unlocking the full value of your contract compliance program...companies reach wider, dig deeper,...
TRANSCRIPT
Beyond Recovery:
Unlocking the Full Value of your
Contract Compliance Program
Underwritten by:
© Ardent Partners 2019
REPORT SPONSORSHIP
The views and opinions in this report represent those of Ardent Partners at the time of publication.
Sponsoring companies have had no measurable influence on the content and research in this
report. The contents of this research report are the exclusive property of Ardent Partners. Please
direct any comments or questions regarding our research sponsorship policy to Ardent’s Chief
Research Officer, Andrew Bartolini, at [email protected] and/or 617.752.1620.
Sponsor:
About Us
PRGX helps companies spot value in their source-to-pay processes that other sophisticated
solutions didn’t get to before. Having identified more than 300 common points of leakage, we help
companies reach wider, dig deeper, and act faster to get more value out of their source-to-pay
data. We pioneered this industry nearly 50 years ago, and today we help clients in more than 30
countries take back $1.2 billion in annual cash flow. It’s why 75% of top global retailers and a third
of the largest companies in the Fortune 500 rely on us. For additional information on PRGX,
please visit www.prgx.com.s
Contact info:
888-779-7976
© Ardent Partners 2019 Page | 1
Beyond Recovery: Unlocking the Full Value
of your Contract Compliance Program
Executive Summary
While the bottom-line impact of a successful recovery audit can amount to
millions, other significant hard and soft benefits can also be generated.
From risk mitigation and service-level agreement (SLA) management to the
reduction of maverick spend and the rationalization of suppliers, a Best-in-
Class contract compliance program can build upon the results of a recovery
audit to make a lasting impact on spend and supplier management. This
report highlights these and other opportunities and the value that can be
generated from them. The report also provides Chief Financial Officers
(CFOs) and other finance leaders with a checklist of items to include within
their compliance programs.
What is a Recovery Audit?
In the broad scope of B2B payments, a percentage of disbursements made
to vendors contain errors that are not compliant to the underlying supplier
contract. The reasons for these mistakes (or overpayments) span from the
benign to the complex to the fraudulent and can quickly add up to
significant losses. While many of the issues, at their core, are basic
mistakes – typos and human error, the erroneous calculation of taxes, and
duplicate payments – others are linked to the broader mismanagement of
supplier contracts and a lack of controls needed to manage contract
compliance and fraud.
Poor contract compliance has a real bottom line impact and can result in
greater off-contract or “maverick” spend, increase the opportunity for
savings leakage and erode the work done by sourcing and category
management teams to identify and contract with the highest valued-
suppliers. In fact, Ardent Partners research has shown that noncompliant
spend adds an extra cost of between 12% and 18% for the average
enterprise.
A recovery audit focuses on identifying and correcting mistaken
overpayments through the systematic review of vendor payments and the
supporting documentation (i.e., contracts, purchase orders, goods receipts,
invoices, etc.) that defines supplier transactions and relationships. These
audits are the front-line remedy that CFOs and their accounts payable (AP)
organizations employ to recoup losses from overpayments and other
Ardent Partners
October 2019
Analyst:
Andrew Bartolini
Matthew York
Contents:
1 Executive Summary
1 What is a Recovery Audit?
2 Contract Management: The
Lever for Contract Compliance
2 The Benefits of Enhanced
Contract Compliance
3 Visibility into Existing
Contracts with Preferred
Suppliers
4 Enhanced Financial Risk
Management
4 Optimized Supplier
Relationship Management
5 Recommendations
5 Conclusion
6 Appendix – Contract
Compliance Checklist
Beyond Recovery: Unlocking the Full Value of Your Contract Compliance Program Ardent Partners
© Ardent Partners 2019 Page | 2
disbursement errors and lay the foundation for a successful contract
compliance program.
By answering standard supplier and contract management questions like –
Did the buyer receive what they were invoiced? Did the buyer pay the right
amount? Were any and all special terms like volume discounts and rebates
applied? And, were all credits received? A recovery audit can recoup cash
while also performing a diagnostic review assessment of a business’
contract compliance program that can yield sustainable long-term benefits.
Contract Management: The Lever for Contract Compliance
A standard recovery audit results in the successful recoupment of
overpayments, fraudulent payments, and costs caused by a plethora of
common mistakes which, at scale, can equate to hundreds of thousands
and even millions of dollars. But just as significantly, it can identify
numerous opportunities for process improvement across the full source-to-
pay (S2P) spectrum and set a framework for the development of best
practices across the entire supplier contract lifecycle, including contract
creation, management, and compliance.
A robust contract compliance program will limit and prevent many of these
issues from arising in the first place. With best practices mapped to
solutions that standardize contract language, centralize templates and
existing contracts, and make contract search, discovery, and review a
painless process, significant near- and long-term advantages can emerge.
A Best-in-Class contract compliance program can:
Increase visibility into existing contracts,
Drive greater contract-compliant (or “on-contract”) spend,
Increase suppliers’ contract compliance and adherence to SLAs,
Reduce off-contract or “maverick” spend,
Reduce savings leakage, and
Realize greater previously-identified savings.
The Benefits of Enhanced Contract Compliance
Contract Language and Terms Management
By crafting a contract’s language – namely its pricing, clauses, SLAs, and
terms and conditions (T&Cs) – right the first time and communicating the
key terms to business stakeholders, business leaders ensure that the value
identified in the sourcing and supplier negotiation processes can be more
fully-realized. This also reduces the number of potential vendor payment
errors that can be caused by confusing language in the underlying contract,
as well as the templates and standard clauses that were used to create it.
Beyond Recovery: Unlocking the Full Value of Your Contract Compliance Program Ardent Partners
© Ardent Partners 2019 Page | 3
Unclear contract language and/or poorly communicated contract terms can
erode supplier relationships and the value that can be generated from them
which can result in B2B payment discrepancies. For example, tiered pricing
agreements may be confusing or ambiguous, leading to mismatched
expectations and payments between trading partners. This can result in
significant overpayments or discrepancies in delivery and a sizable loss.
By identifying and correcting contract language issues, AP and
procurement teams can quickly implement permanent fixes across their
existing contracts and eliminate future issues.
Visibility into Existing Contracts with Preferred Suppliers
Another hallmark of a Best-in-Class contract compliance program is having
easy, enterprise-wide access to supplier contracts, which provides basic
visibility and extended transparency into buyer-supplier agreements.
Centralized, searchable contract repositories open the proverbial curtains
on an enterprise’s existing contracts and supplier relationships. This
access enables stakeholders from across the enterprise to retrieve,
consult, and leverage supplier contracts to drive a number of favorable
behaviors and outcomes, both immediate and long-term, including:
Optimization of preferred suppliers via established contracts.
Procurement teams conduct formal sourcing events to find the
greatest value from the most competitive suppliers in the market.
By accessing and leveraging existing contracts with preferred
suppliers, buyers can take advantage of early-payment discounts,
volume-based discounts, and/or “most favored nation” pricing terms
and conditions that procurement secured from these suppliers
during negotiations.
Ensuring compliance with negotiated SLAs. When buyers have
access to supplier contracts, they are able to understand the finer
points of the agreements, such as pricing and T&Cs for goods and
services. Armed with this intelligence, enterprises can better ensure
that all parties comply with their obligations, do not solicit or pay for
goods or services already under contract, and preserve the value
and integrity of the original contract.
Reduction of maverick spend. Ardent Partners research has
shown that for every dollar of off-contract (“maverick”) spend, there
is an additional 12%-to-18% cost to the buying organization. These
can include: the overhead costs of adding the vendor’s payment
information into their payment system, the negation of value
Beyond Recovery: Unlocking the Full Value of Your Contract Compliance Program Ardent Partners
© Ardent Partners 2019 Page | 4
negotiated, and a lack of formal controls or recourse over the
supplier that a signed and executed contract would afford.
Reduction of Savings Leakage/Preservation of Value: To
AP/Finance leaders, like the CFO, preserving projected savings is
vital to long-term strategic budgeting and forecasting. By identifying
and leveraging existing contracts with preferred suppliers, stake-
holders across the enterprise can avoid additional costs and
preserve savings that were identified during the sourcing process
and negotiated and codified during the contracting process.
Enhanced Financial Risk Management
A natural product of implementing and achieving a Best-in-Class contract
compliance program is the opportunity to enhance risk management across
the enterprise – namely, financial risk management.
Organizations that have greater contract compliance (in the form of more
on-contract spend, spend with preferred or electronically-enabled
suppliers, and tighter adherence to SLAs and T&Cs) are less exposed to
financial risk than those that do not. After all, they will likely:
Avoid additional costs associated with off-contract/maverick spend,
Avoid the extra overhead costs of paying vendors off-contract, and
Incur fewer additional costs from needless supplier up-selling.
Optimized Supplier Relationship Management
Driving Best-in-Class contract compliance can also help enterprises bolster
their supplier relationship management initiatives – because what benefits
one party in a B2B relationship often benefits the other. Consider the
following examples of how an enterprise’s enhanced contract compliance
boosts their supplier relationships:
Ardent Partners research shows that 12% of all supplier payments
are contested; improving contract compliance should reduce that
number, saving both parties the time and effort reconciling
payments and seeking recouped losses or overpayments.
Moreover, moving away from tactical transaction auditing and time
spent with invoice and payment processing can allow strategic
trading partners to focus on higher-value areas that support mutual
growth and profits. This can also allow them to develop an esprit de
corps that can give each an advantage over their competitors who
may approach supplier relationships in a more sterile manner.
Beyond Recovery: Unlocking the Full Value of Your Contract Compliance Program Ardent Partners
© Ardent Partners 2019 Page | 5
Recommendations
Ardent Partners research has shown that Best-in-Class contract
compliance programs can drive greater on-contract spend, reduce risk, and
improve supplier performance while helping companies to preserve more
savings and value. By leveraging a combination of proven strategies,
robust processes, and business solutions and services, AP/Finance teams
can turn post-payment recovery audits into next-level value drivers. The
following are recommendations to develop and successfully leverage a
contract compliance program for maximum benefit:
Leverage the output of a recovery audit to identify additional
savings opportunities including the reduction in maverick
spend and the increased accuracy in B2B payment execution.
Deploy digital, automated technologies, like contact authoring
tools and repositories, to codify recovery audit results.
Utilize a Contract Compliance Checklist (see Appendix).
Construct a multi-stage plan to review supplier contracts and
amend erroneous and/or ambiguous contract language.
Conduct a spend analysis to identify savings leakage and
other opportunities to maximize value.
Collaborate with procurement to close the S2P process
including payment reconciliation and recovery audits.
Collaborate with suppliers to develop strategies that prioritize
and reward contract compliance.
Conclusion
Contracts are the glue that binds transactions between buyers and
suppliers, ensuring that buyers maximize the value negotiated during the
sourcing process and that suppliers deliver on the value that they promised
to provide. Without the visibility and control that contract management
provides, businesses expose themselves to greater internal and external
risk in the form of savings leakage and non-compliance. For the modern
enterprise trying to cut costs and increase savings wherever and whenever
it can, contract compliance is a veritable linchpin to success.
Recovery audits can set a foundation for a value-driven enterprise to then
use their contract compliance programs to positively impact the bottom line.
But, beyond the financial gains from a successful recovery audit, leading
finance departments understand that significant, longer-term opportunities
to identify and realize value also exist.
Beyond Recovery: Unlocking the Full Value of Your Contract Compliance Program Ardent Partners
© Ardent Partners 2019 Page | 6
Appendix The development of a contract compliance checklist ensures that best
practices are understood and followed while also providing the finance and
procurement teams with a mechanism to track contract performance,
address and correct non-compliant behavior, and ultimately, optimize
contract value.
Ardent Partners’ Contract Compliance Checklist focuses on the three main
phases of the contract lifecycle – Contract Execution, Contract
Enablement, and Contract Management – that begin after the primary
negotiation has been concluded. Value is gained by driving compliance
across each of these three areas.
This checklist is built upon foundation of standardization, communication,
and visibility. And while it is immediately usable, this checklist can be
customized to match the unique industry, region, and supply base of the
buying organization.
-
Beyond Recovery: Unlocking the Full Value of Your Contract Compliance Program Ardent Partners
© Ardent Partners 2019 Page | 7
About the Authors
Andrew Bartolini is the Founder and Chief
Research Officer at Ardent Partners. With 20+ years
in the industry and 10 years leading the charge at
Ardent, Andrew is a globally-recognized expert in
sourcing, procurement, accounts payable, and supply
management. Andrew currently oversees and manages
all research programs at Ardent Partners including the
annual state of the market research studies, the Metrics
that Matter eBook series, the CPO Rising Summit, and Ardent’s monthly webinar
programs. Andrew focuses his research and efforts on helping procurement and
finance teams get the most from their technology investments and develop
strategies to achieve Best-in-Class performance. Andrew is also the publisher of
CPO Rising (www.cporising.com), the most popular site globally focused on
procurement and the Chief Procurement Officer. Andrew has been named a “Pro
to Know” by Supply and Demand Chain Executive multiple times and holds a B.A.
in Economics from The College of the Holy Cross and an M.B.A in Finance from
Indiana University. You can contact Andrew at [email protected] and
617.752.1620. Follow Andrew on Twitter @andrewbartolini and Ardent Partners
@ardentpartners.
Matthew York is a Senior Research Analyst at
Ardent Partners who for more than a decade has been
fascinated by emerging technologies like artificial
intelligence, connected devices, and distributed digital
ledgers and how they can enrich business operations. At
Ardent Partners, Matt researches, analyzes, and writes
about the intersection of people, processes, strategies,
and technologies in supply management and how they
are changing the business landscape of tomorrow. He has been lead author on
data-driven, thought leadership reports ranging from advanced analytics to
contract management to strategic sourcing to supply risk management. Matt has
twice been named a “Pro to Know” by Supply and Demand Chain Executive
magazine and is a sought-after speaker. Previously, Matt served as an analyst
with the U.S. Department of Justice and the U.S. Intelligence Community. He
earned a B.A. in Political Science/International Relations from Stonehill College
and an M.A. in Political Science / International Politics from the University of New
Hampshire. Matt can be reached via Twitter (@MattYork_Ardent), LinkedIn, and
Beyond Recovery: Unlocking the Full Value of Your Contract Compliance Program Ardent Partners
© Ardent Partners 2019 Page | 8
Ardent Partners: Research with Results
Ardent Partners is a research and advisory firm focused on defining, and
advancing the supply management strategies, processes, and technologies that
drive business value and accelerate organizational transformation within the
enterprise. Ardent Partners was founded in 2010 by Andrew Bartolini. Ardent
Partners actively covers the supply management marketplace and produces
research to help business decision makers understand (1) industry best practices
and how to improve performance & (2) the technology landscape and how to
identify the best-fit solution(s) for their specific budget and requirements.
Contact [email protected] if you have any questions about this report
or our research in general.
© 2019 Ardent Partners, Ltd. All rights reserved. Reproduction and distribution of this publication in any
form without prior written permission is forbidden. Solution providers and consultancies should take
special note that Ardent Partners reserves the right to seek legal remedies including injunctions,
impoundment, destruction, damages, and fees for any copyright infringement which includes but is not
limited to usage of any Ardent Partners content in company collateral, presentations, and websites) in
accordance with the laws of the Commonwealth of Massachusetts and the United States.