South West Employers

South West Employers

Contract Writing & Supplier Relationship Management

Trainer: Date:

Activity 1 - Icebreaker

Is a middle child

(1 point)

Likes to eat Japanese food

(1 point)

Is wearing pink

(1 point)

Plays a team sport

(1 point)

Speaks another language

(1 point)

Wears glasses

(1 point)

Is over 6’ tall

(1 point)

Has less than four letters in his/her

first name

(1 point)

Has a last name that starts with a W

(1 point)

Has green eyes

(1 point)

Owns a Vauxhall car

(2 points)

Likes classical music

(2 points)

Preferred Maths to English in school

(2 points)

Knows someone famous

(2 points)

Has red hair

(2 points)

Has more than 2 children

(3 points)

Has made a parachute jump

(3 points)

Has visited more than 10 countries

(3 points)

Has more than 7 letters in his/her

first name.

(3 points)

Has a birthday in the same month as me

(3 points)

One unusual fact I have found out about someone here is? ____________________________ (5 points)

How many points do you have? _______

Activity 2 - Groundrules

Groundrules help to create a positive and safe learning environment. Discuss and agree a list of between 3 and 5 rules that all participants are comfortable with

Objectives

At the end of the session, participants will have knowledge and an understanding of:

Review of the main principles of contract drafting & contract evaluation:

Formation of contracts and the role of tendering

Key terms

Evaluating & finalising terms and conditions

Tools and techniques

Buyer positioning

Supplier positioning

SMR account plans and review meetings

Sections

1. Formation of contracts and tendering

2. Terms, management and termination

3. Theory, tools and techniques

4. Account plans and conflict resolution

The procurement cycle

Planning

Enquiry

Implement

Define & review need


Develop specification


Determine procurement strategy


InviteInvite

Pre-qualify suppliers


Issue RFQ or ITT

Issue RFQ or ITT

Evaluate tenders

Evaluate tenders

Negotiate?Negotiate?

Contract award

Contract award

Manage implementation and transition


Manage contract performance


Exit & termination

Exit & termination

What is a contract?

“…a legal agreement to exchange value between two (or more) parties’’

Offer

Acceptance

Consideration

Intention to create legal relations

Capacity

Agreement

Offer v Invitation to Treat

Offer:

Provides details of the offer

Offerer indicates willingness to enter into a legal binding agreement

Must be communicated

If not communicated, then incapable of being accepted

Invitation to treat:

Invites offers but does not express willingness to enter into a legally binding agreement

Provides information only – not an offer in itself

Example: catalogue price list

Termination of an offer

Rejection

Acceptance

Counter-offer

Revocation

Time (lapsed)

Acceptance

Unconditional acceptance leads to agreement

Acceptance should be communicated to the offerer (preferably in writing)

If posted, acceptance is taken from the point of posting (the ‘postal rule’) otherwise when received

Watch out for acceptance by performance

Consideration

There is no contract if one party promises to do something but the other party promises nothing in return – no “deal” has been struck

Consideration is something of value (in the eyes of the law) that is given or accepted in return for a promise

Consideration must be sufficient but not necessarily adequate – the law is not concerned with how “good a deal has been done”

Intention

Both parties must intend to enter a legally binding contract:

In social/domestic agreements the law presumes no intention to create a legal relationship unless there is evidence

In business/commercial agreements presumption is that the parties intended to create a legal relationship

Battle of forms

Occurs when both parties to a contract try to ensure their respective standard terms and conditions will govern that contract

In a battle of forms situation acceptance often takes place when the purchaser accepts the goods

Activity 3 – Contract Law

Split into small groups

Read through each of the 4 scenarios and agree your answers to the questions

Feedback your answers to the wider group and discuss your findings

The procurement cycle

Planning

Enquiry

Implement







InviteInvite



Issue RFQ or ITT

Issue RFQ or ITT

Evaluate tenders

Evaluate tenders

Negotiate?Negotiate?

Contract award

Contract award





Exit & termination

Exit & termination

Agreeing contract terms

Evaluating and agreeing contract terms can be time-consuming and costly

A negotiation on terms will invariably lead to a compromise that is suboptimal for you as the contracting authority

Where you can: avoid

Good tendering practice helps to reduce the degree of negotiation

Negotiating contracts It is usually better to get your terms in first

Put Terms & Conditions into your ITT/RFQ

The other party is already in the position of having to negotiate towards their terms

However be careful if you do not have the expertise, ensure that your T&Cs are right for you

For complex contracts get legal help from an expert

For high risk or high cost contracts get legal advice

Most Contract Procedure Rules or Standing Orders have specific guidance and requirements on this

Evaluating terms

Adopt a Red Amber Green (RAG) status approach

Red – clauses that must be amended

Amber – clauses that you would negotiate

Green – clauses that are acceptable

Activity 4 – Terms

Your manager has requested an urgent purchase

Each of the 3 quotes you received were made on the suppliers’ T&Cs

You cannot afford to miss the timescales, so you will need to evaluate the preferred supplier’s (Strefen Filters) T&Cs and focus on the key priorities

Use a R-A-G approach to identify which T&Cs you need to discuss with the preferred supplier

The contract

Includes:

T&Cs

Specifications, drawings, standards, key documents

Verbal discussions, decisions, instructions

Records of conversations (formal or informal)

Custom and practice

Rarely ‘set in stone’ – living document

Sections





Implied and express terms

Implied Terms: A contract term that has not

been expressly agreed, written and included in a contract

It is ‘implied in the contract’ by law whether or not both parties agree or not National and international

legislation Case law

May also be dictated by local custom fact obligation

Express Terms:

Verbal statements (before and/or during the contract)

Terms and Conditions on forms (such as Purchase Orders)

Written clauses in a contract

Contract terms

Three types of term:

Conditions

Vital to the agreement, if breached can lead to termination of contract and damages

Warranties

Of lesser importance to the parties, if breached may lead to damages but not termination of contract

Innominate

‘Intermediate’ – decided by the Court

Specific to each contract

Key clauses

Payment Terms

Indemnity & liability clauses

Confidentiality and data protection

Exclusion clauses

Dispute resolution

Governing law / jurisdiction

Transfer of ownership & risk

Contract management

A single nominated role

Responsible for:

Delivery of the contract

Supplier relationship management

Supplier development

Performance management

Dispute management and resolution

Contract variations

Supplier risk management/mitigation

Contract termination

Documenting contract progress

Change control

Change happens!

Employ contractual variation procedure

Review consequences of change before ordering it (cost, time, delivery)

Issue CCN and have it signed by return

Log CCNs – forms part of contract

Contract fileShould include:

Specification

Original tender / RFQ

Bid correspondence (including clarifications)

Evaluation scoring

Award letter

Contract

Performance measures

Minutes of supplier review meetings

Evidence of supplier performance

Agreed variations

Any other relevant documents

Must be kept up to date

Regulatory compliance

Provides detailed audit trail

Due process

Compliance

Public interest

Probity

Political sensitivity / interest

Freedom of Information Act 2000 implications

Contract termination

All contracts terminate

Successfully through the discharge of performance

Unsuccessfully through breach or determination

Key issues:

Exit provisions?

Contingency?

Control?

Avoidance of complete breakdown (…meltdown!)

Exit strategy

Commercial “pre-nup”

Handover

Information

Resources

Ramp-down provisions

Surviving provisions post-contract?

Maintaining relationships beyond the contract

Early termination for convenience?

Contingency planning

Sections





Relationships

“You’re not going to win someone over by thumping them. You’ve got to love them to death”

Source: Bob Crow (General Secretary of the RMT) 13th September 2007 – The Independent

Relationship spectrum

RELATIONSHIP SPECTRUM

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distant relationships closer relationships

clos

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hip

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Relationship spectrumad

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low

none

none

to get a good deal

instant

may not do, or will do on own

do on own

high

lots

lots

to maintain & develop relationship

eternity

done together

have integrated process for

quality of information exchange

trust

openness

commitment

duration

risk assessment

risk management

clos

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part

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RELATIONSHIP SPECTRUM

Definition of supplier relationship management

The proactive management of business relationships to ensure competitive advantage and excellent customer service.

Driving visibility, compliance, service delivery, operational and cost efficiencies and improvements

Components of SRM

Contract management

Managing delivery

Managing the relationship

Performance management

Supplier development

Contract administration

Dispute management and resolution

Relationship strategies

Strategic Suppliers

Key Suppliers

TacticalSuppliers

Relationship category: Relationship strategy:

Breakthrough performance

Contract delivery

Performance management& development

Typical supplier tiers

Tier 1* – StrategicLong term, Value >£1m , high risk

Tier 2 * – KeySpend >£100k (Major contract), medium risk

Tier 3 – TacticalAd hoc, low risk

SRM Supplier Classification

Analysing suppliers and contracts

Relative value

Risk or exposure

TacticalSupplier

Strategic Supplier

Strategic Suppliers (c1%)

Key Suppliers (c19%)

Tactical Suppliers (c80%)

Indicative categorisationAnticipated supplier distribution

Key Supplier

Relative value

Risk or exposure

Leverage

Strategic

Non-critical

Bottleneck

Portfolio Analysis

Supplier perception analysis

Irritating Customer“You’re a nuisance”

Exploitable Customer“Milk it”

Low orDeclining

High orIncreasing

Relative Value of our Businessto the Supplier

Low orDeclining

High orIncreasing

Rel

ativ

e A

ttra

ctiv

enes

so

f o

ur

Bu

sin

ess

Developmental Customer“How can we help?”

Preferred Customer“Core business”

Actions:Withdraw from the relationshipAggressively raise pricesReduce effort and resources

Actions:Raise prices to maximisemarginsReduce dependence

Actions:Deploy KAMRegular joint reviewsPursue relationship lock-inSecure long-term contract

Actions:Assess for future growthOpen discussion on futureApply more resourcesConsider for KAM programme

Supplier key account management

Clo

sen

ess

of

Rel

atio

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ip

Low Level of Interdependency Hig h

Arm

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th

In

teg

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d

Supplier Classification

Supplier Selling Method

Preferred

PerformanceManaged

PerformancePartner

AlliancePartner

KAM

RelationshipSelling

SolutionSelling

TraditionalSelling

Activity 5 – Client Segmentation

For each of the scenarios, assume the role of the service provider and:

categorise the client

determine a selling method

Sections





What suppliers think . . . Key things suppliers want from their clients

Mutual respect

• Focus on what the supplier is delivering, not how they do it

Client commitments

• Clients need to deliver their side of the bargain, and commit resource needed

Client Management

• Need an appropriately skilled SRM

Communication

• Share the vision, let the supplier know what is happening, so they can react to change

Governance

• Respect the governance process, do not side step it for a short term advantage

Plus being paid on time

Source: CIPS – Chartered Institute of Purchasing & Supply

Typical account management regime

Supplier Performance Review - Development Suppliers

StrategicReview

Review Frequency Attendees Agenda Inputs Outputs

• Quarterly or monthly,as appropriate.

• Relationshipsponsor.

• SMT relationshipleader & SMT(supplier mgt. team).

• Supplier seniorrepresentative, e.g.key accountmanager, managingdirector, salesdirector etc.

• Review performanceto expectations,objectives and targets over periodusing balancedscorecard.

• Issues, risks andcorrective actions.

• Review supplierimprovement actionplan.

• Value improvementideas log.

• Spend data.• Standard KPIs &

balanced scorecard.• Issues / risks

register.• Supplier improve-

ment action plan.• Supplier survey.

• High impact valueimprovementprojects.

• Updated valueimprovement ideaslog.

• Agreed / updatedsupplier improve-ment action plan.

• Meeting record(minutes).

Supplier Performance Review -

StrategicReview


• Quarterly or asappropriate.

• Executivesponsor.

• SRM relationshipmanager & suppliermanagement team.

• Supplier seniorrepresentative, e.g.key accountmanager, managingdirector, salesdirector etc.

• Review performanceto expectations,objectives and targets over periodusing balancedscorecard.

• Issues, risks andcorrective actions.

• Review supplierimprovement actionplan.

• Value improvementideas log.

• Spend data.• Standard KPIs &

balanced scorecard.• Issues / risks

register.• Supplier improve-

ment action plan.• Supplier survey.

• High impact valueimprovementprojects.

• Updated valueimprovement ideaslog.

• Agreed / updatedsupplier improve-ment action plan.

• Meeting record(minutes).

Supplier Performance Review - Development Suppliers (continued)

OperationalReview


• Monthly, fortnightlyor weekly asappropriate.

• Ad hoc in responseto operational issuesas required.

• SMT relationshipleader and SMTmembers, asappropriate.

• R&SA user staff, asappropriate.

• Supplier’s keyaccount manager.

• Supplier staff,as appropriate.

• Service / deliveryreview.•Issues / risks.•Performance tooperational targets.•Review impact onsupplier improve-ment action plan.•Escalation issues.

• Weekly or otheragreed reports.

• Balanced scorecard.• Issues / risks

register.• Actions from

previous meetings.

• Agreed actions.• Agreed escalations.• Meeting record.

Supplier Performance Review -

OperationalReview


• Monthly, fortnightlyor weekly asappropriate.

• Ad hoc in responseto operational issuesas required.

• SRM relationshipmembers, asappropriate.

• FRS staff,as appropriate.

• Supplier’s keyaccount manager.

• Supplier staff,as appropriate.

• Service / deliveryreview.•Issues / risks.•Performance tooperational targets.•Review impact onsupplier improve-ment action plan.•Escalation issues.

• Weekly or otheragreed reports.

• Balanced scorecard.• Issues / risks

register.• Actions from

previous meetings.

• Agreed actions.• Agreed escalations.• Meeting record.

Activity 6 – Account Management Plan

Read the case study and complete the Account Management Plan

Competition analysis

THREAT OFNEW ENTRANTS

THREAT OFSUBSTITUTES

BARGAININGPOWER

OF BUYERS

RIVALRY AMONGEXISTING

MARKET FIRMS

BARGAININGPOWER

OF SUPPLIERS

Adapted from: Porter (1980)

External environment

Political

Economic

Sociological

Technological

Environmental

Legal/regulatory

Ongoing supplier reviews

Regularly check the following:

Insurance provisions

Financial standing/credit risk

Health & Safety record

Changes in key personnel

Any other documentation or accreditation requirements

Policies, such as equal opportunities, sustainability

Business continuity/contingency arrangements

Any other relevant documentation

Always take and retain minutes of review and

other meetings with

suppliers

Key aspects of SRM

Effective SRM is founded upon:

Sharing information

Working collaboratively

Team-working

Regular communications (two-way)

Joint problem-solving

Honesty

Mutual understanding

Openness

Trust

Conflict resolution - choices

Negotiation

Mediation

Arbitration

Litigation

Litigation is the LAST resort

Objectives

At the end of the session, participants will have knowledge and an understanding of:

Review of the main principles of contract drafting & contract evaluation:

Formation of contracts and the role of tendering

Key terms

Evaluating & finalising terms and conditions

Tools and techniques

Buyer positioning

Supplier positioning

SMR account plans and review meetings

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