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

1 A New Book by CCH INCORPORATED (2005) Contract Negotiations Skills, Tools, and Best Practices By: Gregory A. Garrett, CPCM, PMP. An Interactive Adventure into the Art & Science of the Deal!

2 2 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

3 3 The New Performance-Based Buying & Selling Environment – The World We Live In! Contract Negotiations – A New Book by CCH INCORPORATED

4 4 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 Research Cross-Industry Benchmarking Summary (August 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 % 9.47% 12.50% 11.60% 5.88% 21.68% 2.21% 1.20% 2.98% 2.25% 12.84%

5 5 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 Regulation Supply Drivers Performance-Based Supply Environment 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). Technology Pros + New products and services + Wider range of products and services + More modular products and services + Reduced prices + Improved performance + Faster product introductions Cons - 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.

6 6 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 – Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 9.

7 7 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 Judgment6. Integrity/ethics 2.Decision making7. Education 3.Problem-solving 8. Interpersonal Relations 4.Negotiation skills9. Responsiveness 5.Customer service10. Communications Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 10.

8 8 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

9 9 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.

10 10 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.

11 11 Contract Negotiation Competencies The Skills to Win! Contract Negotiations – A New Book by CCH INCORPORATED

12 12 The Contract Negotiators Competencies Model Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 14.

13 13 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

14 14 The Skills to Win: Self-Assessment Survey 1.I am a person of high integrity I always act as a true business professional, especially in contract negotiations I ensure all of my business partners and team members act honestly, ethically, and legally, especially when involved in contract negotiations and contract formation I verbally communicate clearly and concisely I am an effective and persuasive contract negotiator Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 16.

15 15 The Skills to Win: Self-Assessment Survey cont. 6.My written communications are professional, timely, and appropriate I am an excellent team leader I consistently build high performance teams, which meet or exceed contract requirements I am willing to compromise when necessary to solve problems I confront the issues, not the person, in a problem-solving environment Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 16.

16 16 The Skills to Win: Self-Assessment Survey cont. 11.I recognize the power of strategies, tactics, and countertactics and use them frequently in contract negotiations I am able to achieve my desired financial results in contract negotiations I understand various cost estimating techniques, numerous pricing models, and how to apply each when negotiating financial arrangements I understand generally accepted accounting practices and how to apply them when negotiating deals I am highly computer literate, especially with electronic sales tools, and/or electronic procurement tools Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs

17 17 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 I understand the contract management process and have extensive education, experience, and professional training in contract management I have extensive education, experience, and training in contract law I have extensive education, experience, and training in our organization's products and services I am considered a technical expert in one or more areas Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 17.

18 18 Skills to Win - Self-Assessment Survey Worksheet Questions # Self-Assessment Score (1-5) Grand Total Score: _______________________________ The Skills to Win: Self-Assessment Survey cont. Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 17.

19 19 Skills to Win Self-Assessment Survey Scoring 90+: You have the knowledge and skills of a master contract negotiator : 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 : 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 : 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.

20 20 The Contract Negotiation Process Contract Negotiations – A New Book by CCH INCORPORATED

21 21 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

22 22 Buyers 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.

23 23 Sellers 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.

24 24 Contract Negotiations – Essential Elements Key Inputs Tools & Techniques Desired Outputs Solicitation (RFP, RFQ, etc.) Bid or Proposal Buyers 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 negotiations o Conduct negotiations o Document the negotiation and Form the Contract Contract or Walk away Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 56.

25 25 Contract Negotiation Process Plan the NegotiationConduct the NegotiationDocument 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, and countertactics 10.Develop a solid and approved team 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, and countertactics 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.

26 26 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.

27 27 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.

28 28 Checklist of Contract Negotiation Best Practices contd. (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 not Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 86.

29 29 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!!!


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