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Session 203

April 23, 2007

2:50 3:50 pm

Holly K. Walker, CPCMCorporate Learning Solutions and

Contract Mgmt. Consultant

Introduction to

Commercial ContractingUnderstanding

The Basics

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Commercial Contracts

Contracts help to build relationships between

buyers and sellers

Contracts attempt to allocate risks and

responsibilities between the parties The professional purchasing/contract manager

can build a bridge between the customer and

supplier.

The purchasing/contract manager mustunderstand and balance the needs of the

contracting parties

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Elements of a Contract

Competent Parties

Consideration

Lawful Purpose

Certainty of Terms

Offer

Acceptance

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Contracts- Written Vs. Oral

A contract is a promise between parties

Contracts maybe written ororal

If the following are present (on a scrap of paper,

or even oral), a contract may exist:The parties

The goods

Time at which the transaction will occur

Gaps will be filled in by UCCor UNCISG or civil

law

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Different Legal Systems

Common Law

Civil Law

Islamic Law

Communist law

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Laws Governing Contracts

THE PARTIESTOAN AGREEMENTARE, BY

MUTUAL CONSENT, usually FREETOCHANGETHE RESULTOFTHE LAW FOR PURPOSESOF

THATAGREEMENT.

Uniform Commercial Code

United Nati

ons

Conventi

on

onthe International Sale of Goods

(CSIG)

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First Steps- BuyerIdentify Possible NeedsNew service

offeringExpand market share

Become more cost effective

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Next Steps - Buyer

Identify and Analyze Requirement

Functional

Performance

Design

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Buyer: Pre Contract Activity

Establish evaluation criteria

Attributes of interest

Price/quality/deliveryReputation of seller

Standards

Weighting

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Match customer requirements to applications,assess opportunities and prepare to assist the

customer in the development of the RFP.

Seller: Pre- RFP Activity

Review opportunity Review own

capabilities

Assess and prioritize

opportunities Influence design of

customer RFP

Review need fordevelopment work

Provide input to customer

on how your company can

provide assistance

Create necessary third

party agreements

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Pre-Contract Activities- Seller

Make Preliminary Bid/No Bid Decision

How are we different from competitors

Can we make th

ose di

fferences strengths?How much will it cost to win?

What are the risks?

Are the potential benefits, worth the costs?

Do

we have the pro

duct po

rtfo

lio

?Can we meet the needs of this customer?

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Contract ManagementContract Management

ResponsibilitiesResponsibilities Actively participate on the proposal team

Identify customer required terms and conditions

Identify and assess financial impact of customerterms and conditions

Obtain input from all affected organizations

Determine customer acceptance criteria

Propose sellers terms and conditions of

response- if appropriate

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Develop contracts that contain clear

deliverables and contractual obligations

and standard terms and conditions, while

identifying and mitigating all risks.

Contract Formation

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Contract Formation

Prepare negotiation

plan

Negotiate major

issues Prepare draft

contract

Negotiate minor

issues

Review and

approve contract Obtain contract

signature

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Contract Standards

Most major companies developstandard contract forms, proceduresand clauses

These standards allow contracts to beprocessed more quickly, cost effectivelyand with reduced risk

Standards als

ohelp t

oassure thatagreements entered into are aligned

with the companys business objectives

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Usual Contentious

ClausesPricing and Payment Terms

Liquidated Damages/Penalties

Liability/Indemnification Terms

Warranties (Scope and Durati

on)

Intellectual Property Ownership

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Successful Contract

NegotiationInvolves thorough preparation and

planning

Effective team planning

Sharp negotiation skills

Understanding the other partys goals

Documentation of agreements

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Buyer and Seller: ContractBuyer and Seller: Contract

AdministrationAdministrationEnsure that all contractual obligations are metthrough communication among all necessaryparties; manage contract disputes through

negotiation/resolution and review lessons learnedthroughout performance and at contractcompletion.

Communicate Contract Authorization

Plan Contract Administration

Manage Contract performance

Review Contract Completion

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Buyer and Seller: ContractBuyer and Seller: Contract

AdministrationAdministrationCommunicate contract authorization and necessary informationCreate contract administration plan and distribute as necessary

Contract Obligations Matrix

Responsibility Assignment Matrix

Manage contract performance:Correspondence control

Manage contract changes

Prepare final acceptance package

Ensure all contractual obligations have been met

Monitorfinancial and operational performanceReview contract completion

Close-out

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Buyer and Seller: Managing

Contract Performance Anticipate problems and take appropriate action

Observe performance and progress and resolve

problems

Manage disputes

Manage contract changes

Resolve payment discrepancies

Escalate unres

olved disputes

Confirm that all contract obligations have been

met

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Sources of Risk in Contracts

Technical Risks

Political and Commercial

Financial and

Economic

Contract Terms and Conditions

Behavioral Risks

Project Organization

Scope and Schedule Risks

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The ContractA

well written agreementanswers who, what, where,

when, and what to do if.