Best Contracting Practices for Business

Unit 1: Building Successful Partnerships in the e-Business Age The Executives Role

Building Successful Partnerships Four Common Actions

What Are Winning Organizations Doing?

Unleashing Buying and Selling Power Changing Buying and Selling Processes Developing an Integrated Supply Chain Learning & Applying Best Practices & e-Tools from Industry Leaders

Reference Text World Class Contracting, By Gregory A. Garrett, CCH 2001, pg. 2

New Supply Environment The World We Live In

Supply Drivers
Pros
Emergence of Internet
architecture Growth of Automated Sales Tools Use of Enterprise Resource Planning (ERP) Software Growth of e-procurement Software and Contract Management Enterprise Software

New Supply Environment

+ New product and service providers + Wider range of products and services + More modular products and services + Improved price/performance + Accelerated pace of change

Technology

Cons

-More complexity -Higher cost of integration - Less reliability - Accelerated pace of change - Rapid Obsolescence

Regulation

Relaxed barriers to entry Increased pricing flexibility Pro-entrant incentives Mandatory wholesale of unbundled elements

Increased Range of Services and Product Choices for End Users

Unleashing Buying & Selling Power Use of electronic catalogs, self-service internet sales, Net marketplaces, etc. Use of e-sales and e-procurement tools has caused a revolution in the roles & responsibilities of: Sales managers/account executives Procurement managers/purchasing agents Contracts managers/contract administrators Fewer people with broader responsibilities requiring more education, training, and business skills to propose, negotiate, and administer complex

Changing Buying & Selling Processes

Maximizing e-procurement Success
Procurement Today: Managed per Transaction Online product Search large catalogs selection Requisition One to 12 levels of manual approval approval Fax, e-mail, EDI direct to P.O. Transmission supplier; supplier retypes the order Payment Dependent on three-way match authoirzation of P.O. with invoice and receipts Sporadic; not linked to supplier Analysis performance
Source: Forrester Research, Inc .

e-procurement: Managed by Exception Personalized views; named shopping carts Transactions automatically approved based on rules Order is sent through a supplier clearinghouse Immediate; based on shipment notice Continuous; integrated in real time; drives optimization of process

Reference Text, pg. 5

Developing an Integrated Supply Chain Integrated - means providing Enterprise Resource Planning (ERP) to ERP, core business transaction functionality to all participants Going beyond Supply Chain Management to the integration of databases between companies Today- large trade exchanges, built cooperatively by industry participants are changing the nature of business More companies are creating shared virtual workspaces, with appropriate security and access measures.

Trade Exchange Example: Exostar

Exostars Mission:
To become the standard e-business platform for everyone in the Aerospace & Defense industry
Founding Members
BAE Systems Boeing Lockheed Martin Raytheon Rolls-Royce

Trading Partners
Large OEMs Government Buyers Airlines Tier 1 3 Suppliers Service Providers

EXOSTAR

Boeings Forum Pass Virtual Collaborative Workspace How Forum Pass Fits
Checkout/Check-in Via Forum Pass https Partner A
Contracts

https

Design MFG Virtual Mtgs.

PM

Contracts

ACCTG

Design PM MFG Contracts Virtual Mtgs. ACCTG

https

https
Design MFG Virtual Mtgs. ACCTG PM

Partner B
Logos obtained from Boeing website

Example: Boeing ForumPass ForumPass offers a collaboration solution to address the challenges of integrated project teams Supports creation of dynamic, opportunistic project teams, independent of computing support Provides a common workspace that fosters innovation Breaks down barriers to collaboration
Process and schedule visibility Immediate notification of changes Visualization via Computer-Aided Design (CAD) Balances security with access to key collaboration partners

ForumPass Key Capabilities Project Management and Administration Document and Data Management Online Meetings Visualization and Mark-up Workflow Subscription-based notifications Security and access control

Goal: Establish a Common Collaboration Workspace

Supplier A Firewall

DO D

Shared Workspace Firewall Supplier B

Boeing Project Management Document Management Product Data/Change Control Virtual Meetings Firewall Firewall Supplier C Firewall

Learning & Applying Best Practices & e-tools from Industry Leaders Bill Gates New Rules Microsoft Bill Gates New Rules for e-Business
1.Insist that communication flow through e-mail 2.Study sales data online to share insights easily 3.Shift knowledge workers into high level thinking 4.Use digital tools to create virtual teams 5.Convert every paper process to a digital process 6.Use digital tools to eliminate single-task jobs 7.Create digital feedback loop 8.Use digital systems to route customer complaints immediately 9.Use digital communication to redefine boundaries 10.Transform every business process into just-in-time delivery 11.Use digital delivery to eliminate middleman 12.Use digital tools to help customers solve problems for themselves Reference Text, pg. 7

Hormel Foods: Best Practices with Oracle Internet Procurement e-tool Case Study
Hormel Foods has recently completed the installation of Oracles Internet Procurement at all of its 50 locations. Employees at all of these sites are now able to create purchasing requisitions for non production items and have them automatically routed for approval, as well as track and access information on a real-time basis Self-guiding on-line catalogs allow workers to search for goods and services from approved suppliers Most of the savings associated with the implementation of Oracle Internet Procurement is as a result of Hormels procurement personnel no longer having to spend considerable amounts of time dealing with routine purchases

Reference Text, pg. 8

Lockheed Martin: Best Practices with SAP Business to Business (B2B) e-tool Case Study
In June 1999, the Missiles and Fire Control Division of Lockheed Martin located in Dallas, TX selected the Business to Business (B2B) Procurement system developed by SAP to replace an out-dated paper-based indirect procurement process. Lockheed Martin leveraged the capabilities of the SAP business workflow component to implement consistent business rules to ensure users purchases were appropriate, priced within limits, and ordered from approved suppliers. As a result of SAPs focus and rapid implementation, ease-of-use, and flexibility Lockheed Martin was able to control the use of their indirect procurement expenses achieving dramatic cost reductions.

Reference Text, pg. 8

Qwest: Best Practices with V-Source e-tool Case Study

Qwest, formerly, US WEST, Interprise Networking Services recently selected Vsource, Inc. of Ventura, California, a provider of a pure-play Internet e-procurement solution called Virtual Source Network (VSN). Vsource charges $100 per seat for each password and small per-line transaction fees for purchase orders and Request-for-Quotations (RFQs). Customers who want VSN to tie into their existing back-end systems can do that through the Business Ware Middleware solution from Vsource partner Vitra Technology, Inc., of Sunnyvale, California. Depending upon a companys current internal procurement processing costs and the volume of transactions VSN can save buyers hundreds, thousands, or millions of dollars each year. VSN requires little time to set-up and no training. All you need to use VSN is a browser and web access.

Reference Text, pg. 9

Exercise 1 Building Successful Partnerships Divide into teams of 3 4 people Select one of the four common actions that winning companies are taking to build Successful Partnerships Conduct a 15 20 minute Brainstorming session, discussing and listing the advantages and disadvantages of the selected action and what actions you as executives should take to maximize success. Present your findings to the class (Be Brief 3 5 minutes)

Common Action: Advantages Disadvantages Executive Actions

Building Successful Partnerships in the e-Business Age Summary The power of e-Business has been unleashed by the advent of
new communication technologies and the the Need for Speed! However, to achieve high performance results, year over year, companies must form successful partnerships based upon trust Winning organizations are taking Four Common Actions to build Successful Partnerships: (1) Unleashing Corporate Buying & Selling Power (2) Changing Buying & Selling Processes (3) Developing an Integrated Supply Chain (4) Learning and Applying the Best Practices & e-tools from Industry Leaders

Unit 2: Building Trust: Managing Expectations and Honoring Commitments

Understanding How to Manage Expectations

The Managing Expectations Process

Ask

Align

Fulfill

Clarify Expectations

Control Expectations

Meet or Exceed Expectations

Listen

Understand

Negotiate Compare Expectations to reality Resolve Gaps Communicate differences Re-set expectations Set realistic expectations Document acceptance criteria

Agree

Communicate Meet with customer Obtain agreement that expectations were met Identify gaps

Surface explicit & Implicit expectations Surface Assumptions

Adapted from: Managing Expectations by Dorothy Kirk, PM Network, August 2000

Reference Text, pg. 13

Honoring Commitments: Lessons Learned

Successful Partnerships Simple Actions Checklist
q Listen to the customer q Understand the customers needs vs. desires q State the obvious q Be Accessible q Return phone calls, vmails, & emails in a timely manner q Provide regular communication on contract, program, partnership status q Develop a project plan for every deal (Scope of Work (SOW), Integrated Schedule, Work Breakdown Structure (WBS), Responsibility Assignment Matrix (RAM), and acceptance criteria) q Develop Risk Management Plan q Disclose problems early and mitigate negative impacts q Back up all verbal agreements and conversations in written documents

Reference Text, pg. 14

Honoring Commitments: Lessons Learned

q Develop a changes management process q Provide frequent communication via multiple-media q Be prepared to deliver both good and bad news at multiple levels, both internally and with customers q Be flexible, develop alternatives q Set challenging but achievable objectives q Demonstrate passion to honoring commitments q Recognize that trust is the most important thing in a successful business relationship q Learn from mistakes openly communicate Lessons Learned q Celebrate joint successes q Document and share best practices

Reference Text, pg. 14

Partnership Ingredients

Three Major Ingredients

Complementary Strength Common Customer-base Chemistry

Discuss Examples of Partnerships based upon each of the above.

Reference Text, pg. 15

Successful Partnerships Key Definitions

Partners: Two or more People or organizations working together toward a mutually beneficial common goal with loyalty an a long-term commitment to each others success.

Loyal Customer: A buyer who chooses to do business with a particular seller and commits to buy from that seller in the future. Satisfied Customer: A buyer who buys from a particular seller but expects to buy from others in the future.

The Successful Partnership Pyramid

Customers Satisfaction/ Loyalty
Successful Long-Term Partnerships

Building Trust Four Common Actions

Managing Expectations and Honoring Commitments

Partnership Agreement(s)

Partnership Ingredients Complementary Strength Common Customer-base Customer Need/Desires = Business Partnership Chemistry

Reference Text, pg. 16

Exercise 2: Building Trust Q&A

1.On a scale of 1 (Low) to 10 (High), How effective is your organization/company in building long-term buyer/seller relationships? Give examples. 2. 3.On a scale of 1 (Low) to 10 (High), How well does your organization/company manage your customers expectations? Give examples. 4. 5.On a scale of 1 (Low) to 10 (high), How well does your organization ensure requirements and acceptance criteria are aligned, agreed to, and documented before the contract is signed?

Unit 3: Government Contracting and Commercial Contracting Similarities

Contract Management What Is It? A process of planning, forming, and administering agreement(s) to buy or sell goods and services from or to another party The art and science of managing a contractual agreement(s) throughout the contracting process

Buyer

Contract

Seller

Contract

Subcontractor(s)

Contracts Definition An agreement between two or more (competent) parties or persons that creates an obligation to do or not do a particular thing A contract has two aspects: qDocument: Written manifestation of an agreement between parties qRelationship: The personal or professional commitment that forms the understanding between people who enter into agreements, either oral or written
Reference Text, pg. 19

Contracts Are

Sources of business: For sellers Sources of goods and services: For buyers Risk management tools: For both buyers and sellers Projects: That must be managed by people from both the buyers and sellers organizations.

Contract Managements Four Ps People qAuthority: Who can sign or approve? qResponsibilities: Who does what? Process: The means by which goods and services are exchanged Performance: How effectively the goods and services are bought and sold Price: What determines a reasonable price? How do terms and conditions affect price?

Contract Management Process

Buyers and sellers steps
Buyer 1. Procurement Planning
Make-or-buy decision

Phase 1: Preaward
2. Solicitation Planning 3. Solicitation

Seller

1. Presales Activity

2. Bid/no-bid Decision making

Bid decision

3. Bid or Proposal Preparation

Phase 2: Award
B uyer 4. Source Selection
Contract Award

Phase 3: Postaward
5. C ontract Administration 6. Contract Closeout or Termination

Seller

4. Contract Negotiation & Formation

Contract

Award

5. C ontract Administration

6. Contract Closeout or Termination

Reference Text, pg. 20

Government (Public) Contracting and Commercial (Private) Contracting

Similarities Include:

*(Similar CM Process) Both follow a similar Contract Management process. *(Similar CM People Skills) Both require well-trained and educated people with broad skills sets (competencies including: Negotiation skills, financial skills, legal skills, interpersonal skills, communication skills, organizational skills, leadership skills, and others. *(Similar Performance Requirements) Both need to focus on delivering and/or providing quality products, services, and/or solutions for their customers faster, better, and cheaper.

So Whats the Point According to W. Gregor MacFarlan, CPCM

An immense increase in knowledge workers and a decrease in manual workers. Contract Management professionals are knowledge workers. Individual effectiveness and collective growth required: Reasonable empowerment (Autonomy to act is essential). Opportunities to apply innovative judgment (strive to improve the deal). Continuous learning for growth (no other useful option). Biggest mistake of our time: treating knowledge workers as a cost rather than as an asset.

A Few More Points Demographics and work environments relate: In millions of cases, the knowledge worker is not dependent on a single employer for a career. The knowledge workers professional capabilities and skills are portable. The high likelihood exists for knowledge workers to pursue three or four successful growth jobs over a career. Many people will be crossing-over between either buyer or seller roles and/or government and commercial contracting sectors.

So Where Are We Headed? Recent research (1999 and 2000) by CMI* and ISM* relates for every 100 surveyed contracting/purchasing professionals concerning their roles: 90 indicate more time sensitive 85 indicate more responsibility 85 indicate more team-oriented 85 indicate more strategic 60 indicate less clerical Performance metrics are increasingly tied to strategic rather than transactional business measures
The Contract Management Institute (CMI) is the research arm of the National Contract Management Association (NCMA). The Institute of Supply Management (ISM) was formerly the National Association of Purchasing Management (NAPM).

Most Recent Research (1) (Contract Management Institute 2001)

Performance Metrics for the Contract Management Discipline a survey. Senior contracting/purchasing personnel 3,180 surveys distributed; 872 returned 27 percent response rate. Public sector (35%); private sector-government (37%); private sector-non-government (21%); educational, not-forprofit, other (7%). Three quarters at least 15 years experience; more than half over 20 years. Education: high school (1%); some college (10%); undergraduate degree (33%); masters degree (46%); postgraduate degree (9%).

Most Recent Research (2) (Contract Management Institute 2001) Which metrics are currently used by your organization to evaluate personnel?
Top 10 choices: 1. 2. 3. 4. 5. Responsiveness. 6. Human/interpersonal Integrity/ethical standards relations. Timeliness. 7. Process focus. Written communication. 8. Education. Oral communication. 9. Customer service (internal). 10. Accountability

Most Recent Research (3) (Contract Management Institute 2001) Which metrics will be used in the next 3 to 5 years?
Top 10 choices: 1. 2. 3. 4. 5. Business Judgment. 6. Integrity/ethical standards. Decision making 7. Education. Problem-solving ability 8. Human/interpersonal Negotiation skills. relations. Customer service (external). 9. Responsiveness 10. Communications

Most Recent Research (4) (Contract Management Institute 2001) Some bottom lines: The contract and purchasing management function is evolving toward a strategic business management focus. Performance evaluation metrics increasingly assess results not just activity. Employees are motivated to perform when they are measured about things they have control over. Performance evaluation systems should be pervasive

Exercise 3: CM Process & Teamwork Q&A

1.Does your organization/company have a well-defined Contract Management (CM) process, which is documented, understood, and followed by everyone in your organization/company? 2. 3.What is the role of the Contract Manager in your organization/ company?

4. 5.What is the Executives role in the CM process?

Unit 4: Contract Management: What Executives should Know & Do!

What is the role of the Executive in the CM Proc

Why is Contract Management Important to Executives?

In most organizations/companies the success of winning and executing contracts will determine the entire future of the enterprise Business opportunities and risks are managed via the contract Growth via changes management and follow-on contracts Contract performance is typically inconsistent Some do well, but most do not Very team dependent Managing contracts is difficult Complicated and not well understood Requires broad set of management skills Poorly implemented internally and externally Traditional management incentive structures usually at variance

Why is Contract Management Important to Executives?

Contract management teams are often formed of a diverse temporary group of talented individuals
Usually not well trained in contract management Little previous experience working together Expected to immediately be proficient

There is often a negative bias against contract management

Personnel are unfamiliar and untrained Prior experience with contract management has been unsuccessful Technical personnel typically look down on contract management and the people that attempt to manage contracts It is not uncommon for the very best contract management techniques to be disliked by the team It is sometimes viewed as non-producing overhead People often do not want to follow a disciplined and documented process

What is There About Contract Management That Makes it So Difficult? Requires a broad set of skills Business, legal, financial, interpersonal, leadership, team building, negotiation, multi-cultural Rare to find personnel with this broad capability Contract management is complex and is difficult to describe succinctly Makes it difficult to convey to others and install as a culture Personnel believe that it is just paperwork anyone can do it

What is There About Contract Management That Makes it So Difficult? (continued) Contract management appears overbearing to the uninitiated Falsely appears to stifle creativity Falsely appears to slow things down Falsely appears to be bureaucratic It is not uncommon for management to only give contract management lip service (Dont walk the talk) Lack of understanding = Lack of support

Why the Complexity of Contract Management Is An Issue?

State of the Art
Most available models are over-simplified and inadequate Henry Fayols: Planning, Organizing, Staffing, Directing, Controlling falls short in todays environment Many models confuse and intermix sequential activities and on-going processes

Communication Without a well-defined contract management process in place:

It makes it difficult to convey to the team how the contract will be managed It makes it difficult to communicate with others about the health and progress of the contract

Execution A well-defined contract management process is mandatory because:

Continued growth of contracts as a result of increased outsourcing It is impossible to install a culture if it cant be described It is difficult to install a culture even if it can be described

Business Conduct Issues What Executives Should Know & Do at the Outset
qCreate a clear vision, mission, and goals. qEstablish lines of authority whos in charge of what? qCreate lines of communication How to get work done! qFacilitate communication methods and structure Make sharing info easy! qSet expectations of each other Clarify roles and responsibilities to to ensure teamwork! qDevelop escalation processes When problems arise who do you contact! qEnsure employee feedback/performance evaluation process is regularly conducted qCreate a shared reward and recognition process qCreate and follow a Code of Conduct

Indicators of Poor Teamwork Communication stops Information is withheld A climate of suspicion and distrust exists Counterproductive subgroups and cliques form Fear-of-Failure causes individuals to avoid making decisions Complaining is prevalent Separateness and distrust prevail

Indicators of Good Teamwork Spontaneous, positive interpersonal interaction The collective energy level of the team is high A positive cooperative climate prevails Information flows freely between team members No work is considered beyond an individuals job description (If it needs to be done, someone is doing it) Complaining is almost non-existent The coffee pot is never left empty for other team members Separateness and distrust prevail

Executive Role in Creating Teamwork

qBe able to communicate your vision and the contracts role in achieving it. qUnderstand stakeholder expectations and conflicts. qListen to your team members speak of their teammates and notice the vocabulary and mood. Encourage respect and business like interaction among the team members Get involved if adversarial relationships emerge. qEnsure that rewards and incentive structures acknowledge team performance. qLook for, and encourage your Contract Managers to provide evidence of teamwork with: Users Customers Supporting organizations

Executive Role in Establishing A Common Contract Management (CM) Vocabulary and Process
qUnderstand and use the correct CM terminology yourself. qDemonstrate your understanding of the CM process through your actions. qFund and support development of a glossary of common CM terminology, used in you industry, organization, and contracts. qProduce electronic copies and see to it that all Team members have the glossary of CM terms as a resource. qInsist that all team members faithfully use the approved CM process and terminology

One thing said, ten things understood

Executive Oversight of Contract and Project Planning qEnsure that time and money to plan is provided for. qRequire an internal Contract Kick-off Meeting to review the plan. qReview the contract risks and how they will be managed. qEstablish Executive Management Milestones reviews. qDefine the business aspects you need to review and approve. qSet the schedule and measure performance against it.

Executive Oversight of Opportunity and Risk Management qEncourage everyone to identify potential opportunities and risks. qRequire that tailoring of procedures and templates be accompanied by risk assessment. qRequire and review opportunity and risk assessments throughout the contract management process. qRequire the planning and execution of approved risk mitigation and opportunity enhancement actions. qStay cognizant of the high risks and the progress toward mitigation.

Executive Commitment to Contract Changes Management qDefine the changes management process that must be used on all contracts. qBe an advocate of contract changes, as appropriate. qConstructively challenge informal contract changes at your initial reviews with team members. qConstructively challenge the effectiveness of the contract changes management at program reviews.

Executive Participation in Contract Visibility Management qEnsure that corporate information systems benefit the teams and provide Contract Managers with contract-level information necessary to manager their contracts. qShare as much company information as possible. qEliminate barriers to sharing information. qCreate a method for exchange of lessons learned between contracts and programs.

Executive Oversight of Contract Statusing

qEnsure that all contracts are properly planned. qEnsure that you receive status on all contracts and related projects. qDo not allow activity reports to substitute for status reports. qDo not substitute paper optimism for intelligent, perceptive judgment. qVerify that the reported status is consistent with contract results. qFocus on corrective actions in status meetings. qAsk how you can help in the corrective action process. qBe sure that you are not a bottle-neck to required resources.

Executive Development of Contract Management

qEnsure your managers have the correct corporate and contract management vision. qKnow your managers and their leadership styles. Provide training or counseling to correct deficiencies.

Executive Support of Contract Corrective Action qPublicize expectations that contracts be technically compliant, completed on time, as as much under budget as possible. qRequire the use of Action Item Registers to drive corrective actions to closure.

Exercise 4: What Executives Should Know & Do!

Individually, review charts all of the previous charts in this unit, which contain boxes. in each box, which you consider Place a check yourself and/or your organization/company executives do well. Count up the number of checked previous charts in this unit. Executive Assessment Excellent: 45 to 50 Good: 39 to 44 Average: 34 to 39 Below Average: 28 to 33 Poor: 27 or below boxes you have on the

Why Executive Management Has an Essential Role In Contract Management

Contract Management is a complex process, difficult to install as a corporate culture. Exceptional Contract Managers may institute sound practices in spite of the prevailing corporate culture. Most Contract Managers will take their guidance from the prevailing culture. A non-supportive or misinformed Executive Management will generally lead to ineffectual Contract Management practices.

Organizations that routinely execute contracts successfully usually have a well understood and practiced Contract Management culture backed by strong, knowledgeable, Executive Management Support.

Unit 5: Pre-Award Phase & Best Practices

Contract Management Process - Buyers and Sellers steps

Phase 1: Preaward
Buyer 1. Procurement Planning
Make-or-buy decision

2. Solicitation Planning

3. Solicitation

Seller

1. Presales Activity

2. Bid/no-bid Decision making

Bid decision

3. Bid or Proposal Preparation

Phase 2: Award
Buyer 4. Source Selection
Contract Award

Phase 3: Postaward
5. Contract Administration 6. Contract Closeout or Termination

Seller

4. Contract Negotiation & Formation

Contract

Award

5. Contract Administration

6. Contract Closeout or Termination

Reference Text, pg. 79

Contract Management Process: Preaward Phase Buyers steps

1. Procurement planning

2. Solicitation planning

3. Solicitation

Procurement Planning Is the process of identifying which buyer needs can be best met by procuring products or services outside the organization Involves the buyers consideration of qWhether to procure (make-or-buy decision) qHow to procure (contracting method) qWhat to procure (products and services needed) qHow much to procure (quantity desired) qWhen to procure (delivery schedule)

Procurement Planning (continued)

Input Scope statement Product description Procurement resources Market conditions Other planning output Constraints Assumptions

Tools & Techniques Make-or-buy analysis Expert judgment Contract type selection Opportunity and Risk Management Process Contract terms and conditions

Output Procurement management plan Statement of work

Reference Text

Solicitation Planning Involves preparing the documents needed to support the solicitation
Input Procurement management plan Statement of work Other procurement planning output

Tools & Techniques Standard forms Expert judgment

Output Procurement documents Evaluation criteria Statement of work updates

Reference Text, pg. 86

Solicitation
Involves obtaining information (bids and proposals) from perspective sellers on how project needs can be met Types of solicitations qRequest for proposals (RFP) qRequest for tenders (RFT) qRequest for quotations (RFQ) qInvitation for bids (IFB) qInvitation to bid (ITB) Types of information-only solicitations qRequest for information (RFI) qRequest for information and qualifications (RFI&Q)

Solicitation (continued)

Input Procurement documents Qualified seller lists

Tools & Techniques Bidder conferences Advertising

Output

Solicitation that leads to the submission of bids or proposals

Reference Text, pg. 88

Contract Management Process: Preaward Phase Sellers steps

1. Presales activity

2. Bid/no-bid decision making

3. Bid or proposal preparation

Presales Activity Is the process of early involvement with potential buyers, understanding and influencing their needs, plans, and expectations
Input Customer Identification Determination of customer needs Evaluation of competitors

Tools & Techniques Proactive sales management Market research Competitive analysis

Output Potential and existing customer lists Customer-focused sales plan Competitive analysis report

Reference Text, pg. 90

Bid/No-Bid Decision Making Is the process of evaluating risks vs. opportunities and making an informed and intelligent decision
Input Solicitation Buyer-specific information Competitive analysis report Sellers strategic objectives and plans

Tools & Techniques Opportunity and Risk Management process Opportunity and Risk Management (ORM) Model

Output Bid/no-bid decision Justification document for bid/no-bid decision

Adapted from Reference Text, pg. 93

Bid or Proposal Preparation

Input Solicitation Analysis of solicitation Competitive analysis report Past proposals

Tools & Techniques Compliance matrix Standard terms and conditions Past proposals Lessons-learned database Executive summary

Output Bid or proposal Supporting documentation Oral presentation

Reference Text, pg. 95

Pre-Award Phase Best Practices (Buyer)

Best Practices
Decide what products, services, or solutions you need. (Use of off-theshelf products orresearch and Conduct market services) benchmarking of industry practices Develop a solicitation that clearly and concisely communicates your needs in terms of performance Use of risk management process Create Standard Terms and Conditions (Ts and Cs) Develop Qualified Sellers Lists Use draft solicitations to obtain sellers feedback Conduct Sellers conferences to address solicitation concerns

Observed

Extent of Application
Inconsistent Widespread Limited but growing Inconsistent Widespread Widespread Widespread Inconsistent

Adapted from Reference Text, pg. 97

Pre-Award Phase Best Practices (Seller)

Best Practices Identify potential customers early Evaluate competitors and create a competitive analysis report Conduct proactive sales mgmt. Know & Influence customer needs Conduct market research and benchmarking of industry Develop customer-focused sales plans Apply an Opportunity and Risk Management process Develop and use a proposal lessons learned database Provide oral presentations of proposals Conduct proposal reviews before submission Develop and use a Proposal Requirements Compliance Matrix Observed Extent of Application Widespread Inconsistent Widespread Widespread Inconsistent Inconsistent Limited Limited Widespread Inconsistent

Adapted from Reference Text, pg. 97 - 98

Unit 6: The Award Phase & Best Practices

Contract Management Process - Buyers and Sellers steps

Phase 1: Preaward
Buyer 1. Procurement Planning
Make-or-buy decision

2. Solicitation Planning

3. Solicitation

Seller

1. Presales Activity

2. Bid/no-bid Decision making

Bid decision

3. Bid or Proposal Preparation

Phase 2: Award
Buyer 4. Source Selection
Contract Award

Phase 3: Postaward
5. Contract Administration 6. Contract Closeout or Termination

Seller

4. Contract Negotiation & Formation

Contract

Award

5. Contract Administration

6. Contract Closeout or Termination

Reference Text, pg. 132

Contract Management Process: Award Phase Source Selection

Buyers Step Source selection is the process of applying evaluation criteria to bids or proposals to select a supplier Price may or may not be the primary determinant Other criteria may be used: technical, past performance, quality, schedule, reputation, management, and so on A weighting system may be used to select a source or to rank all proposals to establish a negotiation sequence

Contract Management Process: Award Phase Source Selection (continued)

This process may be simple to very complex May involve one person or a large team May use a screening system, establishing minimum requirements of performance

Contract Management Process: Award Phase Source Selection (continued)

Input Proposals Evaluation criteria Evaluation standards Organizational policies

Tools & Techniques Contract negotiation Weighting system Screening system Independent estimates

Output

Contract

Reference Text, pg. 133

Source Selection Process Process of comparison and decision Informational prerequisites qKnowledge of required goods and services qKnowledge of industry qKnowledge of market practices Selection criteria elements qAttributes of interest qStandards qWeights

Contract Management Process: Award Phase Contract Negotiation and Formation

Sellers step The process of having your bid or proposal evaluated by the buyers, anticipating and responding to questions the buyer may have, negotiating, and forming a contract between the parties

Contract Management Process: Award Phase Contract Negotiation and Formation (continued)

Input Solicitation Bid or proposal Buyers source selection process Sellers past performance Previous contracts Competitive analysis report

Tools & Techniques Contract negotiation process Highly skilled negotiators Market and industry practices Legal review

Output Contract or Walk away

Reference Text, pg. 142

Contract Negotiation: A Complex Activity for Both Buyers and Sellers

Successful negotiators must Have the ability to perceive and comprehend factors shaping and characterizing the negotiation Exhibit behavioral and analytical skills to diagnose problems and adapt winning strategies Understand their own personalities and personal ethics and values Know their products and services, desired terms and conditions, and pricing strategy

We All Negotiate Every Day

Personal: Family and friends Professional: qInternal Organization qExternal: Buyers and subcontractors Question: How well do you negotiate?

Negotiation Approaches Intuitive approach qNonstructured qInformal not written qInconsistent results Process approach qStructured, planned qDocumented actions qMore consistent results

What Is Different About Global and Domestic Negotiations? Political and legal issues International monetary factors Foreign governments and their bureaucracies Potential instability and sudden change Cultural diversity Export/Import regulations

Key to a Successful Contract Negotiation

Preparation and planning Effective planning Negotiation skills Effective follow-up documentation

Getting to Yes Means Getting past no Getting around yes, but qFocusing on common interests not positions qUse of joint problem solving Internally Externally qThe right solution is a matter of perspective buyer or seller

Buyers Negotiation Objectives (Interests)

Acquire necessary supplies and services of the desired quality, on time, and at the lowest reasonable price Establish and administer a pricing arrangement that results in payment of a fair and reasonable price Satisfy needs of the end user (customer)

Sellers Negotiation Objectives (Interests)

Profitability (long-term vs. short-term) Market share Satisfy needs of the customer

The Contract Negotiation Process: The Risk Zone

Three P hases
Key S teps or actions

Phase 1: P renegotiation Phase 2: C onducting P hase 3: P ostnegotiation ontract C Planning N egotiations A ctions A ward
1. P repare yours elf and your team 2. K now the other party 3. K now the big picture 4. Identify objectives 5. P rioritze objec tives 6. Create options 7. S elect fair s tandards 8. E x am ine alternatives 9. S elect y our s trategy, tac tic s, and countertactic s 10. Develop a solid and approved team negotiation plan 1. Determ ine who has authority 2. P repare the facilities 3. Us e an agenda 4. Introduce the team 5. S et the right tone 6. E x change inform ation 7. Focus on objec tives 8. Us e s trategy, tac tics, and countertac tic s 9. M ake counteroffers 1. P repare negotiation m inutes 2. S end m intues ot the other party 3. O ffer to write up the contrac t 4. P repare the contract 5. P repare negotiation results s um m ary 6. O btain required reviews and approvals using CM S 7. S end c ontract to the other party for signature

10. Docum ent agreem ent or know 8. P rovide copies of the contract when to walk away to affected organizations 9. Doc um ent lessons learned 10. P repare contract adm inistration plan

Adapted from Reference Text: pg. 145

Phase 1: Prenegotiation Planning (10-Step Process)

Step 1 Prepare yourself and your team

Step 2 Know the other party

Step 3 Know the big picture

Step 4 Identify objectives (interests)

Step 5 Prioritize objectives

Step 6 Create options

Step 7 Select fair standards

Step 8 Examine alternatives

Step 9 Select your strategy, tactics, and countertactics

Step 10 Develop a solid and approved team negotiation plan

The Importance of Price

Schedule Customer Obligations Technology (R&D)

Type of contract

Price

Services

Miscellaneous Products

Ts and Cs

Adapted from Reference Text: pg. 147

The Importance of Terms and Conditions

Payments And so on Delivery terms Inspection and acceptance Financing

Obligations

Ts and Cs: Cost, Risk, and Value

Warranties

Spares

Taxes

Exchange rate

Indemnity and liability

Guarantees

Adapted from Reference Text: pg. 148

Phase 2: Conducting Negotiations

Step 1 Determine who has authority

Step 2 Prepare the facilities

Step 3 Use and agenda

Step 4 Introduce the team

Step 5 Set the right tone

Step 6 Exchange information

Step 7 Focus on objectives (interests)

Step 8 Use strategy, tactics, and countertactics

Step 9 Make counteroffers

Step 10 Document agreement or walk away

Tactics and Countertactics I (Buyer vs. Seller) Tactics

Attacks (hot buttons)

Personal insults Emotional reactions Professional insults

Countertactics
Disclose the attack Strike back Give in Break off Explore alternatives

Tricks

Know the truth

False data No authority to negotiate

Have the right data Establish in writing who has authority

Escalate

Adapted from Reference Text: pg. 149

Tactics and Countertactics II (Buyer vs. Seller) Tactics

Arbitrary deadlines

Countertactics

Agree with deadline Counter the offer with compromise schedule Refuse to change schedule

Limited availability

Coordinate schedules in advance Counter with your limited availability Be flexible Escalate

Tactics and Countertactics III (Buyer vs. Seller) Tactics

Third-party scapegoat
Real approval required Pretend such approval is required

Countertactics

Escalate to third party Compromise

Giveaways

Disclose them as giveaways Exchange giveaways

Tactics and Countertactics IV (Buyer vs. Seller)

Tactics

Good guy bad guy

Countertactics

Counter with bad guy good guy Escalate

Prolonging the negotiation

Take a break or have a caucus Maintain silence

Tactics and Countertactics V (Buyer vs. Seller)

Tactics

Delays

Countertactics

Submission of data Start of negotiation Return from breaks

Start on time Claim limited availability Leave or create greater delays

Diversions

Keep things on track

Questions Telephone calls Faxes Personal breaks

Take a break

Refocus team No phones in room No interruptions

Tactics and Countertactics VI (Buyer vs. Seller)

Tactics

Stonewall

Countertactics

Give in

Take it or leave it! I shall not move!

Say Yes, and... Walk away Escalate Settle in next quarter or next year

End-of-quarter or end-of-year negotiation pressure

Factors in Selecting Contract Types Capability of sellers accounting system Uncertainty in the cost estimate Type and complexity of the requirements Urgency of the requirement Marketplace and competition Sellers technical capability Administrative costs to both parties Size and amount of the contract

Contract Pricing (Incentives) Best Practices (Buyer & Seller)

Best Practices Use performance based incentives Develop clear, concise, and objectively measurable incentives Create a proper balance of incentives cost, schedule, & quality Make incentives challenging yet attainable Use a combination of incentives objectively and subjectively determined Consider using socio-economic incentives Tie on-time delivery to cost and/or quality performance criteria Avoid rewarding sellers for minimal performance Use a combination of positive and negative incentives
Reference Text, Pgs. 118-119

Observed

Extent of Application Inconsistent Inconsistent Inconsistent Inconsistent Limited Limited Limited Widespread Inconsistent Widespread Inconsistent

Include incentives for early payments Ensure all incentives have limits

Phase 3: Postnegotiation Actions

Step 1 Prepare negotiation minutes

Step 2 Send minutes to the other party

Step 3 Offer to write up the contract

Step 4 Prepare the contract

Step 5 Prepare negotiation results summary

Step 6 Obtain required reviews and approvals

Step 7 Send contract to the other party for signature

Step 8 Provide copies of contract to affected organizations

Step 9 Document lessons learned

Step 10 Prepare contract administration plan

Contract Administration Contract Implementation

Contract closeout or termination

Understanding How Negotiations Work For about 15 years of my life, I watched negotiators I was trying to learn from and finally come to the realization that they did not know what they were doing. If something went wrong and I asked, Well, why did it go wrong? they could not tell me. If I asked, What did you do right? they could not tell me. The insight I got was that no one knew. You can assemble a group of great people who have taken part in great negotiations for a discussion, and they all come up with completely different reasons for why the negotiation was successful and how it worked. - GERARD I. NIERENBERG

Contract Award Phase Best Practices (Contract Negotiation & Formation) (Buyer & Seller)
Best Practices Select and train skilled negotiators to lead the contract negotiation process Select your negotiation strategy, tactics, and countertactics Use an agenda during contract negotiations Do not be too predictable in your tactics Develop an approved negotiation plan
Adapted from Reference Text, pg. 155

Observed

Extent of Application Inconsistent Inconsistent Widespread Inconsistent Widespread Widespread Widespread Inconsistent Widespread Widespread Inconsistent

Conduct mock negotiations Document your agreements throughout the process Understand everything affects price Tailor Ts & Cs to the deal Know what is negotiable and what is not Know when to walk away

Exercise 4: Contract Negotiations Q&A

1.When does the negotiation begin? 2. 3. 4.Who is normally the chief negotiator? 5. 6. 7.Are you aware of any executives within your organization who make commitments before the contract is negotiated?

Exercise 4: Contract Negotiations Q&A

4.Do you require and review prenegotiation plans and objectives? 5. 6. 7. 8.Have you ever walked away from a multi-million dollar deal because the risks outweighed the benefits?

Unit 7: Post-Award Phase & Best Practices

Contract Management Process - Buyers and Sellers steps

Phase 1: Preaward
Buyer 1. Procurement Planning
Make-or-buy decision

2. Solicitation Planning

3. Solicitation

Seller

1. Presales Activity

2. Bid/no-bid Decision making

Bid decision

3. Bid or Proposal Preparation

Phase 2: Award
Buyer 4. Source Selection
Contract Award

Phase 3: Postaward
5. Contract Administration 6. Contract Closeout or Termination

Seller

4. Contract Negotiation & Formation

Contract

Award

5. Contract Administration

6. Contract Closeout or Termination

Reference Text, pg. 159

Contract Administration

The principal objective of contract administration for both the buyer and the seller is to ensure fulfillment of contractual obligations by all parties to the contract.

Reference Text, pg. 158

Contract Management Process: Postaward Phase Contract Administration

Input Contract Work results Change requests Invoices and payments Other tasks Contract Administration policies

Tools & Techniques Contract analysis and planning Preperformance conference Performance measuring and reporting. Payment system Change control system Dispute management system

Output Documentation Contract changes Payment Completion of work

Reference Text, pg. 159

Key Contract Administration Policies for Buyers and Sellers

Compliance with terms and conditions Effective internal and external communication and control Effective control of contract changes Effective resolution of claims and disputes

Reasons for Noncompliance The six great excuses I never saw the contract. I didnt have a chance to read the contract. I didnt understand the contract. I thought the contract was wrong. Thats not what the contract says! What contract?

Need for Communication Between Buyers and Sellers Contracts are relationships Relationships are not cast in concrete-they change with circumstances Contractual relationships are dynamic Communication is essential for effective responses to change Sharing information is necessary, but not sufficient?

Main Tasks for Buyers and Sellers Analyze obligations, assign responsibilities, and set performance goals Observe, document decisions and events, and report performance Identify and analyze variances Take corrective action Follow up Manage changes and disputes Close out contract

Contract Analysis

Read all terms and conditions Separate into technical and administrative requirements Develop contract work breakdown structure to at least three levels Identify who is responsible for work elements

Contract Work Breakdown Structure

1 .0 C o n tra c t R e q u ir e m e n t s

1 .1 T e c h n ic a l r e q u ir e m e n t s

1 .2 A d m in is t r a t iv e r e q u ir e m e n t s

1 .1 .1 S p e c if i c a t io n s 1 .1 .2 W o rk

1 .2 .1 P a y m e n t p ro c e d u re s 1 .2 .2 C h a n g e m a n a g e m 1 .2 .3 D is p u t e s

s ta te m e n t

1 .1 .3 S c h e d u le

e n t

Setting Goals Discuss requirements with affected managers Determine qWho qWhat qWhen qWhere qHow Seek agreement and/or commitment

Preperformance Conference Meeting between buyer and seller Held before start of performance Review contract terms and conditions Establish administrative procedures Establish communication protocols Keep and distribute meeting minutes

Records and Files for Buyers and Sellers Official copy of contract and modifications Conformed working copy of contract Correspondence file, log or index, and suspenses Telephone log Records of deliveries, inspections, acceptances Progress and surveillance reports Property administration records Invoice and payment records

Progress Reports May be oral or written Include observations and conclusions of others Present information that is not real time Afford opportunities for errors: Accuracy Objectivity Honesty Timeliness Competence of observer

Report Considerations Subject Matter Contents qRaw data qAnalyses qConclusions qCombination of above Frequency and timing Format Address(es)

Records and Documentation Main purpose: Reduce reliance on human memory Efforts must be thorough and consistent Essential for qProof of performance qManagement of changes qProof of claims qEvidence in case of arbitration or litigation

Contract Change Management

Contract

Change Management Actions Changes modify contract requirements, terms, and conditions They add, delete, or both They affect the triple constraints: qPerformance qSchedule qCost

Change Management Actions (continued) Modifications are inevitable Change provides an opportunity for additional sales Management objectives include qControl qCustomer Satisfaction qCost recovery qSchedule adjustment qProfit

Change Authorization

Ensure that only authorized representatives make, accept, or negotiate contract changes Add the appointed representatives to the contract Change orders in writing, when possible Confirm oral changes in writing

Notification of Changes

Notify other party of actions or inactions that are changes, such as constructive change Notify promptly, in writing Provide full description and explanation

Control of Claims and Disputes Contract agreements are not perfect Misunderstandings are inevitable Claims and disputes qAre a normal part of contracting process qMust not be allowed to disrupt performance qMust be resolved promptly and dispassionately

Resolution of Disputes Negotiation, compromise Arbitration qSubmission of dispute to disinterested person or persons for final decision qObjective is final disposition in inexpensive, expeditious, and less formal manner qA substitute for litigation Litigation

Contract Management Process: Postaward Phase Contract Closeout

Buyers and sellers steps Contract closeout involves both product verification and administrative closeout
Input Completion of work Contract documentation or Termination notice

Tools & Techniques Compliance verification Contract documentation Contract closeout checklist Termination

Output Product or service completion Acceptance and final payment Contract closeout or termination documents Documented lessons learned

Reference Text, pg. 182

Sample Contract Closeout Checklist

Sam ple Contract Closeout Checklist Yes
1. All products and/or services required have been provided to the buyer. 2. D ocumentation adequately shows receipt and formal acceptance of all contract items. 3. No claims or investigations are pending on this contract. 4. Any buyer-furnished property or information was returned to the buyer. 5. All actions related to contract price revisions and changes have been concluded. 6. All outstanding subcontracting issues have been settled. 7. If a partial or complete termination was involved, action is complete. 8. Any required contract audit is now complete. 9. The final invoice has been submitted and paid.

N/A

No

Types of Terminations

Termination by mutual agreement Termination for cause or default Termination for convenience (most widely used in government contracting)

Postaward Phase Best Practices (Buyer & Seller)

Best Practices Read and analyze the contract Develop a Contract Administration Plan Assign a Contract Administration Manager Comply with Contract Ts and Cs Control contract changes via contract change process Resolve Claims & Disputes promptly Develop a Contract Work Breakdown Structure Manage the invoice and payments process Enforce Contract Ts and Cs Develop and Implement Contract Admin policies & guidelines Observed Extent of Application Widespread Limited Inconsistent Inconsistent Inconsistent Widespread Widespread Widespread Inconsistent Inconsistent

Adapted from Reference Text: pgs. 188-189

Postaward Phase Best Practices (Buyer & Seller)

Best Practices Provide copies of the contract to all affected organizations copy of the Maintain a conformed contract Document communications Prepare & distribute meeting minutes Clarify team members roles and responsibilities Provide leadership support throughout Prepare contract close-out checklists Document Lessons Learned Share Best Practices Reward Team Performance Observed Extent of Application Widespread Inconsistent Inconsistent Widespread Widespread Inconsistent Widespread Inconsistent Widespread Inconsistent

Adapted from Reference Text: pgs. 188-189

Exercise 5: The Postaward Phase Q & A 1.What is the purpose of contract administration? 2. 3. 4.What are the main tasks of contract administration? 5. 6. 7.How important is change management to the success of your business?

Exercise 5: The Postaward Phase Q & A 4.How should contract disputes be resolved between the buyer and the seller? 5. 6. 7.How important is it to enforce the terms and conditions of your contracts? 8. 9. 10.How important is it to document and share lessons learned and best practices?

A Long-Shot Prediction (Future of Contract Managers) by W. Gregor MacFarlan

Contributory and knowledgeable team members throughout the contract management process. Innovative thinkers for strategic decision making, business alternatives, and partnering. Useful knowledge of multiple markets and the use of market research. Strong internal and external communication and facilitation skills. Proven skill in using computer-based programs and e-business media. Staying connected through an organizations digital nervous system. Customer-service attitude and results. Concern for quality whatever the assignment. Continuous learning through professional certification.
How would you be evaluated today given these metrics?