Best Contracting Practices for Business Unit 1: Building Successful Partnerships in the e-Business Age – The Executive’s Role Building Successful Partnerships – Four Common Actions What Are • Unleashing Buying and Selling Winning Power Organizations Doing? • 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 New Supply Environment Pros + New product and service providers • Emergence of Internet Technology architecture + Wider range of products and services • Growth of Automated Sales Tools • Use of Enterprise Resource + More modular products and services Planning (ERP) Software • Growth of e-procurement Software + Improved price/performance and Contract Management + Accelerated pace of change Enterprise Software Cons -More complexity • Relaxed barriers to entry - Higher cost of integration Regulation • Increased pricing flexibility • Pro-entrant incentives - Less reliability • Mandatory wholesale of unbundled - Accelerated pace of change elements - Rapid Obsolescence 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 innovative deals and partnerships Changing Buying & Selling Processes Maximizing e-procurement Success Procurement Today: e-procurement: Managed per Transaction Managed by Exception Online product Personalized views; named Search large catalogs selection shopping carts Requisition One to 12 levels of manual Transactions automatically approval approval approved based on rules Fax, e-mail, EDI direct to Order is sent through a supplier P.O. Transmission supplier; supplier retypes the clearinghouse order Payment Dependent on three-way match Immediate; based on shipment authoirzation of P.O. with invoice and receipts notice Continuous; integrated in real Sporadic; not linked to supplier Analysis time; drives optimization of performance process Source: Forrester Research, Inc. 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 Exostar’s Mission: To become the standard e-business platform for everyone in the Aerospace & Defense industry Founding Members Trading Partners BAE Systems Large OEM’s Government Boeing Buyers EXOSTAR Lockheed Martin Airlines Tier 1 –3 Raytheon Suppliers Service Rolls-Royce Providers Boeing’s Forum Pass – Virtual Collaborative Workspace Partner A How Forum Pass Fits Contracts Check- out/Check-in Via Forum Pass Design PM https https MFG Contracts Virtual ACCTG Mtgs. Design PM MFG Contracts Virtual Mtgs. https ACCTG https Design PM MFG Virtual ACCTG Mtgs. 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 DOD Shared Workspace Firewall Supplier B Boeing • Project Management Firewall • Document Management Supplier C • Product Data/Change Control • Virtual Meetings Firewall Firewall Learning & Applying Best Practices & e-tools from Industry Leaders Bill Gate’s New Rules Microsoft 1. Insist that communication flow through e-mail Bill Gate’s 2. Study sales data online to share insights easily New Rules 3. Shift knowledge workers into high level thinking for e-Business 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 • Hormel Foods has recently completed the Case installation of Oracle’s Internet Procurement at all of its 50 locations. Employees at all of these sites Study 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 Hormel’s 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 • In June 1999, the Missiles and Fire Control Case Division of Lockheed Martin located in Dallas, Study 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 user’s purchases were appropriate, priced within limits, and ordered from approved suppliers. • As a result of SAP’s 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 • Qwest, formerly, US WEST, Interprise Networking Case Services recently selected Vsource, Inc. of Ventura, California, a provider of a ―pure-play‖ Internet Study 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 company’s current internal procurement processing costs and the volume of transactions VSN can save buyer’s hundreds, thousands, or millions of dollars each year. VSN Reference Text, pg. 9 requires little time to set-up and no training. All you need to use VSN is a browser and web access. 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 Control Meet or Exceed Expectations Expectations Expectations Listen Understand Negotiate Agree Communicate • Compare Expectations to • Meet with customer • Surface explicit & Implicit reality expectations • Obtain agreement that • Resolve Gaps expectations were met • Surface Assumptions • Communicate differences • Identify gaps • Re-set expectations • Set realistic expectations Adapted from: • Document acceptance ―Managing Expectations‖ criteria Reference Text, pg. 13 by Dorothy Kirk, PM Network, August 2000 Honoring Commitments: Lessons Learned Successful Partnerships Simple Actions Checklist Listen to the customer Understand the customers needs vs. desires State the obvious Be Accessible Return phone calls, vmails, & emails in a timely manner Provide regular communication on contract, program, partnership status Develop a project plan for every deal (Scope of Work (SOW), Integrated Schedule, Work Breakdown Structure (WBS), Responsibility Assignment Matrix (RAM), and acceptance criteria) Develop Risk Management Plan Disclose problems early and mitigate negative impacts Back up all verbal agreements and conversations in written documents Reference Text, pg. 14 Honoring Commitments: Lessons Learned Develop a changes management process Provide frequent communication via multiple-media Be prepared to deliver both good and bad news at multiple levels, both internally and with customers Be flexible, develop alternatives Set challenging but achievable objectives Demonstrate passion to honoring commitments Recognize that trust is the most important thing in a successful business relationship Learn from mistakes openly communicate Lessons Learned Celebrate joint successes Document and share best practices Reference Text, pg. 14 Partnership Ingredients Three • Complementary Strength Major • Common Customer-base Ingredients • 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 Common Complementary Customer-base Chemistry Strength Customer Need/Desires = Business Partnership 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. On a scale of 1 (Low) to 10 (High), How well does your organization/company manage your customers expectations? Give examples. 3. 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: Document: Written manifestation of an agreement between parties Relationship: 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 buyer’s and seller’s organizations. Contract Management’s Four ―Ps‖ People Authority: Who can sign or approve? Responsibilities: 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? Quality, cost, and schedule Contract Management Process Buyer’s and seller’s steps Phase 1: Preaward 1. Procurement 2. Solicitation Buyer 3. Solicitation Planning Planning Make-or-buy decision 1. Presales 2. Bid/no-bid 3. Bid or Proposal Seller Activity Decision making Preparation Bid decision Phase 2: Award Phase 3: Postaward 6. Contract 4. Source 5. Contract Buyer Contract Award Closeout or Selection Administration Termination 4. Contract 6. Contract 5. Contract Seller Negotiation & Contract Award Closeout or Administration Formation Termination Reference Text, pg. 20 Government (Public) Contracting and Commercial (Private) Contracting Similarities * (Similar – CM Process) Include: 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 What’s 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 worker’s 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-for- profit, 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%); post- graduate 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. Responsiveness. 6. Human/interpersonal 2. Integrity/ethical standards relations. 3. Timeliness. 7. Process focus. 4. Written communication. 8. Education. 5. 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. Business Judgment. 6. Integrity/ethical standards. 2. Decision making 7. Education. 3. Problem-solving ability 8. Human/interpersonal 4. Negotiation skills. relations. 5. 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 across an employee’s career path (i.e., recruitment, hiring, placement, training, evaluation, promotion, rewards, and compensation). 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. What is the role of the Contract Manager in your organization/ company? 3. What is the Executive’s role in the CM process? Unit 4: Contract Management: What Executives should Know & Do! What is the role of the Executive in the CM Process? 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 with successful contract management 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 (Don’t 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 Fayol’s: Planning, Organizing, Staffing, Directing, Controlling falls short in today’s 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 can’t 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 Create a clear vision, mission, and goals. Establish lines of authority – who’s in charge of what? Create lines of communication – How to get work done! Facilitate communication methods and structure – Make sharing info easy! Set expectations of each other – Clarify roles and responsibilities to to ensure teamwork! Develop escalation processes – When problems arise who do you contact! Ensure employee feedback/performance evaluation process is regularly conducted Create a shared reward and recognition process Create 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 individual’s 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 Be able to communicate your vision and the contracts role in achieving it. Understand stakeholder expectations and conflicts. Listen 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. Ensure that rewards and incentive structures acknowledge team performance. Look 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 Understand – and use – the correct CM terminology yourself. Demonstrate your understanding of the CM process through your actions. Fund and support development of a glossary of common CM terminology, used in you industry, organization, and contracts. Produce electronic copies and see to it that all Team members have the glossary of CM terms as a resource. Insist 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 Ensure that time and money to plan is provided for. Require an internal Contract Kick-off Meeting to review the plan. Review the contract risks and how they will be managed. Establish Executive Management Milestones reviews. Define the business aspects you need to review and approve. Set the schedule and measure performance against it. Executive Oversight of Opportunity and Risk Management Encourage everyone to identify potential opportunities and risks. Require that tailoring of procedures and templates be accompanied by risk assessment. Require and review opportunity and risk assessments throughout the contract management process. Require the planning and execution of approved risk mitigation and opportunity enhancement actions. Stay cognizant of the high risks and the progress toward mitigation. Executive Commitment to Contract Changes Management Define the changes management process that must be used on all contracts. Be an advocate of contract changes, as appropriate. Constructively challenge informal contract changes at your initial reviews with team members. Constructively challenge the effectiveness of the contract changes management at program reviews. Executive Participation in Contract Visibility Management Ensure that corporate information systems benefit the teams and provide Contract Managers with contract-level information necessary to manager their contracts. Share as much company information as possible. Eliminate barriers to sharing information. Create a method for exchange of lessons learned between contracts and programs. Executive Oversight of Contract Statusing Ensure that all contracts are properly planned. Ensure that you receive status on all contracts and related projects. Do not allow activity reports to substitute for status reports. Do not substitute paper optimism for intelligent, perceptive judgment. Verify that the reported status is consistent with contract results. Focus on corrective actions in status meetings. Ask how you can help in the corrective action process. Be sure that you are not a bottle-neck to required resources. Executive Development of Contract Management Ensure your managers have the correct corporate and contract management vision. Know your managers and their leadership styles. Provide training or counseling to correct deficiencies. Executive Support of Contract Corrective Action Publicize expectations that contracts be technically compliant, completed on time, as as much under budget as possible. Require 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. • Place a check in each box, which you consider yourself and/or your organization/company executives do well. • Count up the number of checked boxes you have on the 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 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 - Buyer’s and Seller’s steps Phase 1: Preaward 1. Procurement 2. Solicitation Buyer 3. Solicitation Planning Planning Make-or-buy decision 1. Presales 2. Bid/no-bid 3. Bid or Proposal Seller Activity Decision making Preparation Bid decision Phase 2: Award Phase 3: Postaward 6. Contract 4. Source 5. Contract Buyer Contract Award Closeout or Selection Administration Termination 4. Contract 6. Contract 5. Contract Seller Negotiation & Contract Award Closeout or Administration Formation Termination Reference Text, pg. 79 Contract Management Process: Preaward Phase Buyer’s steps 1. Procurement 2. Solicitation 3. Solicitation planning planning Procurement Planning Is the process of identifying which buyer needs can be best met by procuring products or services outside the organization Involves the buyer’s consideration of – Whether to procure (make-or-buy decision) How to procure (contracting method) What to procure (products and services needed) How much to procure (quantity desired) When to procure (delivery schedule) Procurement Planning (continued) Input Tools & Techniques Output • Scope statement • Make-or-buy analysis • Procurement • Product description • Expert judgment management plan • Procurement resources • Contract type selection • Statement of work • Market conditions • Opportunity and Risk • Other planning output Management Process • Constraints • Contract terms and conditions • Assumptions Reference Text Solicitation Planning • Involves preparing the documents needed to support the solicitation Input Tools & Techniques Output • Procurement • Standard forms • Procurement management plan • Expert judgment documents • Statement of work • Evaluation criteria • Other procurement • Statement of work planning output 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 Request for proposals (RFP) Request for tenders (RFT) Request for quotations (RFQ) Invitation for bids (IFB) Invitation to bid (ITB) Types of information-only solicitations Request for information (RFI) Request for information and qualifications (RFI&Q) Solicitation (continued) Input Tools & Techniques Output • Procurement • Bidder conferences • Solicitation that documents • Advertising leads to the • Qualified seller lists submission of bids or proposals Reference Text, pg. 88 Contract Management Process: Preaward Phase Seller’s steps 2. Bid/no-bid 3. Bid or 1. Presales decision proposal activity making preparation Presales Activity • Is the process of early involvement with potential buyers, understanding and influencing their needs, plans, and expectations Input Tools & Techniques Output • Customer • Proactive sales • Potential and existing Identification management customer lists • Determination of • Market research • Customer-focused customer needs • Competitive analysis sales plan • Evaluation of • Competitive analysis competitors 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 Tools & Techniques Output • Solicitation • Opportunity and • Bid/no-bid decision • Buyer-specific Risk Management • Justification document information process for bid/no-bid • Competitive analysis • Opportunity and Risk decision report Management (ORM) Model • Seller’s strategic objectives and plans Adapted from Reference Text, pg. 93 Bid or Proposal Preparation Input Tools & Techniques Output • Solicitation • Compliance matrix • Bid or proposal • Analysis of • Standard terms and • Supporting solicitation conditions documentation • Competitive analysis • Past proposals • Oral presentation report • Lessons-learned • Past proposals database • Executive summary Reference Text, pg. 95 Pre-Award Phase – Best Practices (Buyer) Best Practices Observed Extent of Application Decide what products, services, or Inconsistent solutions you need. (Use of off- the-shelf products or services) Conduct market research and Widespread benchmarking of industry practices Develop a solicitation that clearly Limited – but growing and concisely communicates your needs in terms of performance Use of risk management process Inconsistent Create Standard Terms and Widespread Conditions (Ts and Cs) Develop Qualified Seller’s Lists Widespread Use draft solicitations to obtain Widespread seller’s feedback Conduct Seller’s conferences to Inconsistent address solicitation concerns Adapted from Reference Text, pg. 97 Pre-Award Phase – Best Practices (Seller) Best Practices Observed Extent of Application Identify potential customers early Widespread Evaluate competitors and create a Inconsistent competitive analysis report Conduct proactive sales mgmt. Widespread Know & Influence customer needs Conduct market research and Widespread benchmarking of industry Develop customer-focused sales Inconsistent plans Apply an Opportunity and Risk Inconsistent Management process Develop and use a proposal lessons Limited learned database Provide oral presentations of Limited proposals Conduct proposal reviews before Widespread submission Develop and use a Proposal Inconsistent Requirements Compliance Matrix Adapted from Reference Text, pg. 97 - 98 Unit 6: The Award Phase & Best Practices Contract Management Process - Buyer’s and Seller’s steps Phase 1: Preaward 1. Procurement 2. Solicitation Buyer 3. Solicitation Planning Planning Make-or-buy decision 1. Presales 2. Bid/no-bid 3. Bid or Proposal Seller Activity Decision making Preparation Bid decision Phase 2: Award Phase 3: Postaward 6. Contract 4. Source 5. Contract Buyer Contract Award Closeout or Selection Administration Termination 4. Contract 6. Contract 5. Contract Seller Negotiation & Contract Award Closeout or Administration Formation Termination Reference Text, pg. 132 Contract Management Process: Award Phase – Source Selection Buyer’s 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 Tools & Techniques Output • Proposals • Contract negotiation • Contract • Evaluation criteria • Weighting system • Evaluation standards • Screening system • Organizational • Independent estimates policies Reference Text, pg. 133 Source Selection Process Process of comparison and decision Informational prerequisites Knowledge of required goods and services Knowledge of industry Knowledge of market practices Selection criteria elements Attributes of interest Standards Weights Contract Management Process: Award Phase – Contract Negotiation and Formation Seller’s 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 Tools & Techniques Output • Solicitation • Contract negotiation • Contract • Bid or proposal process or • Buyer’s source • Highly skilled • Walk away selection process negotiators • Seller’s past • Market and industry performance practices • Previous contracts • Legal review • Competitive analysis report 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: Internal Organization External: Buyers and subcontractors Question: How well do you negotiate? Negotiation Approaches Intuitive approach Nonstructured Informal – not written Inconsistent results Process approach Structured, planned Documented actions More 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—‖ Focusing on common interests not positions Use of joint problem solving Internally Externally The right solution is a matter of perspective – buyer or seller Buyer’s 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) Seller’s Negotiation Objectives (Interests) Profitability (long-term vs. short-term) Market share Satisfy needs of the customer The Contract Negotiation Process: The Risk Zone Three Phase 1: Prenegotiation Phase 2: Conducting Phase 3: Postnegotiation Contract Phases Planning Negotiations Actions Award Key 1. Prepare yourself and your team 1. Determine who has authority 1. Prepare negotiation minutes Steps or 2. Know the other party 2. Prepare the facilities 2. Send mintues ot the other party actions 3. Know the big picture 3. Use an agenda 3. Offer to write up the contract 4. Identify objectives 4. Introduce the team 4. Prepare the contract 5. Prioritze objectives 5. Set the right tone 5. Prepare negotiation results 6. Create options 6. Exchange information summary 7. Select fair standards 7. Focus on objectives 6. Obtain required reviews and 8. Examine alternatives 8. Use strategy, tactics, and approvals using CMS 9. Select your strategy, tactics, countertactics 7. Send contract to the other party and countertactics 9. Make counteroffers for signature 10. Develop a solid and approved 10. Document agreement or know 8. Provide copies of the contract team negotiation plan when to walk away to affected organizations 9. Document lessons learned 10. Prepare contract administration plan Adapted from Reference Text: pg. 145 Phase 1: Prenegotiation Planning (10-Step Process) Step 4 Step 1 Prepare Step 2 Step 3 Step 5 Identify yourself and your Know the Know the big Prioritize objectives team other party picture objectives (interests) Step 10 Step 9 Develop a Step 6 Step 7 Step 8 Select your solid and Create Select fair Examine strategy, approved team options standards alternatives tactics, and negotiation countertactics plan The Importance of Price Schedule Customer Technology Obligations (R&D) Type of Services contract Price Miscellaneous Ts and Cs Products Adapted from Reference Text: pg. 147 The Importance of Terms and Conditions Payments Inspection and And so on acceptance Delivery terms Financing Ts and Cs: Obligations Cost, Risk, Warranties and Value Spares Taxes Exchange rate Guarantees Indemnity and liability Adapted from Reference Text: pg. 148 Phase 2: Conducting Negotiations Step 1 Step 2 Step 3 Step 4 Step 5 Determine who Prepare the Use and Introduce the Set the right has authority facilities agenda team tone Step 7 Step 8 Step 10 Step 6 Step 9 Focus on Use strategy, Document Exchange Make objectives tactics, and agreement or information counteroffers (interests) countertactics walk away Tactics and Countertactics I (Buyer vs. Seller) Tactics Countertactics Attacks (hot buttons) Disclose the attack Personal insults Strike back Emotional reactions Give in Professional insults Break off Explore alternatives Tricks Know the truth False data Have the right data No authority to negotiate Establish in writing who has authority Escalate Adapted from Reference Text: pg. 149 Tactics and Countertactics II (Buyer vs. Seller) Tactics Countertactics Arbitrary deadlines 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 Countertactics Third-party scapegoat Escalate to third party Real approval required Compromise Pretend such approval is required Giveaways Disclose them as giveaways Exchange giveaways Tactics and Countertactics IV (Buyer vs. Seller) Tactics Countertactics Good guy – bad guy 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 Countertactics Delays Start on time Submission of data Claim limited availability Start of negotiation Leave or create greater delays Return from breaks Keep things on track Diversions Refocus team Questions No phones in room Telephone calls No interruptions Faxes Personal breaks Take a break Tactics and Countertactics VI (Buyer vs. Seller) Tactics Countertactics Stonewall Give in Take it or leave it! I shall not move! Say ―Yes, and...‖ Walk away Escalate End-of-quarter or end-of-year Settle in next quarter or next year negotiation pressure Factors in Selecting Contract Types Capability of seller’s accounting system Uncertainty in the cost estimate Type and complexity of the requirements Urgency of the requirement Marketplace and competition Seller’s technical capability Administrative costs to both parties Size and amount of the contract Contract Pricing (Incentives) – Best Practices (Buyer & Seller) Best Practices Observed Extent of Application Use performance – based incentives Inconsistent Develop clear, concise, and Inconsistent objectively measurable incentives Create a proper balance of incentives Inconsistent – cost, schedule, & quality Make incentives challenging yet Inconsistent attainable Use a combination of incentives Limited objectively and subjectively determined Consider using socio-economic Limited incentives Tie on-time delivery to cost and/or Limited quality performance criteria Avoid rewarding sellers for minimal Widespread performance Reference Text, Pgs. Use a combination of positive and Inconsistent 118-119 negative incentives Include incentives for early Widespread payments Ensure all incentives have limits Inconsistent Phase 3: Postnegotiation Actions Step 1 Step 2 Step 3 Step 5 Step 6 Step 4 Prepare Send minutes Offer to write Prepare Obtain required Prepare the negotiation to the other up the negotiation results reviews and contract minutes party contract summary approvals Step 7 Step 8 Step 10 Step 9 Contract Send contract Provide copies Prepare Contract Document Administration to the other of contract to contract closeout or lessons Contract party for affected administration termination learned Implementation signature organizations plan 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 Observed Extent of Application Select and train skilled negotiators to Inconsistent lead the contract negotiation process Select your negotiation strategy, Inconsistent tactics, and countertactics Use an agenda during contract Widespread negotiations Do not be too predictable in your Inconsistent tactics Adapted from Develop an approved negotiation Widespread Reference plan Text, pg. 155 Conduct mock negotiations Widespread Document your agreements Widespread throughout the process Understand everything affects price Inconsistent Tailor Ts & Cs to the deal Widespread Know what is negotiable and what is Widespread not Know when to walk away Inconsistent Exercise 4: Contract Negotiations Q&A 1. When does the negotiation begin? 2. Who is normally the chief negotiator? 3. 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. 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 - Buyer’s and Seller’s steps Phase 1: Preaward 1. Procurement 2. Solicitation Buyer 3. Solicitation Planning Planning Make-or-buy decision 1. Presales 2. Bid/no-bid 3. Bid or Proposal Seller Activity Decision making Preparation Bid decision Phase 2: Award Phase 3: Postaward 6. Contract 4. Source 5. Contract Buyer Contract Award Closeout or Selection Administration Termination 4. Contract 6. Contract 5. Contract Seller Negotiation & Contract Award Closeout or Administration Formation 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 Tools & Techniques Output • Contract • Contract analysis and • Documentation • Work results planning • Contract changes • Change requests • Preperformance • Payment conference • Completion of work • Invoices and payments • Performance measuring • Other tasks and reporting. Payment • Contract system Administration • Change control system policies • Dispute management system 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 didn’t have a chance to read the contract. I didn’t understand the contract. I thought the contract was wrong. That’s 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 Contrac t Requirem ent s 1.1 1.2 Technical Adm inistrativ e requirem ent s requirem ent s 1.1.1 1.2.1 Specifications Paym ent procedures 1.1.2 W ork statem ent 1.2.2 Change 1.1.3 m anagem ent Schedule 1.2.3 Disputes Setting Goals Discuss requirements with affected managers Determine Who What When Where How 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 Raw data Analyses Conclusions Combination 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 – Proof of performance Management of changes Proof of claims Evidence 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: Performance Schedule Cost Change Management Actions (continued) Modifications are inevitable Change provides an opportunity for additional sales Management objectives include – Control Customer Satisfaction Cost recovery Schedule adjustment Profit 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 – Are a normal part of contracting process Must not be allowed to disrupt performance Must be resolved promptly and dispassionately Resolution of Disputes Negotiation, compromise Arbitration Submission of dispute to disinterested person or persons for final decision Objective is final disposition in inexpensive, expeditious, and less formal manner A substitute for litigation Litigation Contract Management Process: Postaward Phase – Contract Closeout Buyer’s and seller’s steps Contract closeout involves both product verification and administrative closeout Input Tools & Techniques Output • Completion of work • Compliance verification • Product or service • Contract • Contract completion documentation documentation • Acceptance and final or • Contract closeout payment • Termination notice checklist • Contract closeout or • Termination termination documents • Documented lessons learned Reference Text, pg. 182 Sample Contract Closeout Checklist Sample Contract Closeout Checklist Yes N/A No 1. All products and/or services required have been provided to the buyer. 2. Documentation 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. 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 Observed Extent of Application Read and analyze the contract Widespread Develop a Contract Administration Limited Plan Assign a Contract Administration Inconsistent Manager Comply with Contract Ts and Cs Inconsistent Control contract changes via Inconsistent contract change process Resolve Claims & Disputes Widespread promptly Develop a Contract Work Widespread Breakdown Structure Manage the invoice and payments Widespread process Enforce Contract Ts and Cs Inconsistent Develop and Implement Contract Inconsistent Admin policies & guidelines Adapted from Reference Text: pgs. 188-189 Postaward Phase – Best Practices (Buyer & Seller) Best Practices Observed Extent of Application Provide copies of the contract to all Widespread affected organizations Maintain a conformed copy of the Inconsistent contract Document communications Inconsistent Prepare & distribute meeting Widespread minutes Clarify team members roles and Widespread responsibilities Provide leadership support Inconsistent throughout Prepare contract close-out checklists Widespread Document Lessons Learned Inconsistent Share Best Practices Widespread Reward Team Performance Inconsistent Adapted from Reference Text: pgs. 188-189 Exercise 5: The Postaward Phase – Q & A 1. What is the purpose of contract administration? 2. What are the main tasks of contract administration? 3. 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. How important is it to enforce the terms and conditions of your contracts? 6. 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 organization’s 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?