Best Contracting Practices For Business

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
+ New product and service providers + Wider range of products and services + More modular products and services + Improved price/performance + Accelerated pace of change
New Supply Environment
Technology
architecture Growth of Automated Sales Tools Use of Enterprise Resource Planning (ERP) Software Growth of e-procurement Software and Contract Management Enterprise Software
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 innovative deals and partnerships
Changing Buying & Selling Processes

Maximizing e-procurement Success
Procurement Today: Managed per Transaction Online product selection Requisition approval P.O. Transmission Payment authoirzation Analysis Search large catalogs One to 12 levels of manual approval Fax, e-mail, EDI direct to supplier; supplier retypes the order Dependent on three-way match of P.O. with invoice and receipts Sporadic; not linked to supplier 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
Trading Partners
Large OEMs
EXOSTAR
Lockheed Martin
Government Buyers
Airlines Tier 1 3 Suppliers Service Providers
Raytheon Rolls-Royce
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
DOD
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.
3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
Study sales data online to share insights easily

Shift knowledge workers into high level thinking Use digital tools to create virtual teams Convert every paper process to a digital process Use digital tools to eliminate single-task jobs Create digital feedback loop Use digital systems to route customer complaints immediately Use digital communication to redefine boundaries Transform every business process into just-in-time delivery Use digital delivery to eliminate middleman Use digital tools to help customers solve problems for themselves
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
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.
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.
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
Agree
Communicate
Surface explicit & Implicit

expectations Surface Assumptions
Compare Expectations to
reality Resolve Gaps
Meet with customer

Obtain agreement that expectations were met Identify gaps
Communicate differences
Re-set expectations Set realistic expectations Document acceptance criteria
Adapted from: Managing Expectations 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
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
Partnership Ingredients
Three Major Ingredients
Complementary Strength Common Customer-base Chemistry
Discuss Examples of Partnerships based upon each of the above.

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

Buyers and sellers steps
1. Procurement Planning
Make-or-buy decision
Phase 1: Preaward
2. Solicitation Planning 3. Solicitation
Buyer
Seller
1. Presales Activity
2. Bid/no-bid Decision making

Bid decision
3. Bid or Proposal Preparation
Phase 2: Award
Buyer 4. Source Selection
Phase 3: Postaward
5. Contract Administration 6. Contract Closeout or Termination
Contract
Award
Seller
4. Contract Negotiation & Formation
Contract
Award
5. Contract Administration
6. Contract Closeout or Termination

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%).

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

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

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 employees 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 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 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 (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
Create a clear vision, mission, and goals. Establish lines of authority whos 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 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

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 previous charts in this unit. Executive Assessment Excellent: Good: Average: Below Average: Poor: 45 to 50 39 to 44 34 to 39 28 to 33 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
2. Solicitation Planning
3. Solicitation
Seller

Bid decision
Phase 2: Award
Phase 3: Postaward
Contract
Award
Seller
Contract
Award
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 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
Product description Procurement resources Market conditions Other planning output Constraints Assumptions
Make-or-buy analysis Expert judgment Contract type selection Opportunity and Risk Management Process Contract terms and conditions
Procurement management plan Statement of work
Reference Text
Solicitation Planning
Involves preparing the documents needed to support the solicitation
Input Tools & Techniques Standard forms Expert judgment Output Procurement documents Evaluation criteria Statement of work updates
Procurement
management plan Statement of work Other procurement planning output
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 Bidder conferences Advertising
Output Solicitation that leads to the submission of bids or proposals
Procurement
documents Qualified seller lists
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 Tools & Techniques Proactive sales management Market research Competitive analysis Output Potential and existing customer lists Customer-focused sales plan Competitive analysis report
Customer
Identification Determination of customer needs Evaluation of competitors
Bid/No-Bid Decision Making

Is the process of evaluating risks vs. opportunities and making an informed and intelligent decision
Input 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
Solicitation
Buyer-specific information Competitive analysis report Sellers strategic objectives and plans
Adapted from Reference Text, pg. 93
Bid or Proposal Preparation
Input
Tools & Techniques Compliance matrix Standard terms and conditions Past proposals Lessons-learned database Executive summary
Output Bid or proposal Supporting documentation Oral presentation
Solicitation
Analysis of solicitation Competitive analysis report Past proposals
Pre-Award Phase Best Practices (Buyer)

Best Practices
Decide what products, services, or solutions you need. (Use of offthe-shelf products or services) Conduct market research and 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
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
Adapted from Reference Text, pg. 97 - 98
Observed
Extent of Application Widespread Inconsistent Widespread Widespread Inconsistent Inconsistent Limited Limited Widespread Inconsistent
Unit 6: The Award Phase & Best Practices

Phase 1: Preaward
3. Solicitation
Seller

Bid decision
Phase 2: Award
Phase 3: Postaward
Contract
Award
Seller
Contract
Award
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
Tools & Techniques Contract negotiation Weighting system Screening system Independent estimates
Output Contract
Proposals
Evaluation criteria Evaluation standards Organizational policies
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
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
Tools & Techniques
Output
Solicitation
Bid or proposal Buyers source selection process Sellers past performance Previous contracts Competitive analysis report
Contract negotiation process Highly skilled negotiators Market and industry practices Legal review
Contract or Walk away
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
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 Phases
Key Steps or actions
Phase 1: Prenegotiation Planning

1. Prepare yourself and your team 2. Know the other party 3. Know the big picture 4. Identify objectives 5. Prioritze objectives 6. Create options 7. Select fair standards 8. Examine alternatives 9. Select your strategy, tactics, and countertactics 10. Develop a solid and approved team negotiation plan
Phase 2: Conducting Negotiations

1. Determine who has authority 2. Prepare the facilities 3. Use an agenda 4. Introduce the team 5. Set the right tone 6. Exchange information 7. Focus on objectives 8. Use strategy, tactics, and countertactics 9. Make counteroffers 10. Document agreement or know when to walk away
Phase 3: Postnegotiation Actions

1. Prepare negotiation minutes 2. Send mintues ot the other party 3. Offer to write up the contract 4. Prepare the contract 5. Prepare negotiation results summary 6. Obtain required reviews and approvals using CMS 7. Send contract to the other party for signature 8. Provide copies of the contract to affected organizations 9. Document lessons learned 10. Prepare contract administration plan
Contract Award
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
The Importance of Terms and Conditions

Payments Inspection and acceptance
And so on
Delivery terms
Financing
Obligations
Ts and Cs: Cost, Risk, and Value
Warranties
Spares Taxes
Exchange rate
Indemnity and liability
Guarantees
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
False data No authority to negotiate
Know the truth

Have the right data Establish in writing who has authority
Escalate
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
Submission of data Start of negotiation Return from breaks
Countertactics
Start on time Claim limited availability Leave or create greater delays
Diversions
Questions Telephone calls Faxes Personal breaks
Keep things on track

Refocus team No phones in room No interruptions
Take a break
Tactics and Countertactics VI (Buyer vs. Seller)
Tactics
Stonewall
Take it or leave it! I shall not move!
Countertactics
Give in Say Yes, and...
Walk away
Escalate End-of-quarter or end-of-year negotiation pressure Settle in next quarter or next year
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
Reference Text, Pgs. 118-119
Observed
Extent of Application Inconsistent Inconsistent Inconsistent Inconsistent Limited
Limited Limited Widespread Inconsistent Widespread
Use a combination of positive and negative incentives Include incentives for early payments
Ensure all incentives have limits
Inconsistent
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
Observed
Extent of Application Inconsistent Inconsistent Widespread Inconsistent Widespread Widespread Widespread Inconsistent Widespread Widespread Inconsistent
Develop an approved negotiation plan 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.
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

Phase 1: Preaward
3. Solicitation
Seller

Bid decision
Phase 2: Award
Phase 3: Postaward
Contract
Award
Seller
Contract
Award
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.
Contract Management Process: Postaward Phase Contract Administration
Input
Tools & Techniques
Output
Contract
Work results Change requests Invoices and payments Other tasks Contract Administration policies
Contract analysis and planning Preperformance conference Performance measuring and reporting. Payment system Change control system Dispute management system
Documentation Contract changes Payment Completion of work
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 Contract Requirem ent s
1.1 Technical requirem ent s
1.2 Adm inistrativ e requirem ent s
1.1.1 Specifications
1.2.1 Paym ent procedures 1.2.2 Change m anagem ent 1.2.3 Disputes
1.1.2 W ork statem ent 1.1.3 Schedule
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
Buyers and sellers steps Contract closeout involves both product verification and administrative closeout
Input 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
Completion of work
Contract documentation or Termination notice
Sample Contract Closeout Checklist
Sample Contract Closeout Checklist Yes

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.
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 Observed Extent of Application Widespread Limited Inconsistent Inconsistent Inconsistent Widespread Widespread Widespread Inconsistent
Develop and Implement Contract Admin policies & guidelines
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 Maintain a conformed copy of the contract Document communications Observed Extent of Application Widespread Inconsistent Inconsistent
Prepare & distribute meeting minutes

Clarify team members roles and responsibilities Provide leadership support throughout
Widespread
Widespread Inconsistent
Prepare contract close-out checklists

Document Lessons Learned Share Best Practices Reward Team Performance
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. 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 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?

Best Contracting Practices For Business

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Best Contracting Practices for Business

Building Successful Partnerships Four Common Actions

What Are Winning Organizations Doing?

Developing an Integrated Supply Chain

New Supply Environment The World We Live In

New Supply Environment

Increased Range of Services and Product Choices for End Users

Unleashing Buying & Selling Power

Changing Buying & Selling Processes

Reference Text, pg. 5

Developing an Integrated Supply Chain

Trade Exchange Example: Exostar

Boeings Forum Pass Virtual Collaborative Workspace

Design MFG Virtual Mtgs.

Design PM MFG Contracts Virtual Mtgs. ACCTG

Example: Boeing ForumPass

ForumPass Key Capabilities

Document and Data Management

Security and access control

Goal: Establish a Common Collaboration Workspace

Shared Workspace Firewall Supplier B

Study sales data online to share insights easily

Reference Text, pg. 7

Qwest: Best Practices with V-Source e-tool

Reference Text, pg. 9

Exercise 1 Building Successful Partnerships

Building Successful Partnerships in the e-Business Age Summary

Unit 2: Building Trust: Managing Expectations and Honoring Commitments

Understanding How to Manage Expectations

Meet or Exceed Expectations

Surface explicit & Implicit

Meet with customer

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

Reference Text, pg. 13

Honoring Commitments: Lessons Learned

Develop Risk Management Plan

Honoring Commitments: Lessons Learned

Demonstrate passion to honoring commitments

Celebrate joint successes

Reference Text, pg. 14

Three Major Ingredients

Complementary Strength Common Customer-base Chemistry

Discuss Examples of Partnerships based upon each of the above.

Successful Partnerships Key Definitions

The Successful Partnership Pyramid

Building Trust Four Common Actions

Managing Expectations and Honoring Commitments

Reference Text, pg. 16

Exercise 2: Building Trust Q&A

Unit 3: Government Contracting and Commercial Contracting Similarities

Contract Management What Is It?

Document: Written manifestation of an agreement between parties

Sources of business: For sellers

Sources of goods and services: For buyers

Contract Managements Four Ps

Contract Management Process

2. Bid/no-bid Decision making

3. Bid or Proposal Preparation

4. Contract Negotiation & Formation

6. Contract Closeout or Termination

Government (Public) Contracting and Commercial (Private) Contracting

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