Outsourcing Contract Negotiations - Structure, Process & Tools

Structure, Process and Tools

A PMI WebinarJuly 2009

Ken NowlanChief Information Officer

BC Transmission Corporation1© Corium Consulting Services Ltd. 2009

PurposeTo give you an overview of processes, disciplines and tools with which you will be able to plan and manage the negotiation of a healthcare IT agreement

2© Corium Consulting Services Ltd. 2009

ScopeConsider a negotiation as a projectThe PMI Project Management Processes

InitiationPlanningExecutionMonitoring and ControllingCompletion

The “hard” skills


What You’ll LearnThe structure of a typical healthcare IT contract and how to use that structure to determine the structure of the teams responsible for negotiating your agreementThe logistics of the negotiations environmentHow to identify and document the key issues to negotiateThe lifecycle and process for managing negotiating issuesHow to understand and document your range of reasonable and acceptable negotiation outcomes How to develop a negotiating plan that will tell you what you will have to negotiate and when


What You Will Learn (continued)

How to ensure that the appropriate skills and knowledge are at the negotiating tables at the right timeHow to ensure that you and the other members of the negotiating teams are ready for each negotiation session and understand whatyou’ve agreed toHow to track outstanding issues and final agreements on individual issuesHow to ensure that your legal counsel, responsible for drafting the agreement, gets what you agreed toHow to ensure that the agreement is signed, and that all loose ends are tidied upA toolkit is available to assist you in negotiations planning and management


Structure Your Project (Negotiation)


Understand The OutcomeThe Contract Structure

The Master (Services) Agreement

Services Schedules

Non-Services Schedules

Appendices

“The Agreement”


The Master Services AgreementPurpose

To describe the overarching terms and conditions of the agreementUnlikely to change during the term of the agreement

Examples of ContentsObjectives, key strategic understanding, scopeStart date, term, extension, renewal, terminationDefinitionsOverview of the products and servicesOverview of warranties, service levels and SLAsIntellectual property matters

Contents (continued)Overview of the process for charges, invoicing, paymentsPrivacy and security overviewAudit and reportingProcess for making changes to the agreementDefault and terminationIndemnification and limit of liabilityDispute resolution mechanismForce majeureSubcontracts and subcontractor matters


Services SchedulesPurpose

To describe the terms and conditions, and respective responsibilities of the parties, for each of the individual services covered within the scope of the agreementMay be adjusted slightly during the term of the agreement

Examples of ContentsResponsibilities related to moves, adds, changes, deletes of desktop equipmentResponsibilities related to installation, configuration, updating and retirement of software

Contents (continued)Responsibilities relating to the installation, operation, updating and replacement/retirement of datacenter equipmentResponsibilities related to the specification, development, maintenance and support of softwareLicensing terms for packaged softwareResponsibilities relating to the operation of a client service deskResponsibilities relating to architecture, design and/or functional specification development


Non‐Service SchedulesPurpose

To describe in detail, aspects of the agreement which are related to, but not explicitly servicesMay change periodically throughout the term

Examples of ContentsDetailed ChargesOrganizational StructureApplication and Operating Software ListsService level metrics and valuesStandards to FollowFacility Locations

Contents (continued)Key PositionsForm of Change RequestsTermination FeesGovernanceForm of Certificate of InsuranceDetailed Privacy ObligationsReportingBrand PermissionsForm of Employee Non‐Disclosure AgreementsForm of the Invoice


AppendicesPurpose

To provide miscellaneous information relevant to the agreementUnlikely to change or be updated during the term of the agreementTypically not negotiated

Examples of ContentsList of statutory holidaysList of initial software licencesChange order forms

Contents (continued)List of hardware and configurations transferred to outsourcerList of initial software parameters or configurations


Negotiations GovernanceKey Roles

SponsorSteering Committee (Internal)Steering Committee (Joint)Chief NegotiatorMaster Negotiating TeamSchedules Negotiating TeamsLegal CounselScribe(s)Logistics and Administrative Support



Steering CommitteesInternal

Purpose – to guide the chief negotiator and the negotiation teamsMeetings – Weekly, or as necessaryMembership – Sponsor, key stakeholders, chief negotiatorChair ‐ Sponsor

JointPurpose – to guide the relationship being built through the negotiationsMeetings – Bi‐weekly, or as necessaryMembership – Vendor Executives, Sponsor, Chief Negotiators (ex‐officio)Chair ‐ Alternating


Key RolesSponsor

Will “own” the outcomeProvide resources into the negotiationsWill sign the agreementMay administer the agreement

Chief NegotiatorResponsible for making the “final”agreement on all terms and conditions on behalf of the Sponsor“Project Director”

Backup Chief NegotiatorTemporarily fills the role of Chief Negotiator

Legal CounselProvides legal advice to sponsor and all internal negotiating teamsDocuments (“papers”) the agreement

Logistics CoordinatorMakes arrangements for all facilities necessary to conduct negotiations

Scribe(s)Documents key aspects of the negotiations and the agreed terms

Schedule Coordinator“Project Scheduler/Controller for the negotiation of the Schedules

Due Diligence Team LeadCoordinates the activities of all due diligence activities


Governance – Master Team

PurposeTo negotiate the terms of the master agreementTo negotiate terms and conditions escalated from the Schedule orDue Diligence teams


Governance – Schedules Teams

PurposeTo document and negotiate the terms of one or more schedules


Governance – Due Diligence Teams

PurposeTo conduct pre‐negotiations due diligence to validate negotiating assumptionsTo conduct in‐negotiations research to provide information to negotiating teams


Getting Ready to Negotiate



OrientationFamiliarization with negotiations processEstablishment of negotiating approach, schedule development teams and negotiations support teamsDevelopment of timelineEstablishment of data repository for negotiating documentsBooking of negotiating, schedule development and break out meeting roomsAcquisition of audio‐visual equipmentDetermining detail negotiations scheduleInternal and joint kick‐off meetingsDevelop list of approvers of the terms and conditions


TrainingInterest‐based negotiations principles and techniques

Internal and proponent negotiation teamsInternal and proponent schedule development teamsInternal and proponent due diligence teamsInternal and proponent steering committeesPreferably as joint session or sessions

Document repositoryStructure and use of document repository for all teams

ScribeCompletion and maintenance of the negotiations log and schedule


Negotiations LogisticsNegotiating Days

<days of week><time>

Negotiation and Breakout Rooms1 common + 2 breakout7x24 hour access

Due Diligence & Schedule Development Rooms

1 common + 2 breakoutCoffee & meals

Provided, shared costWorking lunch (and dinner?)

DocumentationLog, Schedule, Decision LogUpdating cycle: dailyOwnership: ScribeRepository with security e.g. SharePointRemote access: i.e. web

CommunicationWith Internal & Joint Steering Committees

Regular scheduleWith Due Diligence teams

Via document repository Technical Support

Power for multiple notebooks, LCD projectors, electronic whiteboards, etc.Network access: multiple in each roomDedicated negotiations teleconference bridges (minimum 5)Conference phone in each room

Audio VisualElectronic whiteboard in negotiations roomsWhite boards in breakout roomsLCD projector & screen in negotiations roomsFlip charts in negotiations room


Due DiligenceValidate assumptions made during procurement processValidate assumptions made during PTR developmentGather information necessary to complete the development of PTRsRaise additional issues to be negotiated Delivers a due diligence report detailing findings




Initial Negotiation IssuesGather Issues

Gather and document potential issues in PTR documentSteering Committee – high priority, high profile issuesSolutions Workshops – outstanding issuesProposal/Final Presentation – non‐compliance or incomplete answersNegotiations Team – issues identified by team membersDue Diligence – issues uncovered during due diligenceEtc.

Develop InterestsIn PTR document, list interests for each issue


Developing PTRsDevelop PTRs (Preferred, Tolerable, Required)

In PTR document, for each issue develop scope of alternativesPreferred – your best outcomeTolerable – an outcome that you can live withRequired – an outcome that is the minimum acceptable, but still acceptable

Any less and the deal is not worth makingAlso called BATNA: Best Alternative To Negotiated Agreement

Determine key issues, trade‐off issues, etc.PTR document stored in confidential section of document repository, preferably also password protected (changed regularly)Gain approval from approvers list for individual itemsGain overall approval from Internal Steering Committee and Sponsor


Example of PTR Document# Issue Explanation Preferred Tolerable Required

1 Term The length of the contract, whether extension/renewal is possible

4 years: no renewal; go to RFP

2‐4 years; negotiable 1 year extension, then go to RFP

Minimum 2 years; maximum 4 years; go to RFP after 4 years

2 Governance –Escalation

How are contractual issues escalated and resolved

3 levels (to President level), then binding arbitration

3 or 4 levels (to President level), then binding arbitration; mediation acceptable

Minimum 2 levels plus binding arbitration

3 Termination –Transition Assistance Cost

At what cost is transition assistance provided on termination of the agreement

Up to 6 months of transition assistance at no cost, in all termination scenarios

Up to 3 months of transition assistance at no cost unless we terminate early for convenience

Termination assistance provided at no cost if we terminate for cause

Note: Highly Confidential – Internal Use Only29© Corium Consulting Services Ltd. 2009

Negotiating StrategyYour approach for achieving the best overall outcomePrepares the Internal Steering Committee and negotiating teams for various scenariosPotential Contents

Sequencing of the introduction of issuesE.g. Resolve issue A before starting negotiation of issue B

Trade‐offs between issuesE.g. Willing to achieve “required” on issue C if we achieve “preferred” on issue D

Identification of potential bottlenecks, escalations and approach for resolutionHow to deal with potential approaches of the proponent


Example of Negotiating Strategy# Name Description Strategy Rationale1 Technical

CurrencyRemove hardware technical currency requirement present in current contract

• Indicate that hardware technical currency clause can be removed

• Require concessions in other areas (e.g. pricing)

• As long as software technical currency is met, then in order to maintain service levels hardware technical currency is not an issue

2 Proponent Ownership Change

Because of the ownership change of Proponent, Proponent may be in breach of the existing contract provision and we can terminate current agreement

• Introduce to Proponent only if pricing discussions are seriously bogged down

• Indicate that we are prepared to declare breach and thereby increasing its financial obligation at (or before) termination (expiry) date

• Adds additional credibility to threat of moving and adds immediacy

• Note: may need to get legal opinion

3 RFI Generate RFI for preparation of RFP to change outsourcers

• Publish RFI for help in producing outsourcing RFP – to bolster credible threat that moving to new outsourcer is possible

• Should be issued just after Proponent informed that RFI will be issued (i.e. at same time that you indicate that you will begin negotiations)

• Beginning this process is good management

• Need high level transition plan that indicates that process must begin now in order to get to expiry in an orderly manner

• If negotiations for extension fall through, we need contingency plan



Exchange Issues and InterestsExchange list of issues and interests

Extract your issues from PTR document & transfer to negotiations logAdd proponent’s issues and interests to negotiations log

Rationalize issuesMeet jointly to clarify issues and interestsDetermine and eliminate duplicate issues

Finalize initial list of issues and interestsProduce initial “negotiations log”Give each issue a unique numberExpect to have 80‐100 initial issues, growing to 150‐200 through the negotiations

Finalize negotiations scheduleEstimate negotiations time for each issueEstablish negotiating daysEstablish initial negotiating date for each issue by loading issues into days


Example of Initial Issues Log# Ref. Date Issue Us Them Actions Agreement1 Current

contract clause # 4.11

10MAY07 Periodic Review of Agreement and Relationship

• Accommodate technical changes, especially those that reduce our costs

• Value for $• No windfall profits• Accommodate changes to

the business program• Review process that is

efficient and does not necessarily require procurement cycle

• Market competitive rates and services

• People: opportunities, satisfaction, job security

• Low public profile• Honor union agreements

• Possibility to extend if appropriate• Maintain financial measures, but

could modify model• Create additional value: do more

together• Fix what doesn’t work• Reassessment process to be cost

efficient• Ability to accommodate change• Expand without competitive process• Change service delivery model to

accommodate technology or process improvements

• Maintain the original intent of Proponent being prime contractor in an outsourced arrangement

• Ability to take advantage of synergies as the business plan is executed

2 10MAY07 Term • Long enough so that procurement costs aren’t overwhelming

• Long enough to recover startup costs

3 10MAY07 Governance -Escalation

• Enough levels to eliminate emotion from the issue

• Definitive end

• Rapid resolution• Parties should be encouraged to

negotiate resolution

Respective “interests”Date issue first entered into log

Reference to background info

Permanent, Common Issue #


Negotiating SchedulingWhy?

Ensure you have the correct resources at the table at the appropriate timeEnsure you the required information available at the appropriate time

ToolsCustom Excel spreadsheet with day loading (toolkit)MS Project


Estimate & Schedule IssuesFor each issue

Estimate the total length of time it will require (e.g. # hours) to reach agreement

Be conservative

Schedule the issue into a specific negotiating day


Item # Doc Ref Date/Agenda Item Date Originally Scheduled

Next Date Scheduled

Last Date Discussed

Discussed Open Items

% Complete

Initial Est.

(hours)

Actual (hours)

Remaining Est.

(hours)

Notes/Status

54None Term and Term extension

31-Aug-07 31-Aug-07 31-Aug-07 Y N 100% 2 1.5 0 Closed, with one open issue: ability to wind down of services during expiry; to be discussed with other items e.g. termination

6Proponent Issues & Interests list, item #3

Change order process 31-Aug-07 31-Aug-07 31-Aug-07 Y N 100% 2 2.5 0 Closed

24None New Features 31-Aug-07 31-Aug-07 31-Aug-07 Y N 100% 3 0.5 0 Closed40None Composition of

Proponent Team1-Sep-07 1-Sep-07 1-Sep-07 Y N 100% 1 0 0 Closed

8None Process to demonstrate end-customer and stakeholder value

2-Sep-07 7-Sep-07 7-Sep-07 Y N 100% 3 5 0 Closed; outstanding action to construct initial Balanced Scorecard; survey frequency; example SET/MET


Completed issues highlighted in green

Original estimate, actual time and estimate remaining to completion

Initial scheduled date, date last discussed or closed, date next discussion is scheduled

Issue # (from log)

Daily CapacityOverloaded days

Under loaded days


The Negotiating Cycle


Negotiating CyclePrepare for Negotiations

Assemble and review background and supporting data and information

Pre‐briefInternal team meets prior to each negotiating session to review issues, interests, PTRs and proposals for each scheduled issueCan be immediately before negotiating session or late afternoon on day before negotiating session

NegotiateExchange “proposals” on issues

May be exchanged prior to each session to enable each party to review proposals and prepare for negotiations

According to pre‐determined meeting scheduleDocument discussionDocument actions items and agreements 40© Corium Consulting Services Ltd. 2009

Negotiating Cycle (continued)Debrief

Internal team meets immediately following negotiating session toreview outcomes, review action items from negotiating session, develop internal action items, finalize proposals for upcoming issuesAlso debriefing of Internal Steering Committee on major issues

Research and action itemsAction items from negotiating session assigned and acted on by negotiating team, due diligence team, or schedule development team


Weekly Negotiations SchedulingAlternative A – 3 Days/Week

Alternative A – 3 Days/Week70% ‐ 100% time commitmentGood chance of meeting negotiating deadlineMay pressure compromises due to limited availability


Weekly Negotiating ScheduleAlternative B – 2 Days/Week

Alternative B – 2 Days/Week60% ‐ 70% time commitmentReduced chance of making negotiating deadlineIncreased negotiating compromises due to limited time commitment


Weekly Negotiating ScheduleAlternative C – 3 Consecutive Days

Alternative C – 3 Consecutive Days100% time commitmentVery good chance of making negotiating deadlineLong hours could tire team


Conducting the Negotiations


Negotiation AgendaTypical Negotiating Agenda

Review/adjust agenda for the dayIdentify negotiations log adjustmentsReview action items due for the dayNegotiate the scheduled issues

Document in the negotiations log

Reschedule incomplete issues for dayReview the schedule for next negotiating day

Posting of negotiations log and schedulePosted daily at end of negotiating day to shared section of document repository


Item Doc Ref Date Issue & Clarification Interests - Company Interests - Proponent Options Actions, Owners, Dates Agreemen

## Relevant document #1 name, section, page Relevant document #3 name, section, page

Date 1

Short Name for Issue • Question #1 • Question #2 • Question #3 • Sub-issue #1 • Sub-issue #2

• Company interest #1 • Company interest #2 • Company interest #3

• Proponent interest #1 • Proponent interest #2 • Proponent interest #3

• Initially identified option #1

• Initially identified option #2

• •

Date 2

• Additional question #4 • Additional question #5 • Additional sub-issue #3 • Additional sub-issue #4

• Company discussion point #1




• Proponent discussion point #1





• Additional option #3 • Action item #1 description (example of action still outstanding) – Date Assigned – Responsible

o Update #1-1 description – Date of update

o Update #1-2 description – date of update

• Action item #2 description (example of action completed) – Date Assigned – Responsible

o Update #2-1 description – Date of update

o Update #2-2 description – date of update

o Update #2-3 description – Date of update - COMPLETE

• Agreement point • Agreement point • Tentative agreem

#3 requiring follow• Agreement point • Tentative agreem

#5, requiring follo

Date 3

• • • • • • Final agreement o#3

• Final agreement o#5

• CLOSED

Open action items highlighted in yellow

Closed action items not highlighted and noted as COMPLETE

Tentative agreements highlighted in red

Completed issues noted as CLOSED

Agreements highlighted in green

Dates on which the issue was negotiated

Daily key discussion points


Regular ReportingReport regularly to the internal and to the Joint Steering Committees

Status of key issuesStatus of key agreementsStatus of key disagreementsStatus against desired outcomes (internal only)Status of relationshipsIssues which (may) require Steering Committee involvementStatus against negotiating plan


Example of Color‐coded PTR Document – Positive Outcomes# Issue Explanation Preferred Tolerable Required
















Example of Color‐coded PTR Document – Neutral Outcomes# Issue Explanation Preferred Tolerable Required
















Example of Color‐coded PTR Document – Poor Outcomes# Issue Explanation Preferred Tolerable Required

















# Issues not started

# Issues in progress

# Issues completed

Note increasing total issues

Total # of issues


# hours available in scheduled negotiating sessions

# hours required to complete incomplete issues

# hours spent completing issues

Note increasing time requirement and decreasing time availability

Due Diligence Support for Negotiations

Clarify due diligence report as required by negotiationsRespond to additional due diligence information requests from negotiations teamsPerform action items raised in negotiationsResponse will be time criticalResponses should be documented in document repository


Legal BoilerplateDevelop Master Services Agreement (MSA) structure

Complete initial table of contents, including schedulesIncluding standard language from your previous agreements for issues not to be negotiated

Develop Services and non‐Services schedule structureStandard structure for all Services schedulesStandard structure for all non‐Services schedulesComplete preliminary standard table of contents

Stored in shared section of document repository


Master DevelopmentFlesh‐Out The Master (Services) Agreement

From business agreement documented in the negotiations logClarified with negotiations teamsIterative process – several versions throughout negotiating periodOngoing language review by legal counselsPoints of disagreement between legal counsels raised as new negotiating issuesAll common drafts stored in shared section of document repositoryAll internal drafts stored in confidential section of document repository


Services Schedule DevelopmentDevelop Services Schedules

Schedules which describe the scope of the Services or functionality of softwareCompleted by schedule development teamConstant liaison with negotiations team to verify consistency with business agreementRequires ongoing legal or quasi‐legal review of structure and wording prior to finalization to ensure consistency and compliance with the overall business agreementMeetings schedule similar to master negotiating teamsDaily routine similar to master negotiating teamsNegotiations log similar to master negotiating teamProlonged disagreement by schedule development teams should cause issue to be raised to master negotiating tableAll document drafts stored in shared section of document repository


Non‐Services Schedule DevelopmentDevelop Non‐Services schedules

Schedules of lists, background information, one‐time activities, etc. supporting the description of but not directly describing the ServicesCompleted by schedule development teamInfrequent liaison with negotiations team necessaryUnlikely to require ongoing or detailed legal review of wording prior to finalizationCan usually be assigned to one party or the other with a final review by the other partyProlonged disagreement by schedule development teams unlikely but if it happens should cause issue to be raised to master negotiating tableAll drafts maintained in document repository


Final Legal ReviewReview MSA and Schedules for consistency

Definitions, cross‐references, consistency with business agreement, compliance with policy, compliance with legislation, etc.

Proponent final legal review with senior legal counselFinal legal review may generate additional “last minute” issues to negotiate


Wrapping Up and Cleaning Up


ApprovalsInternal approvals

Business agreement (from negotiations log)Draft agreement language

Master Services Agreement (MSA)Services SchedulesNon‐services Schedules

As per approvers listNext: Steering CommitteeFinally: Sponsor

Proponent approvalsWill parallel internal approvals


SignPrivate signing

Your signing authority (i.e. Sponsor) and proponent’s signing authorityLegal counselsLead negotiators

Public signingAlso attended by negotiating, schedule development and due diligence teamsIf desired, attended by the mediaPossibly attended by the public


Post‐ClosingList of activities/deliverables, committed to in the contract, to be completed soon after the contract is signedThese are deliverables and should be trackedExamples

Confirmation of letters of offer to your employeesAssignment of your subcontractor contracts to supplierDelivery of certificates of insuranceChange of employee pension plansReimbursement of pre‐paid expenses (e.g. employee vacation, pre‐paid leases, etc.)Acquisition of new vendor facilitiesEtc.


HR and LR ActivitiesNote – only required if staff transfers are involvedVoluntary departure programs and/or early retirement incentive plans

May be coincident with period for conditional offers of employmentMay be co‐terminus with period for conditional offers of employment

Staff Transfer ActivitiesOffers and acceptances

Labor Relations NegotiationsPension Plan Changes


CelebrationJointly celebrate the signingHold a scheduled event in the late afternoon or eveningInvite all team membersExchange meaningful tokens of the agreement between the partiesGive a memento to the key participants


Everything You Will Need


Negotiations ToolkitWhat Is It?

Microsoft Office document templates, samples, and guides to assist you to plan and manage an outsourcing negotiationDeveloped, refined and proven over dozens of small and large IT contract negotiations in several industries


Toolkit ContentsNegotiations Process Overview PresentationInterest‐Based Negotiations (IBN) Overview TrainingNegotiations Kick‐Off (Internal) PresentationDiagrams for Kick‐off PresentationsNegotiations Kick‐Off (Joint) PresentationNegotiations Roles and Responsibilities DescriptionsNegotiations Logistics ChecklistContract Structure and Table of Contents

Standard/Initial Issues ListIssues PTR/BATNA TemplateNegotiating Strategy TemplateNegotiations Log TemplateNegotiations Schedule TemplateNegotiations Proposal TemplateSteering Committee Status Report TemplateSample Closing and Post‐Closing AgendaKey Lessons LearnedAnd more…

© Corium Consulting Services Ltd. 2009 68

The One Page Webstore

http://www.onepagewebstore.com/onepagewebstore/Negotiations/onepagewebstore.asp

Or Google it: “One Page Webstore Negotiations Toolkit”


What You’ve Learned


RecapManage a negotiations like you would a projectEstablish a project team and governance structure earlyKnow your issues, your range of acceptable outcomes, and your negotiating strategyEstablish a schedule for each issue to ensure resources and information are available when neededHave the appropriate facilities and tools availablePrepare for each negotiating session and debrief afterwardsDocument key discussions, points of disagreement, points of agreement and action itemsDon’t forget the clean‐up and follow‐upCelebrate your success


Please feel free to contact meKen NowlanCorium Consulting Services Ltd.Phone: 604‐614‐7000Email: [email protected]: www.coriumconsulting.comToolkit:

http://www.onepagewebstore.com/onepagewebstore/Negotiations/onepagewebstore.asp


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