We are now several posts deep into our our ‘Cost Savings in the Windy City’ analysis of the City of Chicago and Accenture’s contract for Strategic Sourcing Services that was announced by Mayor Rahm Emanuel on Thursday August 18th, 2011. So far, we discussed the confusing terms, the fee structure, and the tracking and auditing of compliance. Today we will be discussing the resource and responsibilities of each party.
Staffing Requirements:
Services: City Support Requirements:
Accenture Support Requirements:
Oops, my mistake, the “Accenture Support Requirements” section does not exist. In fact, there is very little in the contract that specifies how many resources Accenture needs to staff the initiative. Within the document, there is a letter from Accenture to the CPO of Chicago that explains:
To their credit, Accenture points out that if the City does not like the direction that the initiative is headed in after the spend assessment; it can walk away without obligation. But how likely is that, especially after Rahm Emanuel publicly announced this cost reduction initiative. And wouldn't the $250,000 assessment fee that was already paid to Accenture count as some sort of obligation?
Timelines:
We will save the discussion of simply assuming that things got 100% implemented for another day. (Notice the word “Should” instead of “will” above). Now, let’s assume that Chicago does actually have the resources and management to make sure that a project gets implemented, and for a particular project they are planning on changing vendors. Does 2 months provide enough time to achieve 100% compliance? The short answer, in 50% of spend categories, is no. It is unreasonable to expect every project to be a simple flip of a switch or signing of a contract and poof, magical savings are achieved. In the real world, the suppliers may need prep time, your own staff may need training, materials or products might need to be tested, and pricing and billing platforms need to be audited. This cannot always happen in 2 months.
In our post covering audits, we already discussed that the City is exclusively responsible for tracking and measuring savings and compliance, so we will not re-hash it all here. Let’s just say that we feel that the contract puts an undue burden on Chicago that we would never expect our own clients to accept.
Overall, we feel that this contract is extremely specific about the City’s support requirements and extremely vague about Accenture’s requirements. Other bloggers had commented that 10% was a low fee for this type of engagement. We believe that due to the amount of resources Chicago is committed to, combined with the ability for Accenture to earn a fee based on projected savings and soft-dollar savings, as opposed to actual realized hard-dollar savings, 10% is not a low number at all, it’s a windfall.
Up next, Joe will continue to discuss some of the details of calculating the baseline and savings forecasts.
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Links to each article:
Staffing Requirements:
Services: City Support Requirements:
i) “Provide Procurement Strategic Sourcing Executive Lead (1 day per week)”We think this is perfectly reasonable. Executive sponsorship and leadership is critical to any sourcing projects ultimate success.
ii) “Provide City of Chicago Project Manager (3 days per week)”Do we feel this excessive? Well, no. It might not even be enough people power based on the amount of work that Chicago agreed to perform. The only comment we can make here is that Accenture defines all kinds of “soft costs” as savings that they should be paid on. Shouldn’t it work both ways? The soft costs of managers and resources provided by Chicago should offset the “savings” that Accenture puts up.
iii) “Provide 4-8 Strategic Sourcing resources (2 to 3 days per week) to participate in strategic sourcing projects, with exact resource need to be determined as part of Spend Assessment”Four to eight half-time+ resources? Who is actually doing this consulting engagement? Accenture, or Chicago? Is Accenture simply providing training services for the City’s staff? If so, 10% is pretty high. Is Chicago staffing 50% of this engagement, more? This number seems excessive; we would expect Accenture to be providing these resources.
iv) “Provide analysts to prepare data (as needed)”This is a very generic statement that could put a lot of undue hardship on the City. In engagements for our clients, we typically send our own staff in for data collection (once the internal resources point us in the right direction).
Accenture Support Requirements:
Oops, my mistake, the “Accenture Support Requirements” section does not exist. In fact, there is very little in the contract that specifies how many resources Accenture needs to staff the initiative. Within the document, there is a letter from Accenture to the CPO of Chicago that explains:
“Given the unique gain share structure of this PSA, Accenture does not yet have an accurate perspective on the anticipated required FTE effort or fees for this project”What exactly does that mean? Because this is a “unique gain share” does that mean that Accenture is not going to provide the same level of service they would on a fee based project? Shouldn’t Accenture be able to estimate the amount of resources they need if they are in this business? I know we would be able to.
To their credit, Accenture points out that if the City does not like the direction that the initiative is headed in after the spend assessment; it can walk away without obligation. But how likely is that, especially after Rahm Emanuel publicly announced this cost reduction initiative. And wouldn't the $250,000 assessment fee that was already paid to Accenture count as some sort of obligation?
Timelines:
“Review and approve Spend Assessment deliverables within 10 business days or provide feedback for resolution to allow for progression into Strategic Sourcing”As we have discussed in detail in a previous post, failure to meet this responsibility means that Chicago immediately agrees to whatever is presented in the Accenture report. In the real world, 10 days is simply an unreasonablyshort time to review such information. The contract calls for two waves of approximately 35 sourcing projects to be happening at the same time. Does a business manager have the time to review/audit and understand multiple reports if they are delivered on the same day/week? What if someone is on assignment or vacation? What if the report gets delivered the day before the holidays? What if a piece of baseline data needs to be challenged? Can they retrieve information from a supplier in enough time? In our opinion, the 10-day restriction puts Chicago at risk of signing something that they don’t completely understand.
“Accenture will invoice the City of Chicago on the 15th and last day of each month based on Value Committed Milestones two months earlier. Payments will be due 60 days from invoice as described below…….This should allow the City of Chicago to pay Value Based Fees from previously Realized Savings, staying cash flow positive at all times.”
We will save the discussion of simply assuming that things got 100% implemented for another day. (Notice the word “Should” instead of “will” above). Now, let’s assume that Chicago does actually have the resources and management to make sure that a project gets implemented, and for a particular project they are planning on changing vendors. Does 2 months provide enough time to achieve 100% compliance? The short answer, in 50% of spend categories, is no. It is unreasonable to expect every project to be a simple flip of a switch or signing of a contract and poof, magical savings are achieved. In the real world, the suppliers may need prep time, your own staff may need training, materials or products might need to be tested, and pricing and billing platforms need to be audited. This cannot always happen in 2 months.
In our post covering audits, we already discussed that the City is exclusively responsible for tracking and measuring savings and compliance, so we will not re-hash it all here. Let’s just say that we feel that the contract puts an undue burden on Chicago that we would never expect our own clients to accept.
Overall, we feel that this contract is extremely specific about the City’s support requirements and extremely vague about Accenture’s requirements. Other bloggers had commented that 10% was a low fee for this type of engagement. We believe that due to the amount of resources Chicago is committed to, combined with the ability for Accenture to earn a fee based on projected savings and soft-dollar savings, as opposed to actual realized hard-dollar savings, 10% is not a low number at all, it’s a windfall.
Up next, Joe will continue to discuss some of the details of calculating the baseline and savings forecasts.
------
Links to each article:
- 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
- Audit and Compliance Responsibilities and Tracking
- You are here.
- What Counts as Savings
- Termination Clauses and Penalties
- Will Taxpayers Benefit?
- Wrapping Up, Why We Wrote This Series
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