Breakout Session #1603 Jason Rushin, Product Marketing Nextance Monday, April 10

2. Managing Contracts in the Complex World of Services Breakout Session #1603 Jason Rushin, Product Marketing Nextance Monday, April 10 2:45pm - 3:45pm NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

3. Agenda • The Essence of Services • The Pain Around Services Contracts • Contracts are the Key • How Contract Management Can Help • How to Get Started NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

4. Agenda • The Essence of Services • The Pain Around Services Contracts • Contracts are the Key • How Contract Management Can Help • How to Get Started NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

5. Spend Segmentation Varies Widely by Industry % of Total Revenue Min Max Indirect 2% 47% Direct 2% 47% Services 2% 26% % of Total Spend Min Max Indirect 2% 84% Direct 2% 100% Services 8% 87% Everyone Buys Services, But Focus is on Direct and Indirect INDIRECT 24% SERVICES 31% INDIRECT 9% DIRECT 18% SERVICES 11% DIRECT 45% NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management Source: CAPS Research, July 22, 2003

6. SERVICE CONTRACT Service: personal chef Duration: 1 year Frequency: daily Time: dinner, served @ 8:00 PM Dress: chef’s whites, toque Preparation: set table Clean-Up: wash/dry dishes Ingredients: fresh, all organic Tools: supplied by customer Other: ????????? Dress: chef’s whites, toque Preparation: set table Clean-Up: wash/dry dishes Ingredients: fresh, all organic Tools: supplied by customer Other: ????????? Service Contracts Are Much More Complex Than Materials Contracts MATERIALS CONTRACT Product: Big Mac Size: n/a Quantity: 1 Price: $2.39 Requested Date: May 10, 2005 Requested Time: 12:00 PM Packaging: cardboard box Invoice: receipt Pymt Terms: in full @ delivery NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

7. Outsourcing is a Service that is Even More Complex • Change orders • Poorly defined expectations • Inaccurate workload projections • Inadequate scope definitions • How to determine cost savings or operating cost reductions? • Salaries, benefits, overhead • Transaction costs NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

8. Service Contracts Differ From Materials Contracts Because… • Intangible • Services are not finished products • Uniqueness • Each service performed is unique to that customer or service provider • Inventory • Services cannot be stored • Evaluation • Can be totally subjective • SOWs and SLAs • Unique to service contracts NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

9. …And Everyone Agrees Servicesmore complex Aboutthe same Materialsmore complex NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

10. Agenda • The Essence of Services • The Pain Around Services Contracts • Contracts are the Key • How Contract Management Can Help • How to Get Started NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

11. Typically Involved Temporary help Travel Freight Parcel Facilities Waste management Involvement unlikely IT Services Telecom, IT development Consultants Primarily driven by IT and Business Specialty services Legal, Advertising, PR, HR benefits Outsourcing Procurement’s Participation VariesWhen Sourcing Services NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

12. But, Excluding Procurement Increases Risks • Over reliance on familiar firms • Internal groups perceive that their needs are so unique that only one supplier can perform the task • Biz units are not sourcing experts • Non-standard process for selection, negotiation and management of suppliers NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

13. But, Excluding Procurement Increases Risks • Decentralized decision making • Limited leverage of corporate spend • Poor project specifications • Reliance on business units to create SLAs and SOWs can lengthen cycle times and increase risks • Reviews, revisions, incompleteness due to lack of sourcing knowledge NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

14. Services Sourcing Trends • Procurement becoming more involved • Processes and procedures • Negotiation expertise • Expanded use of e-procurement • Still focused on lower-level commodity services, not complex integrated services • Rental cars, airlines, communications • Services-specific e-procurement • Temp labor, facilities, travel, dining, telecom NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

15. Not Just Procurement’s Pain: Legal • Buried under volume of contracts • Communication challenges with sales and procurement • Customers negotiating longer and harder on key items • Standardization challenges • Detail and complexity of agreements increases risk and effort to mitigate NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

16. Unnecessary increase in risk Missed revenue opportunity from volume commits Late invoices – Increased DSO Inefficiencies Penalties for missing commitments Inaccurate revenue forecasts Inaccurate revenue recognition Revenue restatements Not Just Procurement’s Pain: Finance NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

17. Agenda • The Essence of Services • The Pain Around Services Contracts • Contracts are the Key • How Contract Management Can Help • How to Get Started NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

18. Strategy Differs From Materials to Services • Supplier selection not readily apparent • Users of the service usually know best • Many factors are involved • Price and quality • How do you measure quality? • Previous work • Industry experience • Detailed SLAs and SOWs are the key • “Fourth floor, men’s restroom, floor surface is 282 ft2, industrial tile with 4-inch vinyl baseboard…” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

19. Contract Language is the Key to Successful Service Procurement • Dependent upon the contract language • Many firms incorrectly start with materials agreements • Service Level Agreements (SLAs) • Measurable aspects of performance • Network availability, response time, accuracy NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

20. Contract Language is the Key to Successful Service Procurement • Statements of Work (SOWs) • Outlines the specific services to be performed • Description, deliverables, responsibilities • Perceived value vs. demonstrable value • Tying value to revenue or savings Best practice is to have a main services agreement with SOW and SLA attachments NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

21. Contracts Contain the DNA of Services • Metrics that reflect a supplier’s performance • Response time of 4 hours in greater than 98% of occurrences • Metrics that Procurement reports to management • Network up-time of 99.9% NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

22. Contracts Contain the DNA of Services • Service Level Termination Events • Provision for termination if a supplier fails to meet established SLAs • Put your money where you mouth is • Performance Credits • Fines for poor performance • Rebate or credit for missing service levels ERP and e-procurement systems do not have visibility into these aspects of the agreement NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

23. Agenda • The Essence of Services • The Pain Around Services Contracts • Contracts are the Key • How Contract Management Can Help • How to Get Started NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

24. ISM’s “Four Factors Affect Service Contract Success” • A well-defined SOW • Provisions for the appropriate measurements and metrics (service levels) • A well-constructed agreement • Appropriate special contract provisions directed toward the specific service Source: ISM/NAPM InfoEdge, May, 2001 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

25. Contingencies Future purchase commitments Payments tied to milestones and obligations Extended payment terms Special guarantees Discounts, pricing, special packages New product commitments Split of products, services, maintenance Maintenance terms Side letters Services Contract Terms that Impact Revenue Recognition NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

26. Maintenance terms and amount Warranty Indemnity Limitation of Liability Intellectual Property Ownership Contingencies Future purchase commitments Extended payment terms Payments tied to obligations, commitments Special guarantees New product commitments Discounts, pricing, special packages Split of products, services, maintenance Services Contract Terms that Impact Risk NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

27. Transaction Data Contract Information Unstructured Data Critical for Risk Management, Financial Reporting, Fulfillment, Compliance ERP SRM Complex pricing matrices Milestones and milestone based payments Disclosure requirements Insurance requirements Safety, Health, Environmental requirements Service Level Agreements Quality requirements Right of first refusal, right of first grant Shipping and delivery requirements Specifications Supplier KPIs and metrics Reporting schedules and requirements Termination liabilities ContractPerformanceManagement Contract Data Transaction Information Products Quantity Discounts Delivery Dates Price Trouble tickets Service response time Preferred Carrier Performance Order Dates Document Data Documentation Document Management Attachments, Specs, Drawings, Statements of Work Your Existing Applications Fall Short NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

28. Cost Reductions Reductions in one-off purchasing Leveraging of existing agreements Common processes Process Improvements Streamlined contract creation, approval and implementation process Operational Improvements Pre-CPM average of $75 per agmt Room for further improvement identified via new visibility Case Studies: Real Success with Contract Management $1.5 million in first-year savings Reduced cycle time from 1 year to 45 days Reduced agreements from 108,000 to 50,000 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

29. Agenda • The Essence of Services • The Pain Around Services Contracts • Contracts are the Key • How Contract Management Can Help • How to Get Started NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

30. How Do You Know You Need Contract Management? • How are suppliers performing against milestones and SLAs? • Are you realizing 100% of negotiated discounts and rebates? • How many contracts expire without renegotiation or termination? • How often are you alerted to contract issues by your suppliers? • How productive are employees and where are the bottlenecks? • Can you locate 100% of your contracts & associated documents? NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

31. ERP • Find Next “Low hanging Fruit” • Re-negotiation opportunities • Off contract spend • Identify high risk contracts Contract Management Dashboard • Drive Corporate Compliance; Mitigate Corporate Risk • Enforce process controls • Monitor potential liabilities • Manage commitments Contracts • Create Efficient and Scalable Operation • Manage workload & bottlenecks • Manage team effectiveness • Hold suppliers accountable What Benefits Will You See? E-Procurement NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

32. Other Initiatives • Spend Management • Process Improvement • Authoring Standardization Visibility Control Analyze Learn Improve Gain Control of Your AgreementsBefore Beginning Other Initiatives • Why contracts first? • Lack of visibility into revenue and savings leakage, maverick spend, etc. • Determine current state – contracts, process, performance, compliance – before moving further • You need to know where your contracts are, then leverage the data to facilitate other initiatives NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

33. Nextance Overview Successful Deployments Industries Contract Types • 40+ Customers • 100 Projects • Oil, Gas, Chemical • Energy • Healthcare • Biotech • Technology • Pharmaceuticals • Financial Services • Telco • Services • IT • Goods • Customer • OEM • License • CDA/NDA • Departmental & enterprise-wide installations • 40+ countries • 65,000 Users • Multiple languages NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

34. Your One Key Takeaway… Effective service provider management is effective contract management NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management