Keep an eye on contract managers

The management mantra “delegate, delegate, delegate” can be an invaluable guide. But relying too heavily on this credo when overseeing information technology managers in charge of vendor contracts can be hazardous to an organization’s health.

So say several CIOs, who agree that getting the best possible deals and service levels from third parties – and even keeping contract managers honest – requires a team approach with active CIO participation. Whether they’re engaged in outsourcing megadeals or simply holding product vendors to their maintenance promises, IT executives advocate minimizing the authority of any individual contract manager.

“As a CIO, you can’t just pick your staff and walk away,” said Terry Childress, systems manager and CIO at the Mississippi Division of Medicaid in Jackson, Miss. The state government agency spent US$23 million last year on outsourcing its medical claims processing to Electronic Data Systems Corp. Childress and his staff collectively issued the requests for proposals and jointly specified the service levels expected from Plano, Tex.-based EDS.

Childress describes his staff as technology “auditors” – individuals whose job it is to find flaws, then work with both Childress and EDS to fix them. “If for some reason EDS is not performing in accordance with its contract – such as resolving a claim problem or identifying a fix within 24 hours – it’s up to the contract managers to determine that,” he said. “But then I step in and recommend a plan of action.”

At New York-based J.P. Morgan & Co., diverse reporting chains offer checks and balances. For example, there is a financial group that reports to a technology controller – as opposed to Tom Hynd, the managing director in charge of the company’s worldwide outsourcing contract with a group of service providers led by El Segundo, Calif.-based Computer Sciences Corp. (CSC). The deal includes services from Chicago-based Andersen Consulting, AT&T Solutions and Bell Atlantic Network Integration.

“The financial group is part of my virtual, extended team. But having them report to a different manager puts a balance of control into place,” Hynd said.

The group management effort is also in place on a large scale at Du Pont Co. Before signing a US$3 billion outsourcing deal with Andersen Consulting and CSC nearly three years ago, Du Pont Information Systems in Wilmington, Del., formed an alliance-management group composed of managers in Du Pont sites around the world.

“At Du Pont, large vendor decisions are rarely, if ever, the sole responsibility of a single individual,” said CIO Bob Ridout. “We also rotate people in the business units to IT and back again, so people are performing a blend of roles within the organization.”

Ducking the Boomerang

The 28-person IT staff at Federal Home Loan Bank of Dallas in Irving, Tex., also shares contract management for application software support and training. Each staff member is assigned full responsibility for a technology area, such as security, which includes vendor management within that area.

This structure provides a built-in incentive for contract managers to perform well. “If help desk calls accelerate, the contract manager is the one who will be working around the clock to fix the problems,” said Nancy B. Parker, senior vice-president and CIO.

The volume of help desk calls is a reflection of customer satisfaction and a common gauge of how well a contract manager is doing his or her job.

Hynd calls this the “noise” factor, which, at J.P. Morgan, also includes informal hallway comments about user satisfaction. The noise factor is one, subjective measurement that Hynd’s boss, the investment banking firm’s CIO, uses to measure his performance, Hynd said.

One quantitative measurement is how quickly billing issues are resolved. “There are huge amounts of money passing hands in this deal, and we can’t afford to have billing disagreements in limbo,” Hynd noted. He said the corporate goal is to have such issues resolved within 90 days, adding that he is judged on the company’s success in meeting that goal.

Establishing, Enforcing Metrics

A common practice is to require regular reports of the vendor’s performance from contract managers. “This prevents problems from mushrooming into huge roadblocks,” said Cynthia Murphy Doyle, an analyst at International Data Corp. in Framingham, Mass.

Childress, for example, expects monthly reports from contract management staff but notes that a perfect report is a red flag, because it isn’t realistic. “I actually want the staff to identify trouble areas,” she said.

And what about deterring contract managers from remaining cozy with a particular vendor for reasons of personal gain? Companies like Du Pont have formal policies in place.

According to Ridout, there is a monetary ceiling on the value of any gift that can be accepted from a vendor. “You can accept a coffee mug with the vendor’s logo on it, but you can’t take your spouse to Paris on the vendor’s tab.”


Making the most of contract managers

Want to ensure that your contract managers are doing their jobs right? Here’s some advice from IT executives for their troops:

– Diversify. Having sign-off authority and checks and balances in your reporting structure can prevent personal agendas and minimize poor decision-making.

– Track the “noise” factor, the volume of help desk calls and informal complaints about IT service levels.

– Require regular reports from contract managers on vendor performance. Nip declining service levels in the bud.

– Reward contract managers for being proactive in troubleshooting.

– Limit the acceptance of gifts or bonuses.

– Require staff to document potential conflicts of interests, including a family member working for a selected vendor company.

(Wexler is a freelance writer in Campbell, Calif. Contact her at