OPTIMIZING THE PROCUREMENT PROCESS · Procurement Staff •Procurement Staff •Delegate work as...

Best Practices for In House Counsel

2017 In House Counsel Conference

OPTIMIZING THE

PROCUREMENT PROCESS

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Presenters:

• Crystal Fisher

• Assistant General Counsel, AmerisourceBergen Corporation

• Evan Foster

• Partner, Saul Ewing LLP

• Richard Leigh

• Special Counsel, Saul Ewing LLP

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Optimizing the Procurement Process

• What do we mean by the “procurement process?”

• It’s the process of drafting, negotiating, approving, signing

performing, amending, renewing and terminating contracts for the

procurement of goods and services.

• We focus on procurement, but the concepts apply to most types of

commercial contracting

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• We will cover:

• In House Counsel Objectives

• Designing a Procurement Process

• Using Templates

• Working with Internal Clients and Procurement Staff

• Using Outside Counsel

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In House Counsel Objectives

• Effective Management of Contract Risks

• Avoiding unexpected (and potentially costly) outcomes

• Reducing inherent contract risks to an acceptable level

• Efficiency

• Allocating legal resources where they are most needed

• Effective division of labor between legal and procurement staff

• Expediting the flow of work product

• Cost Control

• Using the legal budget to support highest-priority work

• Avoiding duplicated efforts

• Avoiding the costs of unexpected outcomes

• Using outside counsel effectively and efficiently

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Designing a Procurement Process

• Representative Process - A High-Level View:

• Enlist support from key stakeholders

• Review current procurement contracting activities

• Outline the process for stakeholders

• Develop policies and procedures

• Prepare a negotiation “playbook” for internal clients and

procurement

• Build and maintain a library of contract templates and key contract

clauses

• Maintain a central repository of executed contracts, amendments,

renewals and related documents

• Develop a process for ongoing contract management

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• Enlist support from key stakeholders

• Legal department

• Design, drive and implement the process

• Business leaders who are contract “owners”

• Need to recognize the value of the process

• Other functional areas as necessary

• Provide technical support

• Senior management

• Sponsorship: emphasize the importance of the process

• Promote necessary organizational changes and allocation of resources

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• Review current procurement contracting activities

• Is there some form of a process in place already?

• Conduct a review of what exists now:

• Who does the work, and how is it allocated?

• How are vendors’ forms reviewed?

• How are company forms prepared?

• How are approvals obtained?

• How is contract execution managed?

• How are contracts stored, accessed and managed on ongoing basis?

• What the are company / business unit priorities?

• What contract terms are mandatory, and what terms are acceptable?

• Determine what works, what doesn’t, what needs to be improved,

and what’s being ignored

• This should be a collaborative effort

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• Outline the process for stakeholders

• Prepare process guidelines:

• Outline each step of the process and why it matters

• Identify the specific responsibilities of the legal department, the business

team and owner, and procurement staff

• Identify what levels of review and approval are required:

• E.g., by contract type, dollar value, deviation from template, deviation from

preferred negotiating position, etc.

• Review, input and buy-in from stakeholders is essential

→ See sample contract review procedures

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• Develop policies:

• Contract review and preparation

• Information required of contract owner before review or drafting begins

• Confirmation of business terms

• Identification of business owner and project team

• Use of a standardized contract request tool

• Use of templates and model clauses: always the starting point

• When deviation from standard terms is permitted

• Whether review and approval of deviations is required

• When escalation is required, e.g., from procurement to legal

• Checklist of required terms to facilitate review of vendors’ documents

→ See sample contract intake form

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• Develop policies (continued):

• Allocation of work

• Procurement staff vs. legal department

• Other project team members and business owner

• Approval and signature authority

• Designate authorized signatories by department and title

• Identify contract terms and deviations requiring specific approval

• Responsibility of contract owner to obtain:

• Approval of the proposed contract

• Approval of deviations from standard terms

• Signature on final agreement and approval form by an authorized signatory

• Workflow chart or diagram

• Incorporates all of the above in an easy to follow format

→ See sample contract approval form

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• Prepare a negotiation “playbook” for internal clients and

procurement

• Based on review of current procurement contracting activities, e.g.,

problems, lessons learned, etc.

• Identify the company’s standard or baseline contract provisions

• Explain the rationale behind each provision

• Identify those that are mandatory and explain why

• Identify alternative positions – preferred, acceptable, fallback

• Explain how changes to one provision might affect others

• Note whether approval for use is required

• Include arguments that can be made to defend positions

• Update periodically to reflect changes in policy, risk tolerance, law

etc.

→ See excerpt from a representative negotiation playbook

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• Build and maintain a library of contract templates and key

contract clauses

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• Maintain a central repository of executed contracts,

amendments, renewals and related documents

• Keep electronic copies of all executed documents (including all

exhibits, schedules, statements of work, etc.)

• Limit access, e.g., to contract owner and legal department

• Adopt a filing or indexing system for easy access

• Use an electronic tickler system to notify the business owner and

contract administrator of upcoming:

• Term expirations

• Renewal deadlines (including notice of non-renewal)

• Deadlines for fulfillment of contract obligations

• Implement periodic review of performance

• E.g., have milestones been achieved that trigger contractual rights?

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Use of Templates

• Overview:

• Objectives

• Creating a template library

• Using templates and model clauses

• Managing the template library

• When are templates appropriate?

• When are they inappropriate?

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Use of Templates

• Objectives

• Internal client objectives:

• Speed

• Replicability

• Independence

• Cost

• In house counsel objectives:

• Maintaining consistent document quality

• Creating uniformity and reducing risk

• Efficient use of internal resources and personnel

• Limiting use of outside counsel

• Starting negotiations from a position of strength

• Engaging internal clients

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Use of Templates

• Creating a template library

• Review the company’s existing contracts:

• Determine what works and what doesn’t

• Focus on the contract types most frequently used by the business

• Identify critical terms and conditions

• Mandatory, preferred and fallback positions

• Include as alternative language in templates or create a clause library

• Include instructions to users

• Solicit input from internal clients

• Include appropriate policies as exhibits

• Restrict edit access to a designated “keeper”

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Use of Templates

• Using templates and model clauses

• Start from a template rather than a prior negotiated document

• Escalate to legal if:

• The other side engages counsel

• Template instructions or drafting notes indicate that modifications trigger

the need for legal review

• Remove all internal drafting notes and instructions

• Remove alternative clauses (e.g., fallback provisions) if they are

embedded in the template

• Consider a model clauses library as an alternative

• Use only for the approved purpose

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Use of Templates

• Managing the template library

• Designate a “keeper” and restrict edit access

• Review all templates and clauses periodically

• Has the law changed?

• Has company policy changed?

• Review executed contracts periodically

• Has the market shifted?

• Update as needed to address:

• Changes of law

• Shifts in what is “market”

• Internal changes: company policies, business priorities, risk appetite

• Industry best practices

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Use of Templates

• When are templates appropriate?

• Contract types that are commonly used by the company

• Service agreements: MSA + statement of work; single-service

• Agreements for sale of goods

• Distributor and agency agreements

• License agreements

• Clauses addressing company-critical terms and conditions

• Indemnification

• Limitation of liability

• Intellectual property ownership

• Confidentiality

• Non-competition and non-solicitation

• Insurance coverage

• Data security and privacy

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Use of Templates

• When are they not appropriate?

• One-off transactions

• Highly complex or higher-risk transactions

• Some high dollar value contracts

• Information technology contracting (non-IT companies)

• Even if use of a template is not appropriate or possible,

model clauses may be

• Use when reviewing and negotiating vendors’ forms of agreement

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Working with Internal Clients and

Procurement Staff• Internal Clients

• Early involvement is critical

• Need to know the business case for the contract, including key business

terms, internal approvals required, business “ownership” and timing

• Use an intake form

• During the contracting process:

• Business owner reviews contract drafts and signs off on business terms

• Business owner may have a negotiation role, e.g., business-to-business

discussions without counsel

• Follow the playbook

• Be mindful of unintended legal consequences!

• Business owner should obtain internal approvals and signatures on the

final agreement

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Procurement Staff• Procurement Staff

• Delegate work as appropriate and in accordance with policy

• Routine contracts, e.g., purchase orders

• Low risk or low dollar value contracts

• Remember that low dollar value ≠ low risk

• During the contracting process:

• Staff review contract drafts and handle negotiations

• Follow the playbook

• Communication with business owner and counsel are critical

• Staff need to know when to escalate:

• Changes in business terms

• Changes in legal terms outside procurement authority

• Negotiating impasse reached

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Procurement Staff• Training Internal Clients and Procurement Staff

• Procurement policies and procedures

• Use of contract templates and model clauses

• Use of the negotiation playbook

• Initial / new hire training; periodic refresher training

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Use of Outside Counsel

• Overview:

• Ways to use outside counsel

• Maximizing efficiency

• Cost and budget considerations

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• Procurement support forms a continuum

• Occasional use on complex, specialized or atypical contracts

• Routine assignment of overflow work

• Limited-duration but full-time assignments

• Replacement of in house counsel on leave of absence

• Temporary staffing during hiring freeze

• On-site, off-site or a combination of both

• Total outsourcing of the procurement contracting function

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• Maximizing efficient use of outside counsel

• Limitation by contract type

• High-risk or high-value contracts

• Contracts requiring specialized experience or expertise

• Early engagement of outside counsel with internal clients

• Need to understand requirements of the business, contract objectives,

key business terms, etc.

• Designate legal, business and procurement points of contact

• Determine who drives the process forward, e.g., business owner

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• Pricing Considerations

• Hourly billing at standard rates is on the wane

• Explore alternative fee arrangements up front

• Discounted hourly billing

• Blended hourly rates for a contract team

• Floor and cap arrangements

• Fixed fee per contract

• Monthly retainer

• FTE replacement cost for limited-duration, full-time engagements

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• Final thoughts and questions

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• Presenter contact information:

Crystal J. Fisher

AmerisourceBergen Corporation

[email protected]

610-727-2506

Evan J. Foster

Saul Ewing LLP

[email protected]

610-251-5762

Richard D. Leigh

Saul Ewing LLP

[email protected]

717-257-7501

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