new product or service.

Sample Risk Assessment Questions

● Was more than one third party vendor considered prior to entering into this relationship? If no, provide comments.

● Document that the third party vendor relationship complements the credit union's overall mission and philosophy.

● Is the credit union staff qualified to manage and monitor the third party vendor relationship?

● Has a cost/benefit analysis been examined? If no, provide comments.

Contract Lifecycle – Third Party Due Diligence

Ultimate Goals & Desired End-Results for Performing Third Party Due Diligence:

– For credit unions to clearly understand risks they are undertaking

– Balance and control those risks– Consider the credit union’s safety and

members’ best interests

Contract Lifecycle – Third Party Due Diligence

● Recommendations for Third Party Due Diligence– Identify information needed in

order to have the ability to make an informed decision regarding a vendor

– Create a standardized template detailing required information

– Obtain all pertinent information from the vendor prior to finalization of the contract

Contract Lifecycle – Purchasing

Standardizing the Purchasing Process ● Internal purchasing policies and

procedures should be well documented, clear and consistent

● Allows for greater cost control● Builds upon past experiences to

improve and streamline the purchasing process

● Create a standard RFP, which is the focused statement to vendors regarding your project

Standardizing the RFP Process

● Provides a documented set of processes, procedures, and methods to standardize the RFP process

● The RFP should consist of a project background, commodity specifications, pricing constraints, payment terms and other requirements

● Standardizes contract language and concessions, reducing room for error and increasing consistency across the organization

● Reduces future administrative time

RFP Should Include

● Introduction – a summary of your organization, including a mission statement

● Description of the project● Goals and purposes● Product or service requirements● Pricing constraints● Other constraints unique to your

organization

RFP Should Include

● Time frame and constraintso Vendor responseso Project completion

● Criteria for selecting a vendor● Method to submit proposal and

further information● Process to collect key vendor

information● Contract verbiage and terms desired

Results ! ! ! !

● 2009 – Clorox's earnings increased 8% from the previous time period mostly due to "price increases, significant cost savings and lower commodity costs.”

● Aberdeen Group research found that organizations implementing contract management solutions improve their spend compliance by up to 55%.

Recent Credit Union Results

Armored Car Services - 09/28/10

Asset Size (Millions)Commodity Spend

(LY Spend) Online Auction Bid Savings ($) Savings (%)

Credit Union A $ 893 $ 392,057 $ 224,200 $ 167,857 42.8%

Credit Union B $ 1,560 $ 172,035 $ 70,942 $ 101,093 58.8%

Credit Union C $ 1,137 $ 60,382 $ 24,969 $ 35,413 58.6%

Credit Union D $ 24 $ 2,621 $ 468 $ 2,153 82.1%

Credit Union E $ 15 $ 1,197 $ 919 $ 277 23.2%

Credit Union F $ 151 $ 44,006 $ 18,762 $ 25,244 57.4%

Credit Union G $ 1,504 $ 475,816 $ 383,394 $ 92,423 19.4%

Totals $ 1,148,114 $ 723,654 $ 424,460 37%

Contract Lifecycle – Negotiation

● Standardized contract templates and clauses● Some credit unions set standards such as no

“evergreen” (automatic renewal) clauses● Volume discount consideration● Time discount consideration● Explore potential collaborative relationship opportunities

Contract Lifecycle – Contract Management

● Create contract database in order to have information easily accessible

● Recommended information to include:– Emergency vendor contact

information– Key performance metrics– Notice of change of service

notification date– Automatic renewal or

termination date

Contract Management Information

Track & Maintain Important Information

– Expiration of financial reports, certifications, insurance certificates and other due diligence documents

– Document any important events with vendors such as mergers, bankruptcy, acquisitions

– Addendums

Contract Lifecycle – Renew or Terminate?

● Review vendor performance and compliance with contractual obligations

● Consider options to renew or terminate contract

● Options involve decision to:– Renew contract– Solicit bids from competing vendors– Terminate contractual relationship

Automated CLM

Contract Management Software– Provides a centralized, built-in

tracking engine with triggers, alerts and version control along with a single repository for all contracts and related documents

Risk Assessment & Due DiligenceProcess

– Provides templates integrated into the technology platform for risk assessment, due diligence documentation and monitoring

Automated CLM

Procurement Processes & ePurchasing– Provides a sourcing engine which

enables credit unions to communicate directly with suppliers through a variety of project types such as online auctions, requests for information, requests for proposals or sealed bids.

– Provides an infrastructure for collaborative buying by credit unions.

– Sets the stage for more aggressive bidding with competing companies

Contact Information

Lori Vary | Director, ePurchasing941.747.9646

lori.vary@myleverage.com