Cost Savings in the Windy City Part 1 - Will Accenture Produce Tangible Budgetary Reductions?

on Thursday, August 25, 2011

In an effort to curb costs, the city of Chicago recently entered into an agreement with Accenture for strategic sourcing consulting services. The public announcement indicated Accenture will be paid 10% of savings for the first $70 million identified, and a smaller portion thereafter.

Looking at costs of goods and services is a good (and long overdue) step in the right direction for Chicago, and other state and local governments could learn from them. Using a contingency model, which theoretically requires the consulting firm to put “skin in the game” is also a great strategy. Source One has examined the theory of selecting the right contingency-based sourcing consultant in a previous blog post.

Of course, being in the business of strategic sourcing consulting, and specializing in contingency based compensation, Source One was interested to see a firm such as Accenture, which normally does not work on 100% contingency, and is well known for their profitability, signing up for such an engagement.

That got us wondering what the actual terms of the agreement were. Fortunately, because a government entity is involved, the contract between Chicago and Accenture is a matter of public record. You can find the agreement on the city’s website, here. Once you click the link, go to “Contracts and Awards”, type in “Accenture” and hit Search. It’s the first contract listed.

Over the course of several blog posts, the Source One team is going to examine the terms and conditions of this agreement and explore several key questions, including:

  • What is the 10% fee based on (realized savings, projected savings, something else)?
  • What qualifies as “savings”? Is it simply hard dollar bottom line unit cost reduction, or are there other soft cost benefits that Accenture will be compensated for?
  • What happens if the contract is terminated?
  • Who is responsible for implementing the savings? Does it matter?
  • Who is responsible for tracking the savings?

In our last post on the topic, we will weigh in on the question that really matters the most:

Based on the contractual terms, are Chicago taxpayers likely to get what they pay for?

Stay tuned over the next week as we answer each of these questions and offer guidance to other cities and companies that are looking at writing their own contingency based strategic sourcing service contracts.

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Cost Savings in the Windy City -
An Analysis of the Accenture Chicago Contract
(will be updated as they post)

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