A New Book by CCH INCORPORATED (2005) Contract Negotiations Skills, Tools, and Best Practices By: Gregory A. Garrett, CPCM, PMP. An Interactive Adventure.

A New Book by CCH INCORPORATED (2005)

Contract NegotiationsContract Negotiations“Skills, Tools, and Best Practices”“Skills, Tools, and Best Practices”

By: Gregory A. Garrett, CPCM, PMP

.

An Interactive Adventureinto the Art & Science of the Deal!

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Contract Negotiations – A New Book by CCH INCORPORATED

Key Topics of Discussion:

The New Performance-Based Buying and Selling Environment – The World We Live In! * Q&A - Exercise

Contract Negotiation Competencies – The Skills to Win * Self-Assessment Survey

The Contract Negotiation Process * Buyer & Seller – Best Practices

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The New Performance-BasedThe New Performance-BasedBuying & Selling Environment – Buying & Selling Environment –

The World We Live In!The World We Live In!


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Cross-Industry Benchmarking Studies

* From: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED 2005, pg. 2 (Center for Advanced Purchasing Studies (CAPS) Cross-Industry Benchmarking Report 2003)

CAPS ResearchCross-Industry Benchmarking Summary(August 2002 - November 2003 Reports)

Findings/Descriptions• Outsourcing spend as a percent of Sales $• Active Suppliers that Account for 80% of the Purchase $• Active Suppliers that are e-Enabled• Purchase Spend – EDI• Purchase Spend - B2B e-Commerce• Purchase Spend - Strategic Alliances• Purchase Spend - e-Auctions• Purchase Spend - Procurement Cards• Purchase Spend - Minority Owned Business• Purchase Spend - Women Owned Business• Purchase Spend - Other Small Business

Avg.

40.39%

9.47% 12.50%

11.60%

5.88%

21.68%

2.21%

1.20%

2.98%

2.25%

12.84%

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• U.S. Govt. increased use of commercial buying practices

• U.S. Govt. increased use of Past Performance as a major factor in Best Value source selection process

• Increased competition

• Increased enforcement of procurement ethics

Reg

ula

tion

Supply DriversPerformance-Based

SupplyEnvironment

• Growth of Internet architecture

• Continued Growth of Voice/Data/Video wireless communications

• Use of e-Marketplaces

• Growth of Enterprise Applications for e-procurement, automated sales tools, and Customer Relationship Management (CRM).

Tec

hn

olog

y

Pros

+ New products and services

+ Wider range of products and services

+ More modular products and services

+ Reduced prices

+ Improved performance

+ Faster product introductionsCons- More complexity

- Higher cost of integration

- Less reliability

- Accelerated pace of change

- Rapid Obsolescence

- Less personal contact

The World We Live In

Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 7.

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NCMA, CMI, and ISM Studies (2000 – 2003)

Show Need for Negotiation Skills

The NCMA, ISM, and CMI Year 2000 surveys showed for every 100 surveyed contract management/purchasing professionals, concerning their roles:

• 90 indicate “more time sensitive”

• 85 indicate “more responsibility”

• 85 indicate “more team-oriented”

• 85 indicate “more strategic”

• 80 indicate “more use of performance-based metrics”

* Contract Management studies conducted by the National Contract Management Association (NCMA), The Institute for Supply Management (ISM), and the Contract Management Institute (CMI), 2000 – 2003.


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CMI Year 2001 Study - Results

"Which metrics do you believe your organization will use in the next 3 to 5 years to evaluate personnel performance?"

The respondents Top 10 choices:

1. Business Judgment 6. Integrity/ethics

2. Decision making 7. Education

3. Problem-solving 8. Interpersonal Relations

4. Negotiation skills 9. Responsiveness

5. Customer service 10. Communications


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Contract Negotiation Skills Gap

Key Facts

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

• Significant increase in the complexity of contracts and related projects ***

** Survey by Garrett Consulting Services, 2003

*** Center for Business Practices (CBP) study, 2002

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Exercise – Q & A

1. How much money (%) does your organization spend via e-marketplaces, procurement cards, e-auctions, and e-catalogs?

2. Is your organization using performance-based contracts with your customers and/or suppliers?

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


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Exercise – Q & A

4. How well do you negotiate?

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


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Contract Negotiation CompetenciesContract Negotiation CompetenciesThe Skills to Win!The Skills to Win!


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The Contract Negotiator’s Competencies Model


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Skills to Win: Self-Assessment Survey

• Complete the 20 question – Skills to Win: Self-Assessment Survey (1 = Low Skills to 5 = High Skills)

• Summarize and add-up your score on the survey worksheet (pg. 3)

• Compare your result to the Self-Assessment Survey Scoring table

Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs. 15-16.

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The Skills to Win: Self-Assessment Survey

1. I am a person of high integrity.

1 2 3 4 5

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

1 2 3 4 5

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

1 2 3 4 5

4. I verbally communicate clearly and concisely.

1 2 3 4 5

5. I am an effective and persuasive contract negotiator.

1 2 3 4 5


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The Skills to Win: Self-Assessment Survey cont.

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

1 2 3 4 5

7. I am an excellent team leader.

1 2 3 4 5

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

1 2 3 4 5

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

1 2 3 4 5

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

1 2 3 4 5


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11. I recognize the power of strategies, tactics, and countertactics and use them frequently in contract negotiations.

1 2 3 4 5

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

1 2 3 4 5

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

1 2 3 4 5

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

1 2 3 4 5

15. I am highly computer literate, especially with electronic sales tools, and/or electronic procurement tools.

1 2 3 4 5Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs. 16-17.

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16. I am knowledgeable of e-marketplaces, vertical and horizontal trade exchanges, e-auctions, and how to use them to buy or sell products/services.

1 2 3 4 5

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

1 2 3 4 5

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

1 2 3 4 5

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

1 2 3 4 5

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

1 2 3 4 5 Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 17.

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Skills to Win - Self-Assessment Survey Worksheet

Questions # Self-Assessment Score (1-5)

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

Grand Total Score: _______________________________



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Skills to WinSelf-Assessment Survey

Scoring

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

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

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

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



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The Contract Negotiation Process


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Contract Negotiations – A Complex Human Activity

Successful contract negotiator must:

• Master the art and science, or soft and hard skills, required to become a master negotiator

• Possess the intellectual ability to comprehend factors shaping and characterizing the negotiation.

• Be able to adapt strategies, tactics, and countertactics in a dynamic environment

• Understand their own personalities and personal ethics and values

• Know their products and services, desired terms and conditions, and pricing strategy

• Be able to lead a diverse multi-functional team to achieve a successful outcome

Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs. 53-54.

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Buyer’s Contract Negotiation Objectives

• Acquire necessary supplies, services, and/or solutions 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)


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Seller’s Contract Negotiation Objectives

• Grow profitable revenue (long-term vs. short-term)

• Increase market share within their respective industry

• Deliver quality supplies, services, and/or solutions – achieve customer loyalty


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Contract Negotiations – Essential Elements

Key Inputs Tools & Techniques Desired Outputs

Solicitation (RFP,RFQ, etc.)

Bid or Proposal Buyer’s source

selection process Seller's past

performance Previous contracts Competitor Profile

Business Ethics/ Standards of Conduct Guidelines

Market and Industry practices

Oral presentations Highly skilled contract negotiators Legal Review Business Case Approval Contract Negotiation Formation Process

o Plan negotiationso Conduct negotiationso Document the negotiation and Form the Contract

Contract or Walk away


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Contract Negotiation Process

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

1. Prepare yourself and your team

2. Know the other party

3. Know the big picture

4. Identify objectives

5. Prioritize objectives

6. Create options

7. Select fair standards

8. Examine alternatives

9. Select your strategy, tactics, andcountertactics

10. Develop a solid and approvedteam negotiation plan

11. Determine who has authority

12. Prepare the facility

13. Use an agenda

14. Introduce the team

15. Set the right tone

16. Exchange information

17. Focus on objectives

18. Use strategy, tactics, andcountertactics

19. Make counteroffers

20. Document the agreement or know when to walk away

21. Prepare the negotiation memorandum

22. Send the memorandum to the other party

23. Offer to write the contract

24. Prepare the contract

25. Prepare negotiation results summary

26. Obtain required reviews and approvals

27. Send the contracts to the other party for signature

28. Provide copies of the contract to affected organizations

29. Document lessons learned

30. Prepare the contract administration plan


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Checklist of Buyer – Contract Negotiation Best Practices

(The Buyer Should: )

Know what you want – lowest price or best value

State your requirements in performance terms and evaluate accordingly

Conduct market research about potential sources before selection

Evaluate potential sources promptly and dispassionately

Follow the evaluation criteria stated in the solicitation: management, technical, and price

Use absolute, minimum, or relative evaluation standards to measure performance as stated in your solicitation

Develop organizational policies to guide and facilitate the source selection process

Use a weighting system to determine which evaluation criteria are most important

Use a screening system to prequalify sources

Obtain independent estimates from consultants or outside experts to assist in source selection

Use past performance as a key aspect of source selection, and verify data accuracy

Conduct price realism analysis

Create a competitive analysis report

Use oral presentations or proposals by sellers to improve and expedite the source selection process


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Checklist of Contract Negotiation Best Practices

(The Buyer and Seller Should: ) Understand that contract negotiation is a process, usually involving a team effort

Select and train highly skilled negotiators to lead the contract negotiation process

Know market and industry practices

Prepare yourself and your team

Know the other party

Know the big picture

Identify and prioritize objectives

Create options – be flexible in your planning

Examine alternatives

Select your negotiation strategy, tactics, and countertactics

Develop a solid and approved team negotiation plan

Determine who has the authority to negotiate

Prepare the negotiation facility at your location or at a neutral site

Use an agenda during contract negotiation


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Checklist of Contract Negotiation Best Practices cont’d.

(The Buyer and Seller Should: ) Set the right tone at the start of the negotiation

Maintain your focus on your objectives

Use interim summaries to keep on track

Do not be too predictable in your tactics

Document your agreement throughout the process

Know when to walk away

Offer to write the contract

Prepare a negotiation results summary

Obtain required reviews and approvals

Provide copies of the contract to all affected parties

Document negotiation lessons learned and best practices

Prepare a transition plan for contract administration

Understand that everything affects price

Understand the Ts and Cs have cost, risk, and value

Tailor Ts and Cs to the deal, but understand the financial effects on price and profitability

Know what is negotiable and what is notReference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 86.

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Contract Negotiations – Skills, Tools, & Best Practices

* This presentation is a brief highlight of the 350+ page book, which contains:

200+ Best Practices in Contract Negotiations

50+ Tactics & Countertactics used in Contract Negotiations

25+ Forms/Templates for planning, conducting, and documenting contract negotiations

10 Successful Strategies for planning contract negotiations

Much, Much, More!!!

A New Book by CCH INCORPORATED (2005) Contract Negotiations Skills, Tools, and Best Practices By: Gregory A. Garrett, CPCM, PMP. An Interactive Adventure.

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