1 Reply Latest reply on Jan 18, 2010 11:07 AM by Sharon Horton, PMP

    Contract Leakage

    Shelby Latney Newbie
      How are companies defining contract leakage? How are companies tracking contract leakage, i.e., metrics? How are companies ensuring value from negotiated contracts?
        • Re: Contract Leakage
          Sharon Horton, PMP Master

          Shelby,

           

          My experience with Contract Leakage is that most companies want to look at a number of different factors to try to define this:

           

          1. Buying without a contract.  This can be by expensing something, asking for a PO without a formal contract or even buying on a ProCard

           

          2. If there is a contract is in place:

           

               - Buying outside the contract (see item 1 above).

               - Executing a new agreement when one is already in place (frequently happens in different divisions within the company)

               - Paying a price different from the contract.  This may also include any other variances such as delivery and/or quality specifications.

           

          This last, Paying a price different from the contract, is what I've seen most frequently defined as contracts leakage, but all of the items above should be examined if you want to try to really get a handle on all of your "contract leakage".  There may be other factors as well.

           

          Paying a different price can come from many reasons, including changing scope and other factors, but the most common reason is not linking what you purchase to a contract price and/or discount.  Any price might show up on the the invoice - does it account for negotiated discounts - particularly volume discounts when they apply?  Are insurance and/or shipping invoiced when the price was negotiated to include these items?  Has the contract expired and you're now paying full price?

           

          As to the other parts of your post - how are companies tracking contract leakage and ensuring value from their negotiated agreements - it is clear that this is the requirement of integrating what you contract for and what you spend.  There are many controls that should be in place in order to ensure that your contracts represent what you negotiated.

           

          Sharon