As we continue our series exploring the Chicago/Accenture sourcing contract , our next point of analysis concerns the contract language surrounding auditing and tracking of savings, project success, and ultimately Accenture’s fees (or ‘Value Added Fee’ as they like to call it).
As was recently pointed out in our last chapter ,the fees are already structured in a way that is not optimal for the city of Chicago. In a later post, we will discuss in detail the resources that are required of Chicago’s workforce to support the initiative, and the lack of detail surrounding the commitment on Accenture’s side. The point for now is, for auditing and tracking, the burden of it is placed solely on the City’s resources.
Generally speaking, tracking and auditing the results of sourcing events can be as critical as the bidding event and methodology (RFP, Negotiation, Auction, etc.) itself. Without constant review or adequate monitoring, every spend category can be at risk of never reaching compliance or not achieving expected savings. Maverick buying (employees buying from something other than the contract), suppliers raising prices, usage pattern shifts, and a variety of other factors can contribute to sourcing initiatives never reaching their savings forecasts. ‘Forecast’ is an extremely critical word in the last sentence, because that is what Accenture uses to determine how it gets paid.
In our experience in consulting engagements such as this, the supplier (procurement service consultants) typically assumes the bulk of the responsibility of ensuring compliance. The consultant normally does this not only to protect its fee (assuming it gets paid from actual instead of forecasted results), but it also does this as part of its professional services to help the already-resource-restrained customers that hired it. However, this particular contract does not follow the “typical” consulting engagement.
Very early in the document (Scope of Services, Page 1), we are hit with this:
So, Chicago hires a consulting firm. The consulting firm does some work and provides some guidance and documents on how to reach some savings target. They then want to start getting paid on those targets within 2 months. Chicago is already crunched for resources and has not done the greatest job in these areas in the past (that’s why they hired a consultant, right?). Now, Chicago is exclusively responsible for implementation and compliance. Keep in mind that there are up to 35 simultaneous projects going on at the same time, within this Accenture initiative alone. It is starting to look like those forecasted savings targets might never get achieved.
Still not convinced that these terms are not as favorable as they should be? Let’s look at Chicago’s right to audit:
Under the “Schedule of Payment” section Accenture provides some very vague language:
We are not quite done yet. The auditing definition is even more cumbersome than what we outlined earlier.
Almost as a slap in the face, the Audit section of the contract wraps up with this:
Our next post in this series will discuss the resource requirements outlined in the contract.
------
Start from the beginning:
As was recently pointed out in our last chapter ,the fees are already structured in a way that is not optimal for the city of Chicago. In a later post, we will discuss in detail the resources that are required of Chicago’s workforce to support the initiative, and the lack of detail surrounding the commitment on Accenture’s side. The point for now is, for auditing and tracking, the burden of it is placed solely on the City’s resources.
Generally speaking, tracking and auditing the results of sourcing events can be as critical as the bidding event and methodology (RFP, Negotiation, Auction, etc.) itself. Without constant review or adequate monitoring, every spend category can be at risk of never reaching compliance or not achieving expected savings. Maverick buying (employees buying from something other than the contract), suppliers raising prices, usage pattern shifts, and a variety of other factors can contribute to sourcing initiatives never reaching their savings forecasts. ‘Forecast’ is an extremely critical word in the last sentence, because that is what Accenture uses to determine how it gets paid.
In our experience in consulting engagements such as this, the supplier (procurement service consultants) typically assumes the bulk of the responsibility of ensuring compliance. The consultant normally does this not only to protect its fee (assuming it gets paid from actual instead of forecasted results), but it also does this as part of its professional services to help the already-resource-restrained customers that hired it. However, this particular contract does not follow the “typical” consulting engagement.
Very early in the document (Scope of Services, Page 1), we are hit with this:
“City Responsibilities: iii) Help develop and implement financial scorecards to manage realized savings, which are the savings accrued monthly based on savings commitments.”Then, later in the document under “Project Value Milestone”, we see this:
“The City of Chicago will be responsible for calculating actual gross benefits realized on a monthly basis (“Value Realized”) for all project benefit areas….”Okay, so it is now clear that it is the City’s sole responsibility to track and monitor compliance and usage. So, aside from maybe some minor compliance issues, why is any of this all that important? Let me direct you to Exhibit 2, Schedule of Payment:
“Accenture’s Value Based Fees shall be accrued against the Gainshare Percentage of Committed Savings (i.e., benefits that are projected at the Value Committed Milestone…..)”This is the critical point: Accenture earns their fees based on forecasted savings that had been agreed upon in a report BEFORE implementation is ever even attempted. Even more, Accenture starts billing 2 months after the report is agreed to. The reality is that it is highly unlikely to implement 100% compliance in that short of a time frame. We will show you why in a subsequent post.
So, Chicago hires a consulting firm. The consulting firm does some work and provides some guidance and documents on how to reach some savings target. They then want to start getting paid on those targets within 2 months. Chicago is already crunched for resources and has not done the greatest job in these areas in the past (that’s why they hired a consultant, right?). Now, Chicago is exclusively responsible for implementation and compliance. Keep in mind that there are up to 35 simultaneous projects going on at the same time, within this Accenture initiative alone. It is starting to look like those forecasted savings targets might never get achieved.
Still not convinced that these terms are not as favorable as they should be? Let’s look at Chicago’s right to audit:
“Accenture agrees that upon twelve months after the completion of the strategic sourcing project, the City of Chicago may elect to review any material changes in the volumes of the sourced categories with Accenture.”The wording of this clause was very carefully chosen. It authorizes Chicago to conduct an audit on a spend category, and a later clause allows them to seek a financial adjustment to from Accenture. However, the term specifically says a material change to ‘volumes’. The auditing does not provide any remedy or price relief for non-compliance, only on adjustments in pricing volumes. Theoretically, the suppliers can stop honoring a price, and Accenture still gets paid for the original savings projections because Chicago can only contest volume.
Under the “Schedule of Payment” section Accenture provides some very vague language:
“…Will work together in good faith to implement market pricing adjustments for specific UVEs when pricing/cost changes occur due to market forces outside of the City of Chicago’s and Accenture’s control, including applicable inflation. …..Examples may include increases or decreases in a supplier’s raw material costs, currency fluctuations, or significant variability in the supply market”Wouldn’t inflation, raw material costs, currency fluctuations and variability of supply cover just about every reason a supplier might adjust their price? In our opinion, the language of the audit and fee component simply does not offer Chicago adequate protection from fees owed to Accenture without guaranteed benefits.
We are not quite done yet. The auditing definition is even more cumbersome than what we outlined earlier.
“It shall be the sole responsibility of the City of Chicago to schedule this review and the City of Chicago must give Accenture 30 days advance written notice of the review. If the City of Chicago does not elect within 13 months of the completion of the project to initiate the review, Accenture shall have no obligations to participate in any review.”So, the City’s procurement team, which is already short on resources, is now conducting aboutof 70 projects over a one-year period AND presumably still has their day-to-day job responsibilities. Now, they have to measure and track results for each project that a consultant helped them with, and is solely responsible for remembering that on the 11-month anniversary of each project’s report signature date that it must contact Accenture to schedule an audit, and then must conduct the audit itself. I guess that makes sense; Accenture never claimed to be in the audit business, right?
Almost as a slap in the face, the Audit section of the contract wraps up with this:
“The City of Chicago agrees and recognizes that Accenture is taking considerable risks on the City’s behalf by allowing a deferred gain share payment instead of a fixed fee schedule.”As an outsider looking in, I would say that Chicago is the one assuming almost all of the risk with this contract.
Our next post in this series will discuss the resource requirements outlined in the contract.
------
Start from the beginning:
- An Introduction to the Accenture Chicago Contract and our Analysis
- A look at the redifined terms created by Accenture and Chicago
- A quick view of the Accenture Fee Structure for Sourcing Services in Chicago
- You are here
- Roles and Responsibilies of Chicago and Accenture
- Savings Calculations
- The Termination Clauses
- The Actual Benefits to Taxpayers
- Reason for This Analysis
Post A Comment:
0 comments so far,add yours