Managing Third Party & Counterparty Relationship Risks
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Transcript of Managing Third Party & Counterparty Relationship Risks
Procedures to Mitigate Outsourcing Risk9 October 2013Matthew Flood General Counsel, Support Services
Introduction
What is outsourcing? What are the risks of outsourcing? Mitigation: Planning for successRisk Mitigation: Specific ActionsQuestions?
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What is Outsourcing?
Why is this relevant?
G4S London 2012 Olympic Games Security Contract£250m contract for 10,400 security staffG4S unable to provide enough staff 4,700 members of the armed forces deployedResignation of CEO
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Definition of Outsourcing
A "typical" definition:
"the process of transferring the responsibility for a specific business function from an employee group to a non-employee group, which may or may not include the transfer of assets and personnel”
Means different things in different situations:● Contracting relationships● Sub-contracting arrangements● Alliances/partnerships
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What does Balfour Beatty do in the outsourcing space?
Facilities Management (WorkPlace) Energy services (WorkPlace) Roads networks (Living Places) Gas/water networks (Gas & Water) Business Process Outsourcing (WorkSmart/WorkPlace) Total Outsourcing (WorkPlace)
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Risks of Outsourcing
Why is this relevant?
National Health Service – NHS National Programme for IT (NPfIT)
£12 billion scheme to provide electronic patient recordsScrapped after 10 yearsEstimated overruns of £7.4billion, multiple supplier contracts
terminated
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General risks
Vanity Projects Lack of buy-in/understanding
● At executive level● Generally by staff
Working with contractors (especially overseas)● Lack of cultural understanding● Data protection ● Bribery/Ethical risks
Bespoke vs Generic system “Non-outsourcable” responsibility
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General risks: continued
Capability● Do they know what they’re doing?● Losing talent to the contractor? ● Can they take you for a ride?
Intellectual Property● Benefit of developments?● Selling your knowledge to other customers/competitors?
Dependence
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Is this more complex than you think?:Balfour Beatty Living Places’ capabilities on roads Highways and
Transportation Strategic
management of highways and street lighting assets
Network management
Health and safety management and delivery
Congestion reduction
Programme management
Project management
Street-lighting design and maintenance
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Road safety & travel planning
Highways design and maintenance services
Winter maintenance Emergency
response Vehicle
management and maintenance services
Grounds maintenance services
Construction Site supervision Sustainability Environmental
services
Performance and risk management
Change management
Highway asset management
CDM services Street-lighting
design and maintenance
Highways inspection
Traffic control systems including traffic lights
Planned & reactive maintenance
Enquiries from the public
Road space management
Traffic Management Act coordination
Third Party claims management
Tree management Drainage Lighting
management Parking control Travel & information
management Streetworks Network co-
ordination Traffic monitoring Material testing Annual road user
casualty reduction
Mitigation: Planning for success
Why is this relevant? US Navy EDS IT Contract$4billion deal for EDS to provide world’s largest intranet700,000 users, 400,000 computers in 620 locationsProject plagued by delays and controversy$550 million in deferred costs written down in 2003Now, whole site being “unbundled”
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What makes it work?: Shared Values
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What makes it work?: Shared Vision
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What makes it work: Organisational Design
Game changingSTRATEGIC
What makes it work: Critical Success Factors
WorkSmartShared
Services
Executive sponsorship
Business Partnership
‘Working together’
Data-based approach
early identification
of trends Service Management framework
Fielding the Right Team
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What does success look like?
Success is where the outsourcing delivers better value than the client could generate doing the work itself
And, this success can actually be measured
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Preparing for success: Is there an ideal process?
BS11000 Collaborative Business Relationships
Provides a process clients/contractors can use to work together effectively
Auditable
Risk Mitigation: Specific Actions
Why is this relevant?
G4S/Serco Prisoner Electronic Tagging ContractsAlleged overcharging of up to £50 million pounds Offenders had been released, were in prison or even
deceasedSerious Fraud Office to investigateBanning from government contracts?
(c. 50% of Serco Revenues)
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BEFOREMitigation
Contracting: More Haste Less Speed
Rush to “get to contract” Scope poorly defined, terms harsh/unmoving, schedules left
“TBA” Time not spent on:
● current state; ● what is required; nor ● what success looks like.
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Contracting Framework: Roles and Responsibilities
SCOPE! ● Must be clear, consistent, ● If not included, will usually be a variation ● “Kitchen sink” language
Set out clearly what client does vs what supplier must do● Client dependencies ● Outsourcing contracts fail where gap in understanding
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Contracting: Outsourcing life cycle
Beginning, middle and end Leave enough time for the handover Contract operation
● improving metrics/efficiencies over the life cycle
Extension? Termination/hand over mechanics
● Termination for convenience?● Transitional services?● Break costs?
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Contracting: Risk and Reward
Client risk or contractor risk?● Who is best placed to pay for it?● Do you REALLY want the contractor to take it?
Pain/Gain share mechanisms Claims/investigations? Specific risks
● Bribery/data protection/HSE/personal injury etc● Indemnities?
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Contracting: Policing Mechanics KPIs Service Credit regimes/Liquidated damages
● Should this apply across all KPIs?● Exclusive remedy?
Reporting requirements/Escalation Procedures● Governance structure?● Consistent data/data overload
Termination Rights (on default, change of control etc) Step In Rights
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DURINGMitigation
Planning is no good if actual implementation is poorTransformational shift in culture ●Safety ●Efficiency●Redundancies?●On-going employee engagement
Data in agreed form ready to be producedContract summary
Mobilisation/Ongoing review
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• We measure WorkSmart only and End-to-End performance metrics, and embed in Service Agreements
WorkSmart service management
Wor
kSm
art
Onl
yEn
d-to
-End
Data based and
Baselinedmetrics
Drivingaccountability
and E2E improvement
Our Service Management framework has assured performance transparency and enables collaboration with our clients
‘You cannot manage what you cannot measure’ Bill Hewlett (co-founder of HP)
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WorkSmart service managementPerformance reviews are held monthly with each Client, chaired by BBWS Account Manager and incl. WorkSmart Only and End to End performance.
• End-to-End achieved 66% GREEN SLA compliance (Mar)
• AP invoices POT % + Level of aged Debt compared to baselined expected and minimums varies by OpCo
• Payroll accuracy + Timeliness + Payslip distribution compared to baselines
• % addressable spend going through SCM agreements + % of forecast benefit achieved + % rebates collected
End-
to-E
nd
Insights: • End-to-end comparative metrics are a catalyst for change• Stronger client relationships accelerate benefits and value-add 31
HEAVEN/HELL
Paperless system
Open book supply chain orders
New innovations process/ IT
Property portfolio stable (optimal)
Dateline
Achieve Zero harm target
7% efficiency to tender contract
Engaged workforce 62+ (79)
8+ look ahead work & design
Fit for purpose tendered structure
in place
Customer score 8.5
Meet budget
All BB employees
Exceed mains replacement target
Front end focus not backend loaded
Acknowledge / Learn
Staff churn
Poor relationship with stakeholders
Succession planning – losing key talentEmployee attrition
Development plans not in place
S74 performance not improving
High customer complaints and
enquiries
Lack of confidence in the reinstatement
process
Increase in staff numbers to
manage inefficient processes/
systems
Low Employee engagement results
Efficiency programme < 4%
People issues – relationships; competence
blocker on delivery; succession planning
Ops not delivering - programme adherence
H&S performance declines
Communicate & Celebrate
Year two Design submitted
Developed sustainable
manpower strategy that covers winter/
summer requirement
Year 2 programme in place
All staff have objectives linked to
Biz plan
Relationship with local authority
improved
4% efficiency challenge to
tendered outputs
Year 1 workload target & risk
removal delivered
10% of 8 year programme by
December
IT systems delivering eg audits
MI capability
Innovation – mains lining; asbestos
insertion
Employee Engagement
survey
Subcontract reinstatement
HSE consultation cuts too deep – unsafe network
BMS non compliant
GDFO issues WIP >55m
Reputation on 3rd party reinstatement
£££
Stakeholder relationship not
improved
Transformation team/ projects delayed due to
consultationNWGA pack completion
No Section 74
Improve external stakeholder relationship
Contract KPIs delivered
D42 achieved
Robust MI/ contract measurement &
environment
WIP < 155 days <50mil
Customer Sat > 8.05
Accumen live NW GDSP & Data
Hit Zero harm target
Restructure complete
April 2014 April 2015
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Benchmarking
How often?What criteria? Outcome?
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Insurance/Security Consider what insurance policies required
● Who should insure (client/contractor)● For what (design, physical damage etc)?● Ensure currency of coverage
Security● Bank guarantees/insurance bonds● Parent company guarantees
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AFTERMitigation
Risks on retendering
Demobilisation can be expensiveYour current supplier is in the best positionCulture●People can take their eye off the ball
Transition●Expect to pay twice●Does the contract still work 5 years on?
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Mitigation of risks
Intellectual property – who gets all the handbooks, manuals, IT etc
Staff●TUPE – does it apply? It can help (OR NOT!)● “Golden handcuffs”/bonuses?●Non poaching/confidentiality clauses
Branding solutionsBuy out the company?
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Why is this relevant?The Truceless War, Carthage, 240 B.C.Hanno outsources infantry to 20,000 mercenariesFollowing contract losses and poor demobilisation, Tunis
seized by mercenary army Previous manager, Hamilcar Barca, reinstated Resolves the matter out of court by killing them all
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Questions?