Rising to the ChallengeBuilding Commissioning Capability

Tim Cummins, CEO, IACCM

Why are we having this discussion?

• The NHS is under pressure to deliver more value and contain costs

• Today, an average of 35% of contracts seriously under-perform

• This has massive economic impact• Cost• Time• Quality

A more complicated environment

Stakeholders

Supply networks

Global

Regulation

Reputation

Transparency

Public attitudesWhere does commissioning responsibility begin and end?

New attitudes and expectations

Customer responsible for outcomes

Supplier at risk for outcomes

Shared responsibility & risk

80s/90s Late ‘90s Today

Inputs Outcomes Price Value

A spectrum of partnership

Supply of standard goods & services

Supply of custom services or solutions

Acquisition through integrated capabilities

Value / importance

Time / UncertaintyLow

High

High

Confused responsibilities

• Establish technical and commercial requirements• Define type of relationship and agreement• Select appropriate terms and conditions• Plan and conduct negotiation• Oversee transition• Manage performance• Ensure governance• Plan exit or migration to new supplier• Learn from experience

UK Government perspective:The new DNA for commercial activities

Busines

s nee

d

identifica

tion

Supplie

r

relati

onship

manag

emen

t and

negotiati

on

Exec

ution of

sourci

ng stra

tegy

Mar

ket a

nalysis

Sourci

ng str

ategy

Supplie

r

identifica

tion

Finali

zation of

contra

ct

Contract

manag

emen

t

Spend

GoalHigh

Low

Time spent on value added activity

Before going to market

ProcurementProcess

Contract and supplier manager

Managed Commercial Services delivered centrally - once on behalf of Government

UNCLASSIFIED

Improving capability

• ‘Lean’ is about quality – reducing errors• Driving improved supply outcomes requires:• Insight to what goes wrong• Tools, systems and skills to support the emerging

business environment• Revised approaches and accountability

for success

What goes wrong?

Liquidated damages

Service levels and warranties

Performance/guarantees

Invoices/late payments

Change management procedures

Delivery/acceptance

Price changes

Responsibilities of the parties

Scope or goal change

0 10 20 30 40 50 60 70 80 90 100

32%

12%

9%

15%

13%

5%

8%

52%

57%

58%

49%

50%

48%

44%

43%

21%

16%

30%

33%

36%

37%

47%

48%

55%

77%

Never Ocasionally Frequently

Frequent causes of value erosion

• Underestimation of complexity and scope of project• Failure to keep records of critical decisions• Cost overruns - requirements instability• Underestimation of the need to engage stakeholders, poor

communication• Inadequate business case, failure to identify realistic funding

requirements• Issues with supplier selection and governance - failure to test

capability, understand incentives • Lack of discipline in process, little analysis or application of

‘lessons learned’

Copyright © 2013 IACCM. All rights reserved.

8. Continuous improvement

7. Performance measurement

6. Mutual objectives 5. Gain and pain sharing 4. Communication

3. Joint working 2. No-blame culture 1. Problem solving

Reducing the probability of problems and failure: ‘relational contracting’

• Failure to establish or communicate clear objectives is a major issue that undermines performance.

• Late engagement of commercial resources or poorly judged use of industry standards contribute to risk-averse contract terms that distract from establishing key performance criteria and processes.

• Problems with defining project scope cause subsequent disputes and disagreements over change management, charges and payment.

• The use of traditional, legally-driven documents renders contracts of little practical use to delivery teams, undermining their primary value as instruments of communication and understanding.

• Few organizations make effective use of past contracts as a source of learning. Procurement contracting is especially weak in this regard.

Only 16% feel that the contracting process consistently achieves a positive impact on the supply relationship.

DISCUSSIONtcummins@iaccm.com

www.iaccm.com