a new book by cch incorporated (2005) contract negotiations skills, tools, and best practices by:...
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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!
Contract Negotiations – A New Book by CCH INCORPORATED
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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.
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 9.
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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
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 10.
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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?
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 12.
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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?
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 12.
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Contract Negotiation CompetenciesContract Negotiation CompetenciesThe Skills to Win!The Skills to Win!
Contract Negotiations – A New Book by CCH INCORPORATED
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The Contract Negotiator’s Competencies Model
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 14.
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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
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 16.
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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
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 16.
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The Skills to Win: Self-Assessment Survey cont.
11. I recognize the power of strategies, tactics, and countertactics and use them frequently in contract negotiations.
1 2 3 4 5
12. I am able to achieve my desired financial results in contract negotiations.
1 2 3 4 5
13. I understand various cost estimating techniques, numerous pricing models, and how to apply each when negotiating financial arrangements.
1 2 3 4 5
14. I understand generally accepted accounting practices and how to apply them when negotiating deals.
1 2 3 4 5
15. I am highly computer literate, especially with electronic sales tools, and/or electronic procurement tools.
1 2 3 4 5Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs. 16-17.
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The Skills to Win: Self-Assessment Survey cont.
16. I am knowledgeable of e-marketplaces, vertical and horizontal trade exchanges, e-auctions, and how to use them to buy or sell products/services.
1 2 3 4 5
17. I understand the contract management process and have extensive education, experience, and professional training in contract management.
1 2 3 4 5
18. I have extensive education, experience, and training in contract law.
1 2 3 4 5
19. I have extensive education, experience, and training in our organization's products and services.
1 2 3 4 5
20. I am considered a technical expert in one or more areas.
1 2 3 4 5 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.
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10.
11.
12.
13.
14.
15.
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17.
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20.
Grand Total Score: _______________________________
The Skills to Win: Self-Assessment Survey cont.
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 17.
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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.
The Skills to Win: Self-Assessment Survey cont.
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 18.
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The Contract Negotiation Process
Contract Negotiations – A New Book by CCH INCORPORATED
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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)
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 55.
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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
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 55.
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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
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 56.
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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
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 61.
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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
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 85.
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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
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 86.
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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!!!