It’s about time we wrap up our analysis and opinions of the Strategic Sourcing Engagement Contract between Accenture and the city of Chicago. Here is the multi-million dollar question:
Are Chicago taxpayers likely to get what they pay for?
Well, Yes and No.
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The Yes Part:
Taxpayers are certainly going to pay for exactly what was outlined in the contract. They are going to pay a lot of money to Accenture based on the promise of a documented solution that theoretically will produce savings.
The No Part:
Here is the twist: both the City and Accenture call this a “Gainshare” contract. The problem is, in short: what is it gainshare based on? Most leading-class companies would define gainshare payments to be based on actual hard dollar savings that have been obtained, and paid AFTER they have been realized. This contract does not spell that out. Accenture’s payments are, in fact, contingent upon a report that only forecasts savings and puts the burden exclusively on Chicago to make sure that the results are achieved, providing little time to ensure results are realized before fees begin. In truth, the contract is Gainshare only in theory; in reality Accenture will be paid well regardless of what the City actually implements.
Now, let’s review what was actually told to taxpayers. According to the Sun Times, Rahm Emanuel said:
In his quote, the Mayor clearly understands what the hard part of strategic sourcing is: implementation. But the terms he is referring to must be some other contract that wasn’t posted publicly, because the public contract I have read does not put Accenture on the hook for ensuring savings are implemented. In fact, it is the city’s sole responsibility to implement any savings opportunities that Accenture outlines. It is clearly defined in the contract that Accenture earns its fees based on FORECASTED savings. They don’t “got to” make sure Chicago gets it.
The Tribune reported:
We did not see any references to training or knowledge transfer in the document, so these savings may not be sustainable at all. If that’s part of the scope for Accenture, it will likely be handled under a separate agreement, with separate fees.
Furthermore, as we discussed earlier, we disagree with Accenture and Chicago’s definition of savings (and therefore the amount of Accenture’s fee). We believe the contract, as it is written, provides too many opportunities for Accenture to be paid for savings that will not really be reflected in the City’s bottom-line financials. Don’t get us wrong — reduced inventory carrying costs, improved inventory turns and more efficient operations do produce value, but there are plenty of companies out there that include them as part of their consulting engagement without looking for ways to get paid for soft-cost improvements.
In Conclusion
Here is the irony of it all. We actually applaud the City of Chicago for recognizing the need to bring in outside expert Strategic Sourcing help. We also happen to know that Accenture is amply qualified to do this type of work. But, this contract, and the process used to get to it, clearly demonstrates just how poor of a job the existing sourcing methods are at the City. Chicago could have certainly gotten more bang for the buck, if they knew what they were doing. They also could have lowered their risk (and fees) as well as their staffing requirements if they knew how to properly evaluate proposals. Hopefully, after this multi-million dollar engagement with Accenture, they will learn a few pointers for next time, or at least be able to provide lessons learned to other local governments looking for outside help to reduce costs.
This concludes a high level review of the Accenture and Chicago contact. Check back tomorrow for an explanation of why put this series together.
----
Read the Accenture Chicago Contract Review Series from the Beginning:
Part 1 - An Intro to Chicago Accenture Sourcing Deal
Part 2 - Unclear Language and Term Definitions
Part 3 - Analyzing the Accenture Fee Structure
Part 4 - Tracking and Compliance
Part 5 - Resources and Responsibilities
Part 6 - Determining What Counts as Savings
Part 7 - Understanding Termination Penalties
Part 8 - You Are Here
Part 9 - Final Thoughts and Wrap Up
Are Chicago taxpayers likely to get what they pay for?
Well, Yes and No.
-------
The Yes Part:
Taxpayers are certainly going to pay for exactly what was outlined in the contract. They are going to pay a lot of money to Accenture based on the promise of a documented solution that theoretically will produce savings.
- It is up to the city to actually implement those savings, in a timely manner.
- It is up to the city to audit the usage to make sure Accenture is not overpaid.
- It is up to the city to conduct knowledge-handoff and training to keep results sustainable.
- It is up to the city to stop Accenture from putting too many “soft-cost” savings calculations into their forecasted reports.
The No Part:
Here is the twist: both the City and Accenture call this a “Gainshare” contract. The problem is, in short: what is it gainshare based on? Most leading-class companies would define gainshare payments to be based on actual hard dollar savings that have been obtained, and paid AFTER they have been realized. This contract does not spell that out. Accenture’s payments are, in fact, contingent upon a report that only forecasts savings and puts the burden exclusively on Chicago to make sure that the results are achieved, providing little time to ensure results are realized before fees begin. In truth, the contract is Gainshare only in theory; in reality Accenture will be paid well regardless of what the City actually implements.
Now, let’s review what was actually told to taxpayers. According to the Sun Times, Rahm Emanuel said:
“So, it’s not gonna be in one way. It’s gonna be in multiple ways, but by being very aggressive in the contracting. . . . They don’t just identify [savings]. They’ve got to make sure we get it. That’s what’s important — that we get that $25 million in savings, not just identify $25 million in savings”
In his quote, the Mayor clearly understands what the hard part of strategic sourcing is: implementation. But the terms he is referring to must be some other contract that wasn’t posted publicly, because the public contract I have read does not put Accenture on the hook for ensuring savings are implemented. In fact, it is the city’s sole responsibility to implement any savings opportunities that Accenture outlines. It is clearly defined in the contract that Accenture earns its fees based on FORECASTED savings. They don’t “got to” make sure Chicago gets it.
The Tribune reported:
“Murray and a team of Accenture consultants will work with procurement employees at both the city and county over the next year to identify and implement ways to streamline purchasing, renegotiate contracts and retrain full-time employees.”
We did not see any references to training or knowledge transfer in the document, so these savings may not be sustainable at all. If that’s part of the scope for Accenture, it will likely be handled under a separate agreement, with separate fees.
Furthermore, as we discussed earlier, we disagree with Accenture and Chicago’s definition of savings (and therefore the amount of Accenture’s fee). We believe the contract, as it is written, provides too many opportunities for Accenture to be paid for savings that will not really be reflected in the City’s bottom-line financials. Don’t get us wrong — reduced inventory carrying costs, improved inventory turns and more efficient operations do produce value, but there are plenty of companies out there that include them as part of their consulting engagement without looking for ways to get paid for soft-cost improvements.
In Conclusion
Here is the irony of it all. We actually applaud the City of Chicago for recognizing the need to bring in outside expert Strategic Sourcing help. We also happen to know that Accenture is amply qualified to do this type of work. But, this contract, and the process used to get to it, clearly demonstrates just how poor of a job the existing sourcing methods are at the City. Chicago could have certainly gotten more bang for the buck, if they knew what they were doing. They also could have lowered their risk (and fees) as well as their staffing requirements if they knew how to properly evaluate proposals. Hopefully, after this multi-million dollar engagement with Accenture, they will learn a few pointers for next time, or at least be able to provide lessons learned to other local governments looking for outside help to reduce costs.
This concludes a high level review of the Accenture and Chicago contact. Check back tomorrow for an explanation of why put this series together.
----
Read the Accenture Chicago Contract Review Series from the Beginning:
Part 1 - An Intro to Chicago Accenture Sourcing Deal
Part 2 - Unclear Language and Term Definitions
Part 3 - Analyzing the Accenture Fee Structure
Part 4 - Tracking and Compliance
Part 5 - Resources and Responsibilities
Part 6 - Determining What Counts as Savings
Part 7 - Understanding Termination Penalties
Part 8 - You Are Here
Part 9 - Final Thoughts and Wrap Up
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