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Negotiation Skills National Contract Management Association

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Negotiation Skills National Contract Management Association Powered By Docstoc
					Mastering Contract
Negotiations-Skills, Tools, and
Best Practices
Breakout Session # 401
Gregory A. Garrett, CPCM, C.P.M., PMP


Date:           Monday, April 25, 2005
Time:           11:00 a.m. – 12:00 (noon)


                                   An Interactive Adventure
                              into the Art & Science of the Deal!

NCMA World Congress 2005                                          April 25–27, 2005
                                                                  Phoenix Civic Plaza/Hyatt Regency Phoenix
“Prime Time: Contract Management at the Core of the Enterprise”   Phoenix, AZ                                 2
Contract Negotiations – A New National
Education Seminar (NES)

Key Topics of Discussion:

        The Need for Contract Negotiation Skills
         * Q&A - Exercise
        Contract Negotiation Competencies – The Skills
         to Win
         * Self-Assessment Survey
        The Contract Negotiation Process
         * Buyer & Seller – Checklist of Best Practices




 NCMA World Congress 2005                                          April 25–27, 2005
                                                                   Phoenix Civic Plaza/Hyatt Regency Phoenix
 “Prime Time: Contract Management at the Core of the Enterprise”   Phoenix, AZ                                 3
NCMA, CMI, and ISM Studies (2000 – 2003)

Show Need for Contract Negotiation Skills

     The NCMA, ISM, and CMI Year 2000 surveys showed for every 100 surveyed
contract management/purchasing professionals, concerning their roles:
       • 90 indicate “more time sensitive”
       • 85 indicate “more responsibility”
       • 85 indicate “more team-oriented”
       • 85 indicate “more strategic”
       • 80 indicate “more use of performance-based metrics”


       * Contract Management studies conducted by the National Contract
         Management Association (NCMA), The Institute for Supply Management
         (ISM), and the Contract Management Institute (CMI), 2000 – 2003.
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 9.

   NCMA World Congress 2005                                                              April 25–27, 2005
                                                                                         Phoenix Civic Plaza/Hyatt Regency Phoenix
  “Prime Time: Contract Management at the Core of the Enterprise”                        Phoenix, AZ                                 4
  CMI Year 2001 Study - Results

"Which metrics do you believe your organization will use in the next 3
to 5 years to evaluate personnel performance?"
The respondents Top 10 choices:


    1.       Business Judgment                                       6. Integrity/ethics
    2.       Decision making                                         7. Education
    3.       Problem-solving                                         8. Interpersonal Relations
    4.       Negotiation skills                                      9. Responsiveness
    5.       Customer service                                        10. Communications


    Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 10.


   NCMA World Congress 2005                                                            April 25–27, 2005
                                                                                       Phoenix Civic Plaza/Hyatt Regency Phoenix
  “Prime Time: Contract Management at the Core of the Enterprise”                      Phoenix, AZ                                 5
Contract Negotiation Skills Gap

 Key Facts



        • Many of the Master Contract Negotiators in both the
          public and private business sectors, have retired,
          or retiring, or are retirement eligible by 2010**
        • Significant increase in the complexity of contracts and
          related projects ***



            ** Survey by Garrett Consulting Services, 2003
            *** Center for Business Practices (CBP) study, 2002

 NCMA World Congress 2005                                          April 25–27, 2005
                                                                   Phoenix Civic Plaza/Hyatt Regency Phoenix
 “Prime Time: Contract Management at the Core of the Enterprise”   Phoenix, AZ                                 6
Exercise – Q & A


1. How important are contract negotiation skills to ensure
   business success?



2. How well do you negotiate?




3. Does your organization have the number and level of skilled
   master contract negotiators needed?

      Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 12.

  NCMA World Congress 2005                                                             April 25–27, 2005
                                                                                       Phoenix Civic Plaza/Hyatt Regency Phoenix
  “Prime Time: Contract Management at the Core of the Enterprise”                      Phoenix, AZ                                 7
Contract Negotiations – A New NES by NCMA




                  Contract Negotiation Competencies
                          The Skills to Win!




 NCMA World Congress 2005                                         April 25–27, 2005
                                                                  Phoenix Civic Plaza/Hyatt Regency Phoenix
“Prime Time: Contract Management at the Core of the Enterprise”   Phoenix, AZ                                 8
The Contract Negotiator’s Competencies Model




      Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 14.


NCMA World Congress 2005                                                              April 25–27, 2005
                                                                                      Phoenix Civic Plaza/Hyatt Regency Phoenix
“Prime Time: Contract Management at the Core of the Enterprise”                       Phoenix, AZ                                 9
Skills to Win: Self-Assessment Survey


• Complete the 20 question – Skills to Win:
  Self-Assessment Survey (1 = Low Skills to 5 = High
  Skills)
• Summarize and add-up your score on the survey
  worksheet (pg. 3)
• Compare your result to the Self-Assessment Survey
  Scoring table




  NCMA World Congress 2005                                                              April 25–27, 2005
                       Text: Contract Negotiations, by Gregory
            ReferenceManagement at the Core of the Enterprise” A. Garrett, CCH, Inc. (2005), pgs. 15-16. Regency Phoenix
 “Prime Time: Contract
                                                                                        Phoenix Civic Plaza/Hyatt
                                                                                       Phoenix, AZ                         10
The Skills to Win: Self-Assessment Survey
1.     I am a person of high integrity.

               1        2          3         4         5

2.     I always act as a true business professional, especially in contract negotiations.

               1        2          3         4         5

3.     I ensure all of my business partners and team members act honestly, ethically, and
       legally, especially when involved in contract negotiations and contract formation.

               1        2          3         4         5

4.     I verbally communicate clearly and concisely.

               1        2          3         4         5

5.     I am an effective and persuasive contract negotiator.

               1        2          3         4         5

 NCMA World Congress 2005                                                             April 25–27, 2005
                                                                                      Phoenix Civic Plaza/Hyatt Regency Phoenix
 “Prime Time: Contract Management at the Core of the Enterprise”                      Phoenix, AZ                                 11
         Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 16.
The Skills to Win: Self-Assessment Survey cont.

6.     My written communications are professional, timely, and appropriate.

           1         2         3          4         5

7.     I am an excellent team leader.

           1         2         3          4         5

8.     I consistently build high performance teams, which meet or exceed contract
       requirements.

           1         2         3          4         5

9.     I am willing to compromise when necessary to solve problems.

           1         2         3          4         5

10.     I confront the issues, not the person, in a problem-solving environment.

           1         2         3          4         5

 NCMA World Congress 2005                                                              April 25–27, 2005
                                                                                       Phoenix Civic Plaza/Hyatt Regency Phoenix
 “Prime Time: Contract Management at the Core of the Enterprise”                       Phoenix, AZ                                 12
        Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 16.
The Skills to Win: Self-Assessment Survey cont.
11.    I recognize the power of strategies, tactics, and countertactics and use them
       frequently in contract negotiations.

              1         2         3          4         5

12. I am able to achieve my desired financial results in contract negotiations.

             1       2         3          4         5

13. I understand various cost estimating techniques, numerous pricing models, and how
    to apply each when negotiating financial arrangements.

             1       2         3          4         5

14. I understand generally accepted accounting practices and how to apply them when
    negotiating deals.

          1         2         3          4         5

15. I am highly computer literate, especially with electronic sales tools, and/or electronic
    procurement tools.
 NCMA World Congress 2005                                                                               April 25–27, 2005
                                                           Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pgs. 16-17.
                                                                                                         Phoenix Civic Plaza/Hyatt Regency Phoenix
         1         2         3          4         5
 “Prime Time: Contract Management at the Core of the Enterprise”                                        Phoenix, AZ                                      13
The Skills to Win: Self-Assessment Survey cont.
16. I am knowledgeable of e-marketplaces, vertical and horizontal trade exchanges,
    e-auctions, and how to use them to buy or sell products/services.

           1         2         3          4         5

17. I understand the contract management process and have extensive education,
    experience, and professional training in contract management.

          1         2         3          4         5

18. I have extensive education, experience, and training in contract law.

          1         2         3          4         5

19. I have extensive education, experience, and training in our organization's products
    and services.

          1         2         3          4         5

20. I am considered a technical expert in one or more areas.

          1         2         3          4         5
 NCMA World Congress 2005                                                             April 25–27, 2005
                                                                                      Phoenix Civic Plaza/Hyatt Regency Phoenix
 “Prime Time: Contract Management at the Core of the Enterprise”                      Phoenix, AZ                                 14
         Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 17.
The Skills to Win: Self-Assessment Survey cont.
                            Skills to Win - Self-Assessment Survey Worksheet
                             Questions #                                                               Self-Assessment Score (1-5)
                                   1.
                                   2.
                                   3.
                                   4.
                                   5.
                                   6.
                                   7.
                                   8.
                                   9.
                                  10.
                                  11.
                                  12.
                                  13.
                                  14.
                                  15.
                                  16.
                                  17.
                                  18.
                                  19.
                                  20.
  Grand Total Score:                                           _______________________________

 NCMA World Congress 2005                                                                                          April 25–27, 2005
                                                                                                                   Phoenix Civic Plaza/Hyatt Regency Phoenix
 “Prime Time: Contract Management at the Core of the Enterprise”                                                   Phoenix, AZ                                 15
             Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 17.
The Skills to Win: Self-Assessment Survey cont.

                                                      Skills to Win
                                                Self-Assessment Survey
                                                        Scoring

   90+:         You have the knowledge and skills of a master contract negotiator.


   80 - 90: You have the potential to become a master contract negotiator, after reviewing
            the specialized skill areas and determining in which areas you need to improve
            your skills. You are an intermediate contract negotiator.

   65 - 79: You have basic understanding of successful contract negotiation skills. You
            need to improve numerous skills to reach a higher level of mastery of contract
            negotiations. You are an apprentice contract negotiator.

   0 - 64: You have taken the first step to becoming a master contract negotiator. You
           have a lot of specialized skills areas you need to improve. With time,
           dedication, and support (education, experience, and training) you can become
           a master contract negotiator.

  NCMA World Congress 2005                                                              April 25–27, 2005
                       Text: Contract Negotiations, by Gregory
            ReferenceManagement at the Core of the Enterprise” A. Garrett, CCH, Inc. (2005), pg. 18.
 “Prime Time: Contract
                                                                                        Phoenix Civic Plaza/Hyatt Regency Phoenix
                                                                                              Phoenix, AZ                           16
Contract Negotiations – A Complex Human
Activity
Successful contract negotiator must:
    • Master the art and science, or soft and hard skills, required to become
      a master negotiator
    • Possess the intellectual ability to comprehend factors shaping and
      characterizing the negotiation.
    • Be able to adapt strategies, tactics, and countertactics in a dynamic
      environment
    • Understand their own personalities and personal ethics and values
    • Know their products and services, desired terms and conditions, and
      pricing strategy
    • Be able to lead a diverse multi-functional team to achieve a successful
      outcome
          Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pgs. 53-54.
NCMA World Congress 2005                                                              April 25–27, 2005
                                                                                      Phoenix Civic Plaza/Hyatt Regency Phoenix
“Prime Time: Contract Management at the Core of the Enterprise”                       Phoenix, AZ                                 17
Contract Negotiations – Essential Elements

        Key Inputs                              Tools & Techniques                         Desired Outputs




     Solicitation (RFP,                       Oral presentations
      RFQ, etc.)                               Highly skilled contract                 Contract or Walk
     Bid or Proposal                           negotiators                              away
     Buyer’s source                           Legal Review
      selection process                        Business Case Approval
     Seller's past                            Contract Negotiation
      performance                               Formation Process
     Previous contracts                             o Plan negotiations
     Competitor Profile                             o Conduct negotiations
  •   Business Ethics/                               o Document the
      Standards of Conduct                             negotiation and Form
      Guidelines                                       the Contract
     Market and Industry
      practices




      Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 56.
NCMA World Congress 2005                                                              April 25–27, 2005
                                                                                      Phoenix Civic Plaza/Hyatt Regency Phoenix
“Prime Time: Contract Management at the Core of the Enterprise”                       Phoenix, AZ                                 18
Contract Negotiation Process

Plan the Negotiation                            Conduct the Negotiation                 Document the Negotiation and
                                                                                        Form the Contract

1.       Prepare yourself and your              11.     Determine who has authority     21.     Prepare the negotiation
         team                                   12.     Prepare the facility                    memorandum
2.       Know the other party                   13.     Use an agenda                   22.     Send the memorandum to the
3.       Know the big picture                   14.     Introduce the team                      other party
4.       Identify objectives                    15.     Set the right tone              23.     Offer to write the contract
5.       Prioritize objectives                  16.     Exchange information            24.     Prepare the contract
6.       Create options                         17.     Focus on objectives             25.     Prepare negotiation results
7.       Select fair standards                                                                  summary
                                                18.     Use strategy, tactics, and
8.       Examine alternatives                           countertactics                  26.     Obtain required reviews and
                                                                                                approvals
9.       Select your strategy, tactics,         19.     Make counteroffers
         and                                                                            27.     Send the contracts to the
                                                20.     Document the agreement or               other party for signature
         countertactics                                 know when to walk away
10.      Develop a solid and approved                                                   28.     Provide copies of the contract
         team negotiation plan                                                                  to affected organizations
                                                                                        29.     Document lessons learned
                                                                                        30.     Prepare the contract
                                                                                                administration plan




         Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 61.

      NCMA World Congress 2005                                                            April 25–27, 2005
                                                                                          Phoenix Civic Plaza/Hyatt Regency Phoenix
     “Prime Time: Contract Management at the Core of the Enterprise”                      Phoenix, AZ                                 19
Checklist of Buyer – Contract Negotiation Best
Practices
(The Buyer Should: )
     Know what you want – lowest price or best value
 State your requirements in performance terms and evaluate accordingly
 Conduct market research about potential sources before selection
 Evaluate potential sources promptly and dispassionately
 Follow the evaluation criteria stated in the solicitation: management, technical, and price
 Develop organizational policies to guide and facilitate the source selection process
 Use a weighting system to determine which evaluation criteria are most important
 Use a screening system to prequalify sources
 Obtain independent estimates from consultants or outside experts to assist in source selection
 Use past performance as a key aspect of source selection, and verify data accuracy
 Conduct price realism analysis
 Use oral presentations or proposals by sellers to improve and expedite the source selection process



   Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 85.

NCMA World Congress 2005                                                             April 25–27, 2005
                                                                                     Phoenix Civic Plaza/Hyatt Regency Phoenix
“Prime Time: Contract Management at the Core of the Enterprise”                      Phoenix, AZ                                 20
Checklist of Contract Negotiation Best Practices

 (The Buyer and Seller Should: )
  Understand that contract negotiation is a process, usually involving a team effort
  Select and train highly skilled negotiators to lead the contract negotiation process
  Know market and industry practices
  Prepare yourself and your team
  Know the other party
  Know the big picture
  Identify and prioritize objectives
  Create options – be flexible in your planning
  Examine alternatives
  Select your negotiation strategy, tactics, and countertactics
  Develop a solid and approved team negotiation plan
  Determine who has the authority to negotiate
  Prepare the negotiation facility at your location or at a neutral site
  Use an agenda during contract negotiation
           Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 86.
NCMA World Congress 2005                                                              April 25–27, 2005
                                                                                      Phoenix Civic Plaza/Hyatt Regency Phoenix
“Prime Time: Contract Management at the Core of the Enterprise”                       Phoenix, AZ                                 21
Checklist of Contract Negotiation Best Practices
cont’d.
  (The Buyer and Seller Should: )
   Set the right tone at the start of the negotiation
   Maintain your focus on your objectives
   Use interim summaries to keep on track
   Do not be too predictable in your tactics
   Document your agreement throughout the process
   Know when to walk away
   Prepare a negotiation results summary
   Obtain required reviews and approvals
   Provide copies of the contract to all affected parties
   Document negotiation lessons learned and best practices
   Prepare a transition plan for contract administration
   Understand that everything affects price
   Understand the Ts and Cs have cost, risk, and value
   Know what is negotiable and what is not

       Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 86.
NCMA World Congress 2005                                                              April 25–27, 2005
                                                                                      Phoenix Civic Plaza/Hyatt Regency Phoenix
“Prime Time: Contract Management at the Core of the Enterprise”                       Phoenix, AZ                                 22

				
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