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I'll Never Do That Again!

Thursday, May 13, 2010   (1 Comments)
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At the conclusion of a sales call and fact finding mission, my firm submitted a proposal (requested by the CEO) to assess and measure the effectiveness of the current management and organization structure and to make recommendations for improvement. The objectives were crystallized after separate interviews with several VPs and the CEO. All agreed that a change was necessary due to internal power struggles, erratic production scheduling and a lack of communication. Can you say "silos”?

The engagement letter was approved and signed by the CEO. It included important contractual points such as a statement of work and, importantly, a "bail out” clause. This clause required 30 days notice for contract termination and for the client to pay the firm for all work up to the date of termination. An upfront payment of 1/3 of the 10-12 week project costs was invoiced with the engagement letter.

The client was a non-union, $200MM manufacturing company with plants in three states produced plastic products, many custom-made, on a 3-shift basis. Its organizational structure consisted of Senior VPs in charge of other VPs who oversaw various operating functions including international business. The staff structure included the usual suspects: Finance, HR, PR, Marketing, Sales, Legal, Engineering and Manufacturing.

The company had a strategic plan but little attention was given it. Although scheduling systems were in place, the company actually operated on a day-to-day basis. Production departments spent most of the time putting out fires and handling panic calls. Schedule changes were constant because the CEO had special customers he wanted to serve above all others. He also was focused mainly on high volume business, although much of the more profitable business was custom. In effect, a micromanager was at the helm with a limited financial focus, much to the exasperation of the Senior VPs who complained about "a lack of communication.”

Payment was received and work started with a small team of consultants assessing work flow, production data, communications and effectiveness, management practices, and budget forecasting.

It became apparent as we conducted our assessment that the power struggles were very real. The CEO was an authoritarian leader expecting no rebuttal on his orders. The Senior VP of Operations was very vocal to the study team about the lack of leadership and management practices throughout the production plants. Clearly she believed that she could do a much better job as CEO. Other VPs voiced similar opinions to us but were not as vocal about them.

As the study team made its way learning and assessing the overall organization, the Board of Directors was moving in a different direction. The Board fired the current CEO and appointed the Senior VP as his replacement. Later we learned that the outspoken Senior VP of Operations was related to one of the Board members.

Immediately the newly-minted CEO put a halt to the study and a hold on all new purchase orders, including our invoice for a second payment. We were already about 2 weeks into the second invoicing period and were finalizing our interim report at the time of contract cancellation.

We wrote a letter requesting payment, per our bail out clause, up to the time of the new CEO ending the contract. No payment appeared to be forthcoming during the next 30 days.

What should a consulting company do to get paid in a situation like this? Share your thoughts and comments.


Laurie Taylor says...
Posted Tuesday, May 18, 2010
Have a conversation, face to face with the new CEO and try and understand why you aren't getting paid. I would be looking for something like 'we won't pay you at all' as a clear indication of breach of contract. Is it a financial issue? Can they pay you on a timed basis? What options are they willing to negotiate? If an honest, up front conversation doesn't swing it AND if you don't anticipate doing business with this firm again you might consider having your law firm send them a more legal request for payment based on the terms of the agreement. I've been in similar situations and it can be a no win for everyone. Legal approaches are costly and don't always produce results unless the amount is such that you are willing to go to court over it. And I'd consider getting a 50% upfront on all contracts in the future. Upfront fees are sometimes our only protection against unethical situations

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