A New Book by CCH INCORPORATED 2005

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: q The New Performance-Based Buying and Selling Environment – The World We Live In! * Q&A - Exercise q Contract Negotiation Competencies – The Skills to Win * Self-Assessment Survey q 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) 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 - B 2 B 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) 4

The World We Live In Performance-Based Supply Environment Supply Drivers Regulation Technology Pros • Growth of Internet architecture • Continued Growth of Voice/Data/Video wireless communications + New 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). + Wider range of products and services + 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 - Accelerated pace of change - Less personal contact 5 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. 6 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 7 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 8

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? 9 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? 10 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! 11

The Contract Negotiator’s Competencies Model 12 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 13 Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pgs. 15 -16.

The Skills to Win: Self-Assessment Survey 1. 2. 2. I am a person of high integrity. 1 2 3 4 5 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. 5. I verbally communicate clearly and concisely. 1 2 3 4 5 I am an effective and persuasive contract negotiator. 1 2 3 4 5 14 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 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 15 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. 16 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. 17

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: ________________ Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 17. 18

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. 19 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 20

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 21 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) 22 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 23 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 24 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 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 25 Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 61.

Checklist of Buyer – Contract Negotiation Best Practices (The Buyer Should: ) q Know what you want – lowest price or best value q State your requirements in performance terms and evaluate accordingly q Conduct market research about potential sources before selection q Evaluate potential sources promptly and dispassionately q Follow the evaluation criteria stated in the solicitation: management, technical, and price q Use absolute, minimum, or relative evaluation standards to measure performance as stated in your solicitation q Develop organizational policies to guide and facilitate the source selection process q Use a weighting system to determine which evaluation criteria are most important q Use a screening system to prequalify sources q Obtain independent estimates from consultants or outside experts to assist in source selection q Use past performance as a key aspect of source selection, and verify data accuracy q Conduct price realism analysis q Create a competitive analysis report q 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. 26

Checklist of Contract Negotiation Best Practices (The Buyer and Seller Should: ) q Understand that contract negotiation is a process, usually involving a team effort q Select and train highly skilled negotiators to lead the contract negotiation process q Know market and industry practices q Prepare yourself and your team q Know the other party q Know the big picture q Identify and prioritize objectives q Create options – be flexible in your planning q Examine alternatives q Select your negotiation strategy, tactics, and countertactics q Develop a solid and approved team negotiation plan q Determine who has the authority to negotiate q Prepare the negotiation facility at your location or at a neutral site q Use an agenda during contract negotiation 27 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: ) q Set the right tone at the start of the negotiation q Maintain your focus on your objectives q Use interim summaries to keep on track q Do not be too predictable in your tactics q Document your agreement throughout the process q Know when to walk away q Offer to write the contract q Prepare a negotiation results summary q Obtain required reviews and approvals q Provide copies of the contract to all affected parties q Document negotiation lessons learned and best practices q Prepare a transition plan for contract administration q Understand that everything affects price q Understand the Ts and Cs have cost, risk, and value q Tailor Ts and Cs to the deal, but understand the financial effects on price and profitability q Know what is negotiable and what is not Reference Text: Contract Negotiations, by Gregory A. Garrett, CCH INCORPORATED (2005), pg. 86. 28

Contract Negotiations – Skills, Tools, & Best Practices * This presentation is a brief highlight of the 350+ page book, which contains: q 200+ Best Practices in Contract Negotiations q 50+ Tactics & Countertactics used in Contract Negotiations q 25+ Forms/Templates for planning, conducting, and documenting contract negotiations q 10 Successful Strategies for planning contract negotiations q Much, More!!! 29