Transcript Negotiation Skills

A New Book by CCH INCORPORATED
(2005)
Contract Negotiations
“Skills, Tools, and Best Practices”
An Interactive Adventure
into the Art & Science of the Deal!
By: Gregory A. Garrett, CPCM, PMP
.
Contract Negotiations – A New Book
by CCH INCORPORATED
Key Topics of Discussion:
 The New Performance-Based Buying and Selling
Environment – The World We Live In!
* Q&A - Exercise
 Contract Negotiation Competencies – The Skills
to Win
* Self-Assessment Survey
 The Contract Negotiation Process
* Buyer & Seller – Best Practices
2
Contract Negotiations – A New Book by CCH
INCORPORATED
The New Performance-Based
Buying & Selling Environment –
The World We Live In!
3
Cross-Industry Benchmarking Studies
CAPS Research
Cross-Industry Benchmarking Summary
(August 2002 - November 2003 Reports)
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Findings/Descriptions
Outsourcing spend as a percent of Sales $
Active Suppliers that Account for 80% of the Purchase $
Active Suppliers that are e-Enabled
Purchase Spend – EDI
Purchase Spend - B2B e-Commerce
Purchase Spend - Strategic Alliances
Purchase Spend - e-Auctions
Purchase Spend - Procurement Cards
Purchase Spend - Minority Owned Business
Purchase Spend - Women Owned Business
Purchase Spend - Other Small Business
Avg.
40.39%
9.47%
12.50%
11.60%
5.88%
21.68%
2.21%
1.20%
2.98%
2.25%
12.84%
* From: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED 2005, pg. 2 (Center for
Advanced Purchasing Studies (CAPS) Cross-Industry Benchmarking Report 2003)
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The World We Live In
Performance-Based
Supply
Environment
Supply Drivers
Regulation
Technology
Pros
• Growth of Internet architecture
+ New products and services
• Continued Growth of Voice/Data/Video
wireless communications
+ Wider range of products and services
• Use of e-Marketplaces
+ More modular products and services
• Growth of Enterprise Applications for
e-procurement, automated sales tools, and
Customer Relationship Management (CRM).
+ Reduced prices
+ Improved performance
+ Faster product introductions
Cons
- More complexity
• U.S. Govt. increased use of commercial
buying practices
- Higher cost of integration
• U.S. Govt. increased use of Past
Performance as a major factor in Best
Value source selection process
- Less reliability
• Increased competition
- Rapid Obsolescence
• Increased enforcement of procurement
ethics
- Less personal contact
- Accelerated pace of change
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 7.
NCMA, CMI, and ISM Studies (2000 – 2003)
Show Need for Negotiation Skills
The NCMA, ISM, and CMI Year 2000 surveys showed for every 100 surveyed
contract management/purchasing professionals, concerning their roles:
• 90 indicate “more time sensitive”
• 85 indicate “more responsibility”
• 85 indicate “more team-oriented”
• 85 indicate “more strategic”
• 80 indicate “more use of performance-based metrics”
* Contract Management studies conducted by the National Contract
Management Association (NCMA), The Institute for Supply Management
(ISM), and the Contract Management Institute (CMI), 2000 – 2003.
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 9.
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
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (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 2010**
• Significant increase in the complexity of contracts and
related projects ***
** Survey by Garrett Consulting Services, 2003
*** Center for Business Practices (CBP) study, 2002
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Exercise – Q & A
1. How much money (%) does your organization spend via
e-marketplaces, procurement cards, e-auctions, and
e-catalogs?
2. Is your organization using performance-based contracts with
your customers and/or suppliers?
3. How important are contract negotiation skills to ensure
business success?
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 12.
Exercise – Q & A
4. How well do you negotiate?
5. Does your organization have the number and level of skilled
master contract negotiators needed?
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 12.
Contract Negotiations – A New Book by CCH
INCORPORATED
Contract Negotiation Competencies
The Skills to Win!
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The Contract Negotiator’s Competencies Model
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 14.
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
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs. 15-16.
The Skills to Win: Self-Assessment Survey
1.
I am a person of high integrity.
1
2.
5
2
3
4
5
2
3
4
5
I verbally communicate clearly and concisely.
1
5.
4
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
4.
3
I always act as a true business professional, especially in contract negotiations.
1
3.
2
2
3
4
5
I am an effective and persuasive contract negotiator.
1
2
3
4
5
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 16.
The Skills to Win: Self-Assessment Survey cont.
6.
My written communications are professional, timely, and appropriate.
1
7.
5
2
3
4
5
2
3
4
5
I am willing to compromise when necessary to solve problems.
1
10.
4
I consistently build high performance teams, which meet or exceed contract
requirements.
1
9.
3
I am an excellent team leader.
1
8.
2
2
3
4
5
I confront the issues, not the person, in a problem-solving environment.
1
2
3
4
5
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 16.
The Skills to Win: Self-Assessment Survey cont.
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.
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1
2
3
4
5
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs.
16-17.
The Skills to Win: Self-Assessment Survey cont.
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 INCORPORATED (2005), pg. 17.
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The Skills to Win: Self-Assessment Survey cont.
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:
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_______________________________
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 17.
The Skills to Win: Self-Assessment Survey cont.
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.
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 18.
Contract Negotiations – A New Book by CCH
INCORPORATED
The Contract Negotiation
Process
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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
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs. 53-54.
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)
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 55.
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
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 55.
Contract Negotiations – Essential Elements
Key Inputs







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
Tools & Techniques
 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
Desired Outputs
 Contract or Walk
away
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 56.
Contract Negotiation Process
Plan the Negotiation
Conduct the Negotiation
Document the Negotiation and Form
the Contract
1.
2.
3.
4.
5.
6.
7.
8.
9.
11.
12.
13.
14.
15.
16.
17.
18.
21.
10.
Prepare yourself and your team
Know the other party
Know the big picture
Identify objectives
Prioritize objectives
Create options
Select fair standards
Examine alternatives
Select your strategy, tactics, and
countertactics
Develop a solid and approved
team negotiation plan
19.
20.
Determine who has authority
Prepare the facility
Use an agenda
Introduce the team
Set the right tone
Exchange information
Focus on objectives
Use strategy, tactics, and
countertactics
Make counteroffers
Document the agreement or
know when to walk away
22.
23.
24.
25.
26.
27.
28.
29.
30.
Prepare the negotiation
memorandum
Send the memorandum to the
other party
Offer to write the contract
Prepare the contract
Prepare negotiation results
summary
Obtain required reviews and
approvals
Send the contracts to the other
party for signature
Provide copies of the contract to
affected organizations
Document lessons learned
Prepare the contract
administration plan
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 61.
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
 Use absolute, minimum, or relative evaluation standards to measure performance as stated in your
solicitation
 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
 Create a competitive analysis report
 Use oral presentations or proposals by sellers to improve and expedite the source selection process
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 85.
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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
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Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 86.
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
 Offer to write the contract
 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
 Tailor Ts and Cs to the deal, but understand the financial effects on price and profitability
 Know what is negotiable and what is not
Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 86.
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Contract Negotiations – Skills, Tools, & Best
Practices
* This presentation is a brief highlight of the 350+ page book,
which contains:
 200+ Best Practices in Contract Negotiations
 50+ Tactics & Countertactics used in Contract
Negotiations
 25+ Forms/Templates for planning, conducting, and
documenting contract negotiations
 10 Successful Strategies for planning contract negotiations
 Much, Much, More!!!
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