Session 203 April 23, 2007 2:50 – 3:50 pm Holly K. Walker, CPCM Corporate Learning Solutions and Contract Mgmt. Consulta

2. Introduction toCommercial Contracting Understanding The Basics Session 203 April 23, 2007 2:50 – 3:50 pm Holly K. Walker, CPCM Corporate Learning Solutions and Contract Mgmt. Consultant

3. 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 must understand and balance the needs of the contracting parties

4. Elements of a Contract • Competent Parties • Consideration • Lawful Purpose • Certainty of Terms • Offer • Acceptance

5. Contracts- Written Vs. Oral • A contract is a promise between parties • Contracts maybe written or oral • 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 UCC or UNCISG or civil law

6. Different Legal Systems Common Law Civil Law Islamic Law Communist law

7. Laws Governing Contracts • Uniform Commercial Code • United Nations Convention on the International Sale of Goods (CSIG) • THE PARTIES TO AN AGREEMENT ARE, BY MUTUAL CONSENT, usually FREE TO CHANGE THE RESULT OF THE LAW FOR PURPOSES OF THAT AGREEMENT.

8. First Steps- Buyer • Identify Possible Needs • New service offering • Expand market share • Become more cost effective

9. Next Steps - Buyer • Identify and Analyze Requirement • Functional • Performance • Design

10. Buyer: Pre Contract Activity • Establish evaluation criteria • Attributes of interest • Price/quality/delivery • Reputation of seller • Standards • Weighting

11. Review opportunity Review own capabilities Assess and prioritize opportunities Influence design of customer RFP Review need for development work Provide input to customer on how your company can provide assistance Create necessary third party agreements Seller: Pre- RFP Activity Match customer requirements to applications, assess opportunities and prepare to assist the customer in the development of the RFP.

12. Pre-Contract Activities- Seller • Make Preliminary Bid/No Bid Decision How are we different from competitors Can we make those differences strengths? How much will it cost to win? What are the risks? Are the potential benefits, worth the costs? Do we have the product portfolio? Can we meet the needs of this customer?

13. Contract ManagementResponsibilities • Actively participate on the proposal team • Identify customer required terms and conditions • Identify and assess financial impact of customer terms and conditions • Obtain input from all affected organizations • Determine customer acceptance criteria • Propose seller’s terms and conditions of response- if appropriate

14. Contract Formation Develop contracts that contain clear deliverables and contractual obligations and standard terms and conditions, while identifying and mitigating all risks.

15. Prepare negotiation plan Negotiate major issues Prepare draft contract Negotiate minor issues Review and approve contract Obtain contract signature Contract Formation

16. Contract Standards • Most major companies develop standard contract forms, procedures and clauses • These standards allow contracts to be processed more quickly, cost effectively and with reduced risk • Standards also help to assure that agreements entered into are aligned with the company’s business objectives

17. Usual Contentious Clauses Pricing and Payment Terms Liquidated Damages/Penalties Liability/Indemnification Terms Warranties (Scope and Duration) Intellectual Property Ownership

18. Successful Contract Negotiation Involves thorough preparation and planning Effective team planning Sharp negotiation skills Understanding the other party’s goals Documentation of agreements

19. Buyer and Seller: Contract Administration • Ensure that all contractual obligations are met through communication among all necessary parties; manage contract disputes through negotiation/resolution and review lessons learned throughout performance and at contract completion. • Communicate Contract Authorization • Plan Contract Administration • Manage Contract performance • Review Contract Completion

20. Buyer and Seller: Contract Administration • Communicate contract authorization and necessary information • Create 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 • Monitor financial and operational performance • Review contract completion • Close-out

21. 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 unresolved disputes • Confirm that all contract obligations have been met

22. 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

23. The Contract A well written agreement answers who, what, where, when, and what to do if….