Contract Negotiation NCMA Cape Canaveral Chapter Winter Education Conference February 23, 2007...

Contract Negotiation

NCMA Cape Canaveral ChapterWinter Education Conference

February 23, 2007

Steven R. Boshears, CFCM, CPCM, FellowChief Knowledge Officer

National Contract Management Association

Many People Fear Negotiating Contracts

So, why is it many people fear negotiating contracts? The most typical responses include:

• It’s too hostile and intimidating!

• I like to avoid conflict!

• I do not know enough about contracts!

• I do not know enough about the legal and/or technical aspects!

• I am not articulate enough!

• I do not want to develop a new challenging skill!

Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 53.

Contract Negotiation Competencies

Mark H. McCormack, best-selling author of “What They Don’t Teach You at Harvard Business School,” has stated the perfect negotiator should have:

• Faultless people sense

• A strong competitive streak

• A view of the big picture

• An eye for the crucial detail

• Unimpeachable integrity


The Contract Negotiator’s Competencies Model


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

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

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

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


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



11. I recognize the power of strategies, tactics, and counter tactics 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, Inc. (2005), pgs. 16-17.


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, Inc. (2005), pg. 17.

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 Contract Negotiator’s Competencies Model


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 counter tactics 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


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


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)


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


Checklist of Typical Contract Negotiation Issues

Buyer Issues Seller Issues Aggressive delivery schedule Quality

Products Services

Quantity Approval of subcontractors Getting what we want Acceptance Maintenance Training Warranties Choice of law Changes Forum for disputes Payment

Reputation of seller Past experience Past performance

• Realistic delivery schedule • Quality

Products Services

Quantity Management of subcontractors Buyer micromanagement Acceptance criteria Cost, timing Value-added services Risk, cost, value Desired: choice of law Change management process Disputes process Method of payment

Progress payments Advance payments Cost reimbursement

Reputation in the industry and with the buyer


Importance of Price

Price

ScheduleTechnology

(research and development)

Services

Ts and Cs

Products

CustomerObligations

Contracttype

Miscellaneouscontractingelements


Importance of Ts and Cs

Ts and Cs:Cost, Risk,and Value

PaymentsInspection andacceptance

Financing

Warranties

Taxes

GuaranteesIndemnityand liability

Exchange rate

Spares

Partsavailability

Deliveryterms

MiscellaneousTs and Cs


Negotiation Zone

HIGH LOW

(Seller's C Price Range)

LOW HIGH

(Buyer's Price Range)

LOW

LOW HIGH

(Seller's B Price Range)

HIGH

(Seller's A Price Range)


Getting to YES –Negotiating Agreement Without Giving In

PRINCIPLED NEGOTIATIONS

• Principle 1 – Separate the PEOPLE from the problem

• Principle 2 – Focus on mutual INTERESTS, not separate positions

• Principle 3 – Generate a variety of OPTIONS before deciding what to do

• Principle 4 – Insist that the result be based on some objective CRITERIA

Reference: “Getting to YES – Negotiating Agreement Without Giving In”, Roger Fisherand William Ury, Harvard Negotiation Project, Penguin Press, c. 1981

Separate the PEOPLE from the problem

• Every negotiator has an interest in the substance and the relationship– Positional bargaining puts these in conflict– Separate them and deal directly with the

people problem

• Accurate Perceptions• Clear Communications• Appropriate Emotions• Purposeful, Positive Outlook

Focus on mutual INTERESTS, not separate positions

• Reconcile Interests, not Positions• Behind opposed positions lie compatible as well

as conflicting interests• First must identify interests

– Ask what, who, why, when, how?– Listen actively and with empathy

• Basic human needs are the most powerful interests

• Be hard on the problem and soft on the people

Generate a variety of OPTIONS before deciding what to do

• Invent options for mutual gain

• Barriers –– Premature judgments– Searching for a single answer– Assumption of a fixed pie– Thinking “solving their problem is their

problem”

• Make their decision easy

Insist that the result be based on some objective CRITERIA

• Decision based on force of will are costly• Acceptable criteria =

– fair standards (average of Kelly, NADA values)

– fair procedures (one cuts, the other chooses)

• Frame each issue as a joint search for objective criteria

• Reason, be open to reason, yield to reason (but never to pressure)

Best Practices to Improve Negotiation Results

BestPractices

Commit to a contract management professional development program

Establish a list of prequalified suppliers

Take advantage of electronic commerce or electronic data interchange

Use corporate credit cards

Adopt value-based pricing when sensible

Use universal sales agreements

Conduct risk versus opportunity assessment


Best Practices to Improve Negotiation Results

BestPractices Simplify standard contract terms and conditions

Permit oral presentation of proposals

Employ high skilled contract negotiators

Conduct mock contract negotiations

Adopt a uniform solicitation, proposal, and contract format

Develop and maintain a negotiation best-practices and lessons-learned database

Use a contract management and negotiation methodology.


Questions?Comments?

THANK YOU!

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