contract negotiations

Commercial Contract Management 1

Contract Negotiations

ADEL ABOUHANA


Contract Negotiations

Skills, Tools, and Best

Practices

An Interactive Adventure

into the Art & Science of the Deal!


Contract Negotiations – An NCMA

National Education Seminar (NES) & CD-ROM

Key Topics of Discussion:

The Need for Contract Negotiation Skills

* Q&A - Exercise

Contract Negotiation Competencies – The Skills

to Win

* Self-Assessment Survey

The Contract Negotiation Process

* Buyer & Seller – Checklist of Best Practices


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 Judgment 6. Integrity/ethics

2. Decision making 7. Education

3. Problem-solving 8. Interpersonal Relations

4. Negotiation skills 9. Responsiveness

5. Customer service 10. Communications

Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH, Inc. (2005), pg. 10.


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 2015**

• Significant increase in the complexity of contracts and

related projects ***

** Survey by Garrett Consulting Services, 2010

*** Center for Business Practices (CBP) study, 2009


Exercise – Q & A

1. How important are contract negotiation skills to ensure

business success?

2. How well do you negotiate?

3. Does your organization have the number and level of skilled

master contract negotiators needed?



Contract Negotiation Competencies

The Skills to Win!

Contract Negotiations –

An NCMA NES & CD-ROM


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 (pg. 3)

• 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 countertactics 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 5

Reference 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



Skills to Win - Self-Assessment Survey Worksheet

Questions #

Self-Assessment Score (1-5)

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

Grand Total Score: _______________________________




Skills to Win

Self-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.




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, Inc. (2005), pgs. 53-54.


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 negotiations

o Conduct negotiations

o Document the

negotiation and Form

the Contract

Contract or Walk

away



Contract Negotiation Process

Plan the Negotiation Conduct the Negotiation Document 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



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

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

Use oral presentations or proposals by sellers to improve and expedite the source selection process



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



Checklist of Contract Negotiation Best Practices

cont’d.

(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

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

Know what is negotiable and what is not
