This blog is a part of our “Complete guide to RFP” blog series, where we share our insights regarding the RFP process. We at Sievo have participated in hundreds of RFPs in recent years and we wanted to ease your burden by sharing our knowledge on how to avoid misunderstandings and save time through a well-constructed and comprehensive RFP-process.
After the RFP the real work starts
In most organizations, once a supply contract has been negotiated and signed, it will be handed off to business owner to manage. After a successful request for proposal (RFP) project one might think now its their time to sit back, relax and enjoy the results. This is the point at which it can fall apart. IACCM research has shown that on average 35% of an organization’s contracts fail to reach the expected value by 10% or more and that a significant proportion of this value loss could be avoided. Lack of prior stakeholder engagement, poor communication, and limited access to the details of the agreement often result in contracts that fail to deliver the desired results.
Why contract handover is critical?
The transition phase from contract signature to implementation is vital to success. Contracts fail because the implementation steps are ill-defined and poorly executed. Passing contractual information on via email, or through brief conversations at the water cooler, are not enough. Organizations that have a solid process and leadership capabilities to manage contract handover successfully will:
- Get more value from negotiated agreements
- Realize projected savings
- Use their internal resources more effectively
- Improve business alignment
- Limit their exposure to supplier risks
- Save time and effort in administration
Compliance with the provisions of a contract is important to obtain full benefit from the supply relationship. It takes time for stakeholders, the contract owner, and end-users to familiarize themselves with the terms and conditions of a new contract. They need to understand the commitments in the Service Level Agreement (SLA) and Key Performance Indicators (KPIs) and any other issues that may be relevant to the performance of the contract. They may have contractual responsibilities, for instance related to communication or operations critical information, they need to be aware of to fulfil those requirements. A contract is an agreement between two parties – this critical point is often forgotten. If there is no proper transition or handover plan, there will be no shared understanding between procurement, the users, and the supplier.
From RFP to contract
The RFP process is normally managed by a procurement project manager. Business stakeholders, subject matter experts and end-users will have contributed to the RFP process. It is the responsibility of the procurement lead or category manager to make sure post-award contract handover takes place as effectively as possible. The main objectives of the handover process are to i) agree, and ii) communicate, the roles and responsibilities of each person involved at both the buying organization and the supplier. Each party needs to know their counterparts and whom to contact in contractual and business-related topics. At this stage the contract owner and relationship lead for optional supplier relationship management (SRM) program are confirmed. A face-to-face (or virtual) handover meeting is necessary to communicate all the important elements to ensure a successful kick-off. It is not purely an administrative activity.
The handover process
We recommend that procurement takes the lead in presenting the contract, the SLA and explains the implications of these commitments not being met. Procurement will be aware of the finer details within a contract, the business stakeholders on the other hand may be aware of the areas relevant to business. The focus should be on the SLA and KPIs, - how success is measured, the reporting process, what happens if service levels are not met - including conflict resolution, corrective actions, escalation, and related processes. Supply contracts are not static. Specifications change, new products and services are added, unforeseen events occur. The contract amendment and dispute resolution processes must be agreed upon and confirmed to ensure continuity and accountability. Any risks that were raised during the RFP or negotiation process must be addressed and remedies agreed upon. Audit plan and practices need to be agreed in handover.
The handover must be documented, i.e confirmed in writing. Method of documentation may vary: some compile a handover report, some submit a handover form, some prefer to use Excel with a RACI-matrix, and some prefer to communicate key responsibilities of relevant parties via email. No matter what the method is, handover document needs to be understandable, unambiguous, applicable and relevant to each person. According to IACCM, over 60% of project managers and implementation teams complain about the problems caused by handover (or the lack of it). More than 9 out of 10 managers admit that they find contracts difficult to read or understand. A contract summary customized to its audience is a solution.
Handover success factors
Top performing organizations invest time and resources in the post-award contract implementation process. They clearly define roles, communicate proactively, and have the supporting technology and tools. Even the best of contract have their loopholes and gaps that were not identified at the time of negotiation. Activities that happen after the contract singing are therefore the only way to close such gaps and ensure contract is executed to its full potential. A fully functional and successfully implemented contract means that:
- both parties understand their contractual obligations
- the expected business benefits are realized
- the product or service is fit-for-purpose
- internal stakeholders are satisfied and familiar with relevant contract terms
- the supplier relationship is collaborative and responsive
- problems are solved early and there are few disputes
- changes are managed frequently
- performance, services and relationship are continuously improved
- both parties are vested in each other’s success
The real value creation starts after the RFP. Effective contract execution builds sustainable value beyond traditional cost management. Ideally, relationships are driven by leagality, sustainable development and innovation culture.
Contracts are too valuable to file and forget
Organizations are facing increasing pressure to reduce costs and improve financial and operational performance. New regulatory requirements, globalization, increases in contract volume have added complexity, making it difficult to manage contracts without the supporting technology.
Contract management is one of the least automated processes: over 60% of organizations lack a coherent management reporting application or have the wrong software. Many procurement organizations still lack standardized procedures to administer contracts. Often contracts are filed locally in each office, or uploaded haphazardly as PDFs in Sharepoint. This results in inefficiency and weaknesses in performance oversight and the inability to detect contract leakage.
Find out how ISS Group were able to harmonize contract management globally with almost 500,000 employees. See case study.
The benefits of automation in contract management are to:
- Improve visibility, security and access to contract provisions
- Harness full savings value from negotiated agreements
- Limit exposure to supplier failure and non-performance
- Improve long-term supplier relationships through better communication
Although the purpose of a contract is to create a benefit between two organizations, there is often too much focus on internal vested interests and the drive for control and compliance. A supply contract is a business enabler and a tool for growth and relationship-building, not an obstacle to be overcome or weapon to draw when the time is right.
Header picture by: @linde66 (unsplash.com)