Best Contracting Practices For Business

Best Contracting Practices
for Business
Unit 1: Building Successful
Partnerships in the e-Business
Age – The Executive’s Role
Building Successful Partnerships – Four Common Actions
What Are • Unleashing Buying and Selling

Winning Power
Organizations
Doing? • Changing Buying and Selling
Processes
• Developing an Integrated Supply
Chain
• Learning & Applying Best
Practices
& e-Tools from Industry Leaders
Reference Text – World Class Contracting, By Gregory A. Garrett, CCH 2001, pg. 2
New Supply Environment – The World We Live In
New Supply
Supply Drivers
Environment
Pros
• Emergence of Internet + New product and service providers
Technology
architecture
+ Wider range of products and services
• Growth of Automated Sales Tools
• Use of Enterprise Resource + More modular products and services
Planning (ERP) Software
• Growth of e-procurement Software + Improved price/performance
and Contract Management + Accelerated pace of change
Enterprise Software Cons
-More complexity
• Relaxed barriers to entry - Higher cost of integration

Regulation
• Increased pricing flexibility

• Pro-entrant incentives - Less reliability
• Mandatory wholesale of unbundled
- Accelerated pace of change
elements
- Rapid Obsolescence
Increased Range of Services and

Product Choices for End Users
Unleashing Buying & Selling Power
• Use of electronic catalogs, self-service internet

sales, Net marketplaces, etc.
• Use of e-sales and e-procurement tools has
caused a revolution in the roles & responsibilities
of:
• Sales managers/account executives
• Procurement managers/purchasing agents
• Contracts managers/contract administrators
• Fewer people with broader responsibilities requiring
more education, training, and business skills to
propose, negotiate, and administer complex
innovative deals and partnerships
Changing Buying & Selling Processes
Maximizing e-procurement Success
Procurement Today: e-procurement:

Managed per Transaction Managed by Exception
Online product Personalized views; named
Search large catalogs
selection shopping carts
Requisition One to 12 levels of manual Transactions automatically

approval approval approved based on rules
Fax, e-mail, EDI direct to

Order is sent through a supplier
P.O. Transmission supplier; supplier retypes the
clearinghouse
order
Payment Dependent on three-way match Immediate; based on shipment
authoirzation of P.O. with invoice and receipts notice
Continuous; integrated in real
Sporadic; not linked to supplier
Analysis time; drives optimization of
performance
process
.
Source: Forrester Research, Inc
Reference Text, pg. 5

Developing an Integrated Supply Chain
• Integrated - means providing Enterprise

Resource Planning (ERP) to ERP, core business
transaction functionality to all participants
• Going beyond Supply Chain Management to
the integration of databases between companies
• Today - large trade exchanges, built
cooperatively by industry participants are
changing the nature of business
• More companies are creating shared virtual
workspaces, with appropriate security and
access measures.
Trade Exchange – Example: Exostar
Exostar’s Mission:
To become the standard e-business platform for everyone in the
Aerospace & Defense industry
Founding Members Trading Partners
BAE Systems Large OEM’s
Government
Boeing
Buyers
EXOSTAR
Lockheed
Martin Airlines
Tier 1 –3
Raytheon Suppliers
Service
Rolls-Royce
Providers
Boeing’s Forum Pass – Virtual Collaborative Workspace
Partner A
How Forum Pass Fits Contracts
Check-
out/Check-in
Via Forum Pass Design PM
https
https MFG
Contracts
Virtual ACCTG
Mtgs.
Design
PM
MFG
Contracts
Virtual
Mtgs. https
ACCTG https Design PM
MFG
Virtual ACCTG
Mtgs.
Partner B
Logos obtained from Boeing website
Example: Boeing ForumPass
 ForumPass offers a collaboration solution to address

the challenges of integrated project teams
 Supports creation of dynamic, opportunistic project
teams, independent of computing support
 Provides a common workspace that fosters innovation
 Breaks down barriers to collaboration
 Process and schedule visibility
 Immediate notification of changes
 Visualization via Computer-Aided Design (CAD)
 Balances security with access to key collaboration partners

ForumPass Key Capabilities
• Project Management and Administration

• Document and Data Management
• Online Meetings
• Visualization and Mark-up
• Workflow
• Subscription-based notifications
• Security and access control
Goal: Establish a Common Collaboration Workspace
Supplier A
Firewall
DOD Shared Workspace

Firewall
Supplier B
Boeing
• Project Management
• Document Management Firewall
Supplier C
• Product Data/Change Control
• Virtual Meetings
Firewall
Firewall
Learning & Applying Best Practices & e-tools from Industry Leaders
Bill Gate’s New Rules

Microsoft 1. Insist that communication flow through e-mail
Bill Gate’s 2. Study sales data online to share insights easily
New Rules 3. Shift knowledge workers into high level
thinking
for e-Business
4. Use digital tools to create virtual teams
5. Convert every paper process to a digital
process
6. Use digital tools to eliminate single-task
jobs
7. Create digital feedback loop
8. Use digital systems to route customer
complaints immediately
9. Use digital communication to redefine
boundaries
10. Transform every business process into
just-in-time delivery
11. Use digital delivery to eliminate middleman
12. Use digital tools to help customers solve
problems for themselves
Hormel Foods: Best Practices with Oracle Internet
Procurement e-tool
• Hormel Foods has recently completed the
Case installation of Oracle’s Internet Procurement at all
of its 50 locations. Employees at all of these sites
Study are now able to create purchasing requisitions for
non production items and have them automatically
routed for approval, as well as track and access
information on a real-time basis
• Self-guiding on-line catalogs allow workers to
search for goods and services from approved
suppliers
• Most of the savings associated with the
implementation of Oracle Internet Procurement
is as a result of Hormel’s procurement personnel
no longer having to spend considerable amounts
of time dealing with routine purchases

Lockheed Martin: Best Practices with SAP Business to
Business (B2B) e-tool
• In June 1999, the Missiles and Fire Control
Case Division of Lockheed Martin located in Dallas,
Study TX selected the Business to Business (B2B)
Procurement system developed by SAP to
replace an out-dated paper-based indirect
procurement process.
• Lockheed Martin leveraged the capabilities of
the SAP business workflow component to
implement consistent business rules to ensure
user’s purchases were appropriate, priced within
limits, and ordered from approved suppliers.
• As a result of SAP’s focus and rapid implementation,
ease-of-use, and flexibility Lockheed Martin was
able to control the use of their indirect procurement
expenses achieving dramatic cost reductions.

Qwest: Best Practices with V-Source e-tool
• Qwest, formerly, US WEST, Interprise Networking
Case Services recently selected Vsource, Inc. of Ventura,
California, a provider of a “pure-play” Internet
Study e-procurement solution called Virtual Source
Network (VSN).
• Vsource charges $100 per seat for each password
and small per-line transaction fees for purchase
orders and Request-for-Quotations (RFQs).
Customers who want VSN to tie into their existing
back-end systems can do that through the
Business Ware Middleware solution from Vsource
partner Vitra Technology, Inc., of Sunnyvale,
California.
• Depending upon a company’s current internal
procurement processing costs and the volume of
transactions VSN can save buyer’s hundreds,
thousands, or millions of dollars each year. VSN
Reference Text, pg. 9 requires little time to set-up and no training. All
you need to use VSN is a browser and web access.
Exercise 1 – Building Successful Partnerships
• Divide into teams of 3 – 4 people

• Select one of the four common actions that winning
companies are taking to build Successful Partnerships
• Conduct a 15 – 20 minute Brainstorming session,
discussing and listing the advantages and
disadvantages of the selected action and what actions
you as executives should take to maximize success.
• Present your findings to the class (Be Brief 3 – 5
minutes)
Common Action:
Advantages Disadvantages Executive Actions

Building Successful Partnerships in the e-Business Age
Summary
• The power of e-Business has been unleashed by the advent of

new communication technologies and the the Need for Speed!
• However, to achieve high performance results, year over year,
companies must form successful partnerships based upon trust
• Winning organizations are taking Four Common Actions to
build Successful Partnerships:
(1) Unleashing Corporate Buying & Selling

Power
(2) Changing Buying & Selling Processes
(3) Developing an Integrated Supply Chain
(4) Learning and Applying the Best
Practices & e-tools from Industry Leaders
Unit 2: Building Trust: Managing
Expectations and Honoring
Commitments
Understanding How to Manage Expectations
The Managing Expectations Process
Ask Align Fulfill
Clarify Control Meet or Exceed

Expectations Expectations Expectations
Listen Understand Negotiate Agree Communicate
• Compare Expectations to • Meet with customer

• Surface explicit & Implicit reality
expectations • Obtain agreement that
• Resolve Gaps expectations were met
• Surface Assumptions
• Communicate differences • Identify gaps
• Re-set expectations
• Set realistic expectations
Adapted from:
• Document acceptance
“Managing Expectations”
by Dorothy Kirk, PM Network, August 2000
criteria
Honoring Commitments: Lessons Learned
Successful Partnerships
Simple Actions Checklist
 Listen to the customer
 Understand the customers needs vs. desires
 State the obvious
 Be Accessible
 Return phone calls, vmails, & emails in a timely manner
 Provide regular communication on contract, program, partnership status
 Develop a project plan for every deal (Scope of Work (SOW), Integrated
Schedule, Work Breakdown Structure (WBS), Responsibility Assignment
Matrix (RAM), and acceptance criteria)
 Develop Risk Management Plan
 Disclose problems early and mitigate negative impacts
 Back up all verbal agreements and conversations in written documents

Honoring Commitments: Lessons Learned
 Develop a changes management process

 Provide frequent communication via multiple-media
 Be prepared to deliver both good and bad news at multiple levels, both
internally and with customers
 Be flexible, develop alternatives
 Set challenging but achievable objectives
 Demonstrate passion to honoring commitments
 Recognize that trust is the most important thing in a successful business
relationship
 Learn from mistakes openly communicate Lessons Learned
 Celebrate joint successes
 Document and share best practices

Partnership Ingredients
Three • Complementary Strength

Major
• Common Customer-base
Ingredients
• Chemistry
Discuss Examples of Partnerships

based upon each of the above.
Successful Partnerships – Key Definitions
Partners: Two or more People or organizations working

together toward a mutually beneficial common
goal with loyalty an a long-term commitment
to each others success.
Loyal Customer: A buyer who chooses to do business with a

particular seller and commits to buy from that
seller in the future.
Satisfied Customer: A buyer who buys from a particular seller but

expects to buy from others in the future.
The Successful Partnership Pyramid
Customers
Satisfaction/
Loyalty
Successful
Long-Term
Partnerships
Building
Trust
Four Common Actions
Managing Expectations
and Honoring Commitments
Partnership Agreement(s)
Partnership Ingredients
Common
Complementary
Customer-base Chemistry
Strength
Customer Need/Desires = Business Partnership

Exercise 2: Building Trust Q&A
1. On a scale of 1 (Low) to 10 (High), How effective is your

organization/company in building long-term buyer/seller
relationships? Give examples.
2. On a scale of 1 (Low) to 10 (High), How well does your

organization/company manage your customers expectations?
Give examples.
3. On a scale of 1 (Low) to 10 (high), How well does your

organization ensure requirements and acceptance criteria are
aligned, agreed to, and documented before the contract is
signed?
Unit 3: Government Contracting and
Commercial Contracting
Similarities
Contract Management – What Is It?
 A process of planning, forming, and administering

agreement(s) to buy or sell goods and services from or to
another party
 The art and science of managing a contractual agreement(s)
throughout the contracting process
Buyer Contract Seller Contract Subcontractor(s)

Contracts
Definition
 An agreement between two or more (competent)
parties or persons that creates an obligation to do or
not do a particular thing
 A contract has two aspects:
 Document: Written manifestation of an agreement
between parties
 Relationship: The personal or professional
commitment that forms the understanding between
people who enter into agreements, either oral or
written
Contracts Are
 Sources of business: For sellers

 Sources of goods and services: For buyers
 Risk management tools: For both buyers and
sellers
 Projects: That must be managed by people
from both the buyer’s and seller’s
organizations.
Contract Management’s Four “Ps”
 People
 Authority: Who can sign or approve?
 Responsibilities: Who does what?
 Process: The means by which goods and services are
exchanged
 Performance: How effectively the goods and services
are bought and sold
 Price: What determines a reasonable price? How do
terms and conditions affect price?
Quality,
cost, and
schedule
Contract Management Process
Buyer’s and seller’s steps
Phase 1: Preaward
1. Procurement 2. Solicitation
Buyer 3. Solicitation
Planning Planning
Make-or-buy decision
1. Presales 2. Bid/no-bid 3. Bid or Proposal

Seller
Activity Decision making Preparation
Bid decision
Phase 2: Award Phase 3: Postaward
6. C ontract
4. Source 5. Contract
B uyer Contract Award C loseout or
Selection Administration
Termination
4. Contract 6. C ontract
5. Contract
Seller Negotiation & Contract Award C loseout or
Administration
Formation Termination

Government (Public) Contracting and Commercial (Private)
Contracting
Similarities * (Similar – CM Process)

Include: Both follow a similar Contract Management process.
* (Similar – CM People Skills)
Both require well-trained and educated people with
broad skills sets (competencies including: Negotiation
skills, financial skills, legal skills, interpersonal skills,
communication skills, organizational skills, leadership
skills, and others.
* (Similar – Performance Requirements)
Both need to focus on delivering and/or providing
quality products, services, and/or solutions for their
customers – faster, better, and cheaper.
So What’s the Point – According to W. Gregor MacFarlan, CPCM
• An immense increase in knowledge workers and a
decrease in manual workers.
• Contract Management professionals are knowledge
workers. Individual effectiveness and collective growth
required:
– Reasonable empowerment (Autonomy to act is
essential).
– Opportunities to apply innovative judgment (strive to
improve the deal).
– Continuous learning for growth (no other useful
option).
• Biggest mistake of our time: treating knowledge workers
as a cost rather than as an asset.
A Few More Points
• Demographics and work environments relate:

– In millions of cases, the knowledge worker is not
dependent on a single employer for a career.
– The knowledge worker’s professional capabilities
and skills are portable.
– The high likelihood exists for knowledge workers to
pursue three or four successful growth jobs over a
career. Many people will be crossing-over between
either buyer or seller roles and/or government and
commercial contracting sectors.
So Where Are We Headed?
• Recent research (1999 and 2000) by CMI* and ISM* relates
for every 100 surveyed contracting/purchasing professionals
concerning their roles:
• 90 indicate “more time sensitive”
• 85 indicate “more responsibility”
• 85 indicate “more team-oriented”
• 85 indicate “more strategic”
• 60 indicate “less clerical”
• Performance metrics are increasingly tied to strategic rather
than transactional business measures
The Contract Management Institute (CMI) is the research arm of the National Contract Management Association
(NCMA). The Institute of Supply Management (ISM) was formerly the National Association of Purchasing
Management (NAPM).
Most Recent Research (1)
(Contract Management Institute – 2001)
•Performance Metrics for the Contract Management
Discipline – a survey.
• Senior contracting/purchasing personnel
• 3,180 surveys distributed; 872 returned – 27 percent response
rate.
• Public sector (35%); private sector-government (37%);
private sector-non-government (21%); educational, not-for-
profit, other (7%).
• Three quarters at least 15 years experience; more than half
over 20 years.
• Education: high school (1%); some college (10%);
undergraduate degree (33%); masters degree (46%); post-
graduate degree (9%).
• Which metrics are currently used by your organization to

evaluate personnel?
Top 10 choices:
1. Responsiveness. 6. Human/interpersonal
2. Integrity/ethical standards relations.
3. Timeliness. 7. Process focus.
4. Written communication. 8. Education.
5. Oral communication. 9. Customer service (internal).
10. Accountability
• Which metrics will be used in the next 3 to 5 years?

Top 10 choices:
1. Business Judgment. 6. Integrity/ethical standards.
2. Decision making 7. Education.
3. Problem-solving ability 8. Human/interpersonal
4. Negotiation skills. relations.
5. Customer service (external). 9. Responsiveness
10. Communications
• Some bottom lines:
– The contract and purchasing management function is
evolving toward a strategic business management
focus.
– Performance evaluation metrics increasingly assess
results not just activity.
– Employees are motivated to perform when they are
measured about things they have control over.
– Performance evaluation systems should be pervasive
across an employee’s career path (i.e., recruitment,
hiring, placement, training, evaluation, promotion,
rewards, and compensation).
Exercise 3: CM Process & Teamwork Q&A
1. Does your organization/company have a well-defined Contract

Management (CM) process, which is documented, understood,
and followed by everyone in your organization/company?
2. What is the role of the Contract Manager in your organization/

company?
3. What is the Executive’s role in the CM process?

Unit 4: Contract Management:
What Executives should Know
& Do!
What is the role

of the Executive
in the CM
Process?
Why is Contract Management Important to Executives?
• In most organizations/companies the success of winning and
executing contracts will determine the entire future of the enterprise
– Business opportunities and risks are managed via the contract
– Growth via changes management and follow-on contracts
• Contract performance is typically inconsistent
– Some do well, but most do not
– Very team dependent
• Managing contracts is difficult
– Complicated and not well understood
– Requires broad set of management skills
– Poorly implemented internally and externally
– Traditional management incentive structures usually at variance
with successful contract management
Why is Contract Management Important to Executives?
• Contract management teams are often formed of a diverse
temporary group of talented individuals
– Usually not well trained in contract management

– Little previous experience working together
– Expected to immediately be proficient
• There is often a negative bias against contract management

– Personnel are unfamiliar and untrained
– Prior experience with contract management has been
unsuccessful
– Technical personnel typically look down on contract management
and the people that attempt to manage contracts
– It is not uncommon for the very best contract management
techniques to be disliked by the team
– It is sometimes viewed as non-producing overhead
– People often do not want to follow a disciplined and documented
process
What is There About Contract Management That Makes it So
Difficult?
• Requires a broad set of skills
– Business, legal, financial, interpersonal, leadership,
team building, negotiation, multi-cultural
– Rare to find personnel with this broad capability
• Contract management is complex and is difficult to
describe succinctly
– Makes it difficult to convey to others and install as
a culture
– Personnel believe that it is just paperwork anyone
can do it
What is There About Contract Management That Makes it So
Difficult? (continued)
• Contract management appears overbearing to the

uninitiated
– Falsely appears to stifle creativity
– Falsely appears to slow things down
– Falsely appears to be bureaucratic
• It is not uncommon for management to only give
contract
management lip service (Don’t walk the talk)
– Lack of understanding = Lack of support
Why the Complexity of Contract Management Is An Issue?
• State of the Art
• Most available models are over-simplified and inadequate
• Henry Fayol’s: Planning, Organizing, Staffing, Directing, Controlling falls short
in today’s environment
• Many models confuse and intermix sequential activities and on-going processes
• Communication – Without a well-defined contract management process in
place:
• It makes it difficult to convey to the team how the contract will be managed
• It makes it difficult to communicate with others about the health and progress of
the contract
• Execution – A well-defined contract management process is mandatory
because:
• Continued growth of contracts as a result of increased outsourcing
• It is impossible to install a culture if it can’t be described
• It is difficult to install a culture even if it can be described
Business Conduct Issues What Executives Should Know &
Do at the Outset
 Create a clear vision, mission, and goals.

 Establish lines of authority – who’s in charge of what?
 Create lines of communication – How to get work done!
 Facilitate communication methods and structure – Make sharing info easy!
 Set expectations of each other – Clarify roles and responsibilities to
to ensure teamwork!
 Develop escalation processes – When problems arise who do you contact!
 Ensure employee feedback/performance evaluation process is regularly
conducted
 Create a shared reward and recognition process
 Create and follow a Code of Conduct
Indicators of Poor Teamwork
• Communication stops
• Information is withheld
• A climate of suspicion and distrust exists
• Counterproductive subgroups and cliques form
• “Fear-of-Failure” causes individuals to avoid making
decisions
• Complaining is prevalent
Separateness and distrust prevail

Indicators of Good Teamwork
• Spontaneous, positive interpersonal interaction

• The collective energy level of the team is high
• A positive cooperative climate prevails
• Information flows freely between team members
• No work is considered beyond an individual’s job
description (If it needs to be done, someone is doing it)
• Complaining is almost non-existent
• The coffee pot is never left empty for other team
members
Separateness and distrust prevail
Executive Role in Creating Teamwork
 Be able to communicate your vision and the contracts role in achieving it.
 Understand stakeholder expectations and conflicts.
 Listen to your team members speak of their teammates and notice the
vocabulary and mood.
– Encourage respect and business like interaction
among the team members
– Get involved if adversarial relationships emerge.
 Ensure that rewards and incentive structures acknowledge team performance.
 Look for, and encourage your Contract Managers to provide evidence of
teamwork with:
– Users
– Customers
– Supporting organizations
Executive Role in Establishing A Common Contract
Management (CM) Vocabulary and Process
 Understand – and use – the correct CM terminology yourself.

 Demonstrate your understanding of the CM process through your
actions.
 Fund and support development of a glossary of common CM
terminology, used in you industry, organization, and contracts.
 Produce electronic copies and see to it that all Team members
have the glossary of CM terms as a resource.
 Insist that all team members faithfully use the approved CM
process and terminology
One thing said, ten things understood

Executive Oversight of Contract and Project Planning
 Ensure that time and money to plan is provided for.

 Require an internal Contract Kick-off Meeting to review
the plan.
 Review the contract risks and how they will be managed.
 Establish Executive Management Milestones reviews.
 Define the business aspects you need to review and
approve.
 Set the schedule and measure performance against it.
Executive Oversight of Opportunity and Risk Management
 Encourage everyone to identify potential opportunities

and risks.
 Require that tailoring of procedures and templates be
accompanied by risk assessment.
 Require and review opportunity and risk assessments
throughout the contract management process.
 Require the planning and execution of approved risk
mitigation and opportunity enhancement actions.
 Stay cognizant of the high risks and the progress toward
mitigation.
Executive Commitment to Contract Changes Management
 Define the changes management process that must be

used on all contracts.
 Be an advocate of contract changes, as appropriate.
 Constructively challenge informal contract changes at your
initial reviews with team members.
 Constructively challenge the effectiveness of the contract
changes management at program reviews.
Executive Participation in Contract Visibility Management
 Ensure that corporate information systems benefit the

teams and provide Contract Managers with contract-level
information necessary to manager their contracts.
 Share as much company information as possible.
 Eliminate barriers to sharing information.
 Create a method for exchange of lessons learned between
contracts and programs.
Executive Oversight of Contract Statusing
 Ensure that all contracts are properly planned.

 Ensure that you receive status on all contracts and related projects.
 Do not allow activity reports to substitute for status reports.
 Do not substitute paper optimism for intelligent, perceptive judgment.
 Verify that the reported status is consistent with contract results.
 Focus on corrective actions in status meetings.
 Ask how you can help in the corrective action process.
 Be sure that you are not a bottle-neck to required resources.
Executive Development of Contract Management
 Ensure your managers have the correct corporate and

contract management vision.
 Know your managers and their leadership styles. Provide
training or counseling to correct deficiencies.
Executive Support of Contract Corrective Action
 Publicize expectations that contracts be technically

compliant, completed on time, as as much under budget
as possible.
 Require the use of Action Item Registers to drive
corrective actions to closure.
Exercise 4: What Executives Should Know & Do!
• Individually, review charts all of the previous charts in this

unit, which contain boxes.
• Place a check in each box, which you consider
yourself and/or your organization/company executives do
well.
• Count up the number of checked boxes you have on the
previous charts in this unit.
• Executive Assessment
Excellent: 45 to 50
Good: 39 to 44
Average: 34 to 39
Below Average: 28 to 33
Poor: 27 or below
Why Executive Management Has an Essential Role In
Contract Management
• Contract Management is a complex process, difficult to install as a
corporate culture.
• Exceptional Contract Managers may institute sound practices in spite
of the prevailing corporate culture.
• Most Contract Managers will take their guidance from the prevailing
culture.
• A non-supportive or misinformed Executive Management will
generally lead to ineffectual Contract Management practices.
Organizations that routinely execute contracts successfully

usually have a well understood and practiced Contract
Management culture backed by strong, knowledgeable,
Executive Management Support.
Unit 5: Pre-Award Phase
& Best Practices
Contract Management Process - Buyer’s and Seller’s steps
Phase 1: Preaward
Planning Planning

Seller
Bid decision
6. Contract
Buyer Contract Award Closeout or
Termination
4. Contract 6. Contract
5. Contract
Seller Negotiation & Contract Award Closeout or
Administration

Contract Management Process: Preaward Phase
Buyer’s steps
3. Solicitation
planning planning
Procurement Planning
 Is the process of identifying which buyer needs can be

best met by procuring products or services outside the
organization
 Involves the buyer’s consideration of –
 Whether to procure (make-or-buy decision)
 How to procure (contracting method)
 What to procure (products and services needed)
 How much to procure (quantity desired)
 When to procure (delivery schedule)
Procurement Planning (continued)
Input Tools & Techniques Output
• Scope statement • Make-or-buy analysis • Procurement

• Product description • Expert judgment management plan
• Procurement resources • Contract type selection • Statement of work
• Market conditions • Opportunity and Risk
• Other planning output Management Process
• Constraints • Contract terms and
conditions
• Assumptions
Reference Text
Solicitation Planning
• Involves preparing the documents needed to support the

solicitation
• Procurement • Standard forms • Procurement

management plan • Expert judgment documents
• Statement of work • Evaluation criteria
• Other procurement • Statement of work
planning output updates

Solicitation
 Involves obtaining information (bids and proposals) from

perspective sellers on how project needs can be met
 Types of solicitations
 Request for proposals (RFP)
 Request for tenders (RFT)
 Request for quotations (RFQ)
 Invitation for bids (IFB)
 Invitation to bid (ITB)
 Types of information-only solicitations
 Request for information (RFI)
 Request for information and qualifications (RFI&Q)
Solicitation (continued)
• Procurement • Bidder conferences • Solicitation that

documents • Advertising leads to the
• Qualified seller lists submission of bids
or proposals

Contract Management Process: Preaward Phase
Seller’s steps
2. Bid/no-bid 3. Bid or
1. Presales
decision proposal
activity
making preparation
Presales Activity
• Is the process of early involvement with potential buyers,

understanding and influencing their needs, plans, and
expectations
• Customer • Proactive sales • Potential and existing

Identification management customer lists
• Determination of • Market research • Customer-focused
customer needs • Competitive analysis sales plan
• Evaluation of • Competitive analysis
competitors report

Bid/No-Bid Decision Making
• Is the process of evaluating risks vs. opportunities and

making an informed and intelligent decision
• Solicitation • Opportunity and • Bid/no-bid decision

• Buyer-specific Risk Management • Justification document
information process for bid/no-bid
• Competitive analysis • Opportunity and Risk decision
report Management (ORM)
Model
• Seller’s strategic
objectives and plans
Adapted from Reference Text, pg. 93

Bid or Proposal Preparation
• Solicitation • Compliance matrix • Bid or proposal

• Analysis of • Standard terms and • Supporting
solicitation conditions documentation
• Competitive analysis • Past proposals • Oral presentation
report • Lessons-learned
• Past proposals database
• Executive summary

Pre-Award Phase – Best Practices (Buyer)
Best Practices Observed Extent of Application
Decide what products, services, or Inconsistent
solutions you need. (Use of off-the-
shelf products or services)
Conduct market research and Widespread
benchmarking of industry practices
Develop a solicitation that clearly Limited – but growing

and concisely communicates your
needs in terms of performance
Use of risk management process Inconsistent
Create Standard Terms and Widespread

Conditions (Ts and Cs)
Develop Qualified Seller’s Lists Widespread
Use draft solicitations to obtain Widespread

seller’s feedback
Conduct Seller’s conferences to Inconsistent
address solicitation concerns
Adapted from Reference Text, pg. 97

Pre-Award Phase – Best Practices (Seller)
Identify potential customers early Widespread
Evaluate competitors and create a Inconsistent

competitive analysis report
Conduct proactive sales mgmt. Know Widespread
& Influence customer needs
Conduct market research and Widespread
benchmarking of industry
Develop customer-focused sales plans Inconsistent
Apply an Opportunity and Risk Inconsistent

Management process
Develop and use a proposal lessons Limited
learned database
Provide oral presentations of proposals Limited
Conduct proposal reviews before Widespread

submission
Develop and use a Proposal Inconsistent

Requirements Compliance Matrix
Adapted from Reference Text, pg. 97 - 98

Unit 6: The Award Phase
& Best Practices
Phase 1: Preaward
Planning Planning

Seller
Bid decision
6. Contract
Termination
5. Contract
Administration

Contract Management Process: Award Phase – Source Selection
Buyer’s Step
 Source selection is the process of applying evaluation
criteria to bids or proposals to select a supplier
 Price may or may not be the primary determinant
 Other criteria may be used: technical, past performance,
quality, schedule, reputation, management, and so on
 A weighting system may be used to select a source or to
rank all proposals to establish a negotiation sequence
(continued)
 This process may be simple to very complex

 May involve one person or a large team
 May use a screening system, establishing
minimum requirements of performance
(continued)
• Proposals • Contract negotiation • Contract

• Evaluation criteria • Weighting system
• Evaluation standards • Screening system
• Organizational • Independent estimates
policies

Source Selection Process
 Process of comparison and decision

 Informational prerequisites
 Knowledge of required goods and services
 Knowledge of industry
 Knowledge of market practices
 Selection criteria elements
 Attributes of interest
 Standards
 Weights
Contract Management Process: Award Phase – Contract
Negotiation and Formation
Seller’s step
 The process of having your bid or proposal evaluated
by the buyers, anticipating and responding to
questions the buyer may have, negotiating, and
forming a contract between the parties
Contract Management Process: Award Phase – Contract
Negotiation and Formation (continued)
• Solicitation • Contract negotiation • Contract

• Bid or proposal process or
• Buyer’s source • Highly skilled • Walk away
selection process negotiators
• Seller’s past • Market and industry
performance practices
• Previous contracts • Legal review
• Competitive analysis
report

Contract Negotiation: A Complex Activity for Both Buyers and
Sellers
Successful negotiators must –

 Have the ability to perceive and comprehend factors
shaping and characterizing the negotiation
 Exhibit behavioral and analytical skills to diagnose
problems and adapt winning strategies
 Understand their own personalities and personal ethics
and values
 Know their products and services, desired terms and
conditions, and pricing strategy
We All Negotiate Every Day
 Personal: Family and friends

 Professional:
 Internal Organization
 External: Buyers and subcontractors
Question: How well do you negotiate?

Negotiation Approaches
 Intuitive approach
 Nonstructured
 Informal – not written
 Inconsistent results
 Process approach
 Structured, planned
 Documented actions
 More consistent results
What Is Different About Global and Domestic Negotiations?
 Political and legal issues

 International monetary factors
 Foreign governments and their bureaucracies
 Potential instability and sudden change
 Cultural diversity
 Export/Import regulations
Key to a Successful Contract Negotiation
Preparation and planning

 Effective planning
 Negotiation skills
 Effective follow-up documentation
Getting to Yes Means -
 Getting past no
 Getting around “yes, but—”
 Focusing on common interests not positions
 Use of joint problem solving
 Internally
 Externally
 The right solution is a matter of perspective –
buyer or seller
Buyer’s Negotiation Objectives (Interests)
 Acquire necessary supplies and services 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)
Seller’s Negotiation Objectives (Interests)
 Profitability (long-term vs. short-term)

 Market share
 Satisfy needs of the customer
The Contract Negotiation Process: The Risk Zone
Three Phase 1: P renegotiation Phase 2: C onducting P hase 3: P ostnegotiation

C ontract
P hases Planning N egotiations A ctions A ward
Key 1. P repare yours elf and your team 1. Determ ine who has authority 1. P repare negotiation m inutes
S teps or 2. K now the other party 2. P repare the facilities 2. S end m intues ot the other party
actions 3. K now the big picture 3. Us e an agenda 3. O ffer to write up the contrac t
4. Identify objectives 4. Introduce the team 4. P repare the contract

5. P rioritze objec tives 5. S et the right tone 5. P repare negotiation results
6. Create options 6. E x change inform ation s um m ary
7. S elect fair s tandards 7. Focus on objec tives 6. O btain required reviews and
8. E x am ine alternatives 8. Us e s trategy, tac tics, and approvals using CM S
9. S elect y our s trategy, tac tic s, countertac tic s 7. S end c ontract to the other party
and countertactic s 9. M ake counteroffers for signature

10. Develop a solid and approved 10. Docum ent agreem ent or know 8. P rovide copies of the contract
team negotiation plan when to walk away to affected organizations

9. Doc um ent lessons learned
10. P repare contract adm inistration
plan
Adapted from Reference Text: pg. 145

Phase 1: Prenegotiation Planning (10-Step Process)
Step 4
Step 1 Prepare Step 2 Step 3 Step 5
Identify
yourself and your Know the Know the big Prioritize
objectives
team other party picture objectives
(interests)
Step 10
Step 9
Develop a
Step 6 Step 7 Step 8 Select your
solid and
Create Select fair Examine strategy,
approved team
options standards alternatives tactics, and
negotiation
countertactics
plan
The Importance of Price
Schedule
Customer Technology
Obligations (R&D)
Type of Services
contract Price
Miscellaneous Ts and Cs
Products

The Importance of Terms and Conditions
Payments
Inspection and
And so on
acceptance
Delivery
terms
Financing
Ts and Cs:
Obligations Cost, Risk,
Warranties
and Value
Spares
Taxes
Exchange rate Guarantees

Indemnity
and liability

Phase 2: Conducting Negotiations
Step 1 Step 2 Step 3 Step 4 Step 5

Determine who Prepare the Use and Introduce the Set the right
has authority facilities agenda team tone
Step 7 Step 8 Step 10

Step 6 Step 9
Focus on Use strategy, Document
Exchange Make
objectives tactics, and agreement or
information counteroffers
(interests) countertactics walk away
Tactics and Countertactics I (Buyer vs. Seller)
Tactics Countertactics
 Attacks (hot buttons)  Disclose the attack
 Personal insults  Strike back
 Emotional reactions  Give in
 Professional insults
 Break off
 Explore alternatives
 Tricks  Know the truth

 False data  Have the right data
 No authority to negotiate  Establish in writing who has authority
 Escalate

Tactics and Countertactics II (Buyer vs. Seller)
 Arbitrary deadlines  Agree with deadline
 Counter the offer with compromise
schedule
 Refuse to change schedule
 Limited availability  Coordinate schedules in advance

 Counter with your limited availability
 Be flexible
 Escalate
Tactics and Countertactics III (Buyer vs. Seller)
 Third-party scapegoat  Escalate to third party
 Real approval required  Compromise
 Pretend such approval is required
 Giveaways  Disclose them as giveaways

 Exchange giveaways
Tactics and Countertactics IV (Buyer vs. Seller)
 Good guy – bad guy  Counter with bad guy – good guy
 Escalate
 Prolonging the negotiation  Take a break or have a caucus

 Maintain silence
Tactics and Countertactics V (Buyer vs. Seller)
 Delays  Start on time
 Submission of data  Claim limited availability
 Start of negotiation  Leave or create greater delays
 Return from breaks
 Keep things on track

 Diversions
 Refocus team
 Questions
 No phones in room
 Telephone calls
 No interruptions
 Faxes
 Personal breaks  Take a break
Tactics and Countertactics VI (Buyer vs. Seller)
 Stonewall  Give in
 Take it or leave it!
 I shall not move!  Say “Yes, and...”
 Walk away
 Escalate
 End-of-quarter or end-of-year  Settle in next quarter or next year

negotiation pressure
Factors in Selecting Contract Types
 Capability of seller’s accounting system

 Uncertainty in the cost estimate
 Type and complexity of the requirements
 Urgency of the requirement
 Marketplace and competition
 Seller’s technical capability
 Administrative costs to both parties
 Size and amount of the contract
Contract Pricing (Incentives) – Best Practices (Buyer & Seller)
Use performance – based incentives Inconsistent
Develop clear, concise, and objectively Inconsistent
measurable incentives
Create a proper balance of incentives – Inconsistent
cost, schedule, & quality
Make incentives challenging yet Inconsistent
attainable
Use a combination of incentives Limited
objectively and subjectively determined
Consider using socio-economic Limited

incentives
Tie on-time delivery to cost and/or Limited
quality performance criteria
Avoid rewarding sellers for minimal Widespread
performance
Reference
Text, Pgs. Use a combination of positive and Inconsistent
118-119 negative incentives
Include incentives for early payments Widespread
Ensure all incentives have limits Inconsistent

Phase 3: Postnegotiation Actions
Step 1 Step 2 Step 3 Step 5 Step 6

Step 4
Prepare Send minutes Offer to write Prepare Obtain required
Prepare the
negotiation to the other up the negotiation results reviews and
contract
minutes party contract summary approvals
Step 7 Step 8 Step 10

Step 9 Contract
Send contract Provide copies Prepare Contract
Document Administration
to the other of contract to contract closeout or
lessons Contract
party for affected administration termination
learned Implementation
signature organizations plan
Understanding How Negotiations Work
For about 15 years of my life, I watched negotiators I was

trying to learn from and finally come to the realization
that they did not know what they were doing. If something
went wrong and I asked, “Well, why did it go wrong?”
they could not tell me. If I asked, “What did you do
right?” they could not tell me. The insight I got was that
no one knew. You can assemble a group of great people
who have taken part in great negotiations for a discussion,
and they all come up with completely different reasons for
why the negotiation was successful and how it worked.
- GERARD I. NIERENBERG
Contract Award Phase – Best Practices (Contract Negotiation &
Formation) (Buyer & Seller)
Select and train skilled negotiators to Inconsistent
lead the contract negotiation process
Select your negotiation strategy, tactics, Inconsistent
and countertactics
Use an agenda during contract Widespread
negotiations
Do not be too predictable in your Inconsistent
tactics
Adapted
from
Develop an approved negotiation plan Widespread
Reference
Text, pg.
155 Conduct mock negotiations Widespread
Document your agreements throughout Widespread
the process
Understand everything affects price Inconsistent
Tailor Ts & Cs to the deal Widespread

Know what is negotiable and what is Widespread
not
Know when to walk away Inconsistent
Exercise 4: Contract Negotiations Q&A
1. When does the negotiation begin?
2. Who is normally the chief negotiator?
3. Are you aware of any executives within your organization who make
commitments before the contract is negotiated?
Exercise 4: Contract Negotiations Q&A
4. Do you require and review prenegotiation plans and objectives?
5. Have you ever walked away from a multi-million dollar deal because
the risks outweighed the benefits?
Unit 7: Post-Award Phase
& Best Practices
Phase 1: Preaward
Planning Planning

Seller
Bid decision
6. Contract
Termination
5. Contract
Administration

Contract Administration
The principal objective of contract administration

for both the buyer and the seller is to ensure
fulfillment of contractual obligations by all parties
to the contract.

Contract Management Process: Postaward Phase – Contract
Administration
• Contract • Contract analysis and • Documentation

• Work results planning • Contract changes
• Change requests • Preperformance • Payment
conference • Completion of work
• Invoices and payments
• Performance measuring
• Other tasks and reporting. Payment
• Contract system
Administration • Change control system
policies
• Dispute management
system

Key Contract Administration Policies for Buyers and Sellers
 Compliance with terms and conditions

 Effective internal and external communication and
control
 Effective control of contract changes
 Effective resolution of claims and disputes
Reasons for Noncompliance
The six great excuses

 I never saw the contract.
 I didn’t have a chance to read the contract.
 I didn’t understand the contract.
 I thought the contract was wrong.
 That’s not what the contract says!
 What contract?
Need for Communication Between Buyers and Sellers
 Contracts are relationships

 Relationships are not cast in concrete-they change with
circumstances
 Contractual relationships are dynamic
 Communication is essential for effective responses to
change
 Sharing information is necessary, but not sufficient?
Main Tasks for Buyers and Sellers
 Analyze obligations, assign responsibilities, and set

performance goals
 Observe, document decisions and events, and report
performance
 Identify and analyze variances
 Take corrective action
 Follow up
 Manage changes and disputes
 Close out contract
Contract Analysis
 Read all terms and conditions

 Separate into technical and administrative requirements
 Develop contract work breakdown structure to at
least three levels
 Identify who is responsible for work elements
Contract Work Breakdown Structure
1 .0
C o n tra c t
R e q u ir e m e n t s
1 .1 1 .2
T e c h n ic a l A d m in is t r a t iv e
r e q u ir e m e n t s r e q u ir e m e n t s
1 .1 .1 1 .2 .1
S p e c if i c a t io n s P a y m e n t
p ro c e d u re s
1 .1 .2
W o rk s ta te m e n t 1 .2 .2
C h a n g e
1 .1 .3 m a n a g e m e n t
S c h e d u le
1 .2 .3
D is p u t e s
Setting Goals
 Discuss requirements with affected managers

 Determine
 Who
 What
 When
 Where
 How
 Seek agreement and/or commitment
Preperformance Conference
 Meeting between buyer and seller

 Held before start of performance
 Review contract terms and conditions
 Establish administrative procedures
 Establish communication protocols
 Keep and distribute meeting minutes
Records and Files for Buyers and Sellers
 Official copy of contract and modifications

 Conformed working copy of contract
 Correspondence file, log or index, and suspenses
 Telephone log
 Records of deliveries, inspections, acceptances
 Progress and surveillance reports
 Property administration records
 Invoice and payment records
Progress Reports
 May be oral or written

 Include observations and conclusions of others
 Present information that is not “real time”
 Afford opportunities for errors:
 Accuracy
 Objectivity
 Honesty
 Timeliness
 Competence of observer
Report Considerations
 Subject Matter
 Contents
 Raw data
 Analyses
 Conclusions
 Combination of above
 Frequency and timing
 Format
 Address(es)
Records and Documentation
 Main purpose: Reduce reliance on human memory

 Efforts must be thorough and consistent
 Essential for –
 Proof of performance
 Management of changes
 Proof of claims
 Evidence in case of arbitration or litigation
Contract Change Management
Contract
Change Management Actions
 Changes modify contract requirements, terms, and

conditions
 They add, delete, or both
 They affect the triple constraints:
 Performance
 Schedule
 Cost
Change Management Actions (continued)
 Modifications are inevitable

 Change provides an opportunity for additional sales
 Management objectives include –
 Control
 Customer Satisfaction
 Cost recovery
 Schedule adjustment
 Profit
Change Authorization
 Ensure that only authorized representatives make,

accept, or negotiate contract changes
 Add the appointed representatives to the contract
 Change orders in writing, when possible
 Confirm oral changes in writing
Notification of Changes
 Notify other party of actions or inactions that are

changes, such as constructive change
 Notify promptly, in writing
 Provide full description and explanation
Control of Claims and Disputes
 Contract agreements are not perfect

 Misunderstandings are inevitable
 Claims and disputes –
 Are a normal part of contracting process
 Must not be allowed to disrupt performance
 Must be resolved promptly and dispassionately
Resolution of Disputes
 Negotiation, compromise
 Arbitration
 Submission of dispute to disinterested person or
persons for final decision
 Objective is final disposition in inexpensive,
expeditious, and less formal manner
 A substitute for litigation
 Litigation
Contract Management Process: Postaward Phase – Contract
Closeout
Buyer’s and seller’s steps
 Contract closeout involves both product verification and
administrative closeout
• Completion of work • Compliance verification • Product or service
• Contract • Contract completion
documentation documentation • Acceptance and final
or • Contract closeout payment
• Termination notice checklist • Contract closeout or
• Termination termination documents
• Documented lessons
learned

Sample Contract Closeout Checklist
Sam ple Contract Closeout Checklist

Yes N/A No
1. All products and/or services required have been provided to the buyer.
2. Documentation adequately shows receipt and formal acceptance of
all contract items.
3. No claims or investigations are pending on this contract.
4. Any buyer-furnished property or information was returned to the buyer.
5. All actions related to contract price revisions and changes have been
concluded.
6. All outstanding subcontracting issues have been settled.
7. If a partial or complete termination was involved, action is complete.
8. Any required contract audit is now complete.
9. The final invoice has been submitted and paid.
Types of Terminations
 Termination by mutual agreement

 Termination for cause or default
 Termination for convenience (most widely used
in government contracting)
Postaward Phase – Best Practices (Buyer & Seller)
Read and analyze the contract Widespread
Develop a Contract Administration Limited
Plan
Assign a Contract Administration Inconsistent
Manager
Comply with Contract Ts and Cs Inconsistent
Control contract changes via contract Inconsistent

change process
Resolve Claims & Disputes promptly Widespread
Develop a Contract Work Breakdown Widespread

Structure
Manage the invoice and payments Widespread
process
Enforce Contract Ts and Cs Inconsistent
Develop and Implement Contract Inconsistent
Admin policies & guidelines
Adapted from Reference Text: pgs. 188-189

Postaward Phase – Best Practices (Buyer & Seller)

Provide copies of the contract to all Widespread
affected organizations
Maintain a conformed copy of the Inconsistent
contract
Document communications Inconsistent
Prepare & distribute meeting minutes Widespread
Clarify team members roles and Widespread

responsibilities
Provide leadership support throughout Inconsistent
Prepare contract close-out checklists Widespread
Document Lessons Learned Inconsistent
Share Best Practices Widespread

Reward Team Performance Inconsistent
Adapted from Reference Text: pgs. 188-189

Exercise 5: The Postaward Phase – Q & A
1. What is the purpose of contract administration?
2. What are the main tasks of contract administration?
3. How important is change management to the success

of your business?
Exercise 5: The Postaward Phase – Q & A
4. How should contract disputes be resolved between the

buyer and the seller?
5. How important is it to enforce the terms and conditions

of your contracts?
6. How important is it to document and share lessons

learned and best practices?
A Long-Shot Prediction (Future of Contract Managers) by W. Gregor MacFarlan
• Contributory and knowledgeable team members throughout the contract

management process.
• Innovative thinkers for strategic decision making, business alternatives,
and partnering.
• Useful knowledge of multiple markets and the use of market research.
• Strong internal and external communication and facilitation skills.
• Proven skill in using computer-based programs and e-business media.
• Staying connected through an organization’s digital nervous system.
• Customer-service attitude and results.
• Concern for quality whatever the assignment.
• Continuous learning through professional certification.
How would you be evaluated today given these metrics?

Best Contracting Practices For Business

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Best Contracting Practices

What Are • Unleashing Buying and Selling

• Relaxed barriers to entry - Higher cost of integration

• Increased pricing flexibility

Increased Range of Services and

• Use of electronic catalogs, self-service internet

Maximizing e-procurement Success

Procurement Today: e-procurement:

Requisition One to 12 levels of manual Transactions automatically

Fax, e-mail, EDI direct to

Reference Text, pg. 5

• Integrated - means providing Enterprise

 ForumPass offers a collaboration solution to address

 Balances security with access to key collaboration partners

• Project Management and Administration

DOD Shared Workspace

Bill Gate’s New Rules

Reference Text, pg. 8

Reference Text, pg. 8

• Divide into teams of 3 – 4 people

Advantages Disadvantages Executive Actions

• The power of e-Business has been unleashed by the advent of

(1) Unleashing Corporate Buying & Selling

Ask Align Fulfill

Clarify Control Meet or Exceed

Listen Understand Negotiate Agree Communicate

• Compare Expectations to • Meet with customer

Reference Text, pg. 14

 Develop a changes management process

Reference Text, pg. 14

Three • Complementary Strength

Discuss Examples of Partnerships

Partners: Two or more People or organizations working

Loyal Customer: A buyer who chooses to do business with a

Satisfied Customer: A buyer who buys from a particular seller but

Customer Need/Desires = Business Partnership

Reference Text, pg. 16

1. On a scale of 1 (Low) to 10 (High), How effective is your

2. On a scale of 1 (Low) to 10 (High), How well does your

3. On a scale of 1 (Low) to 10 (high), How well does your

 A process of planning, forming, and administering

Buyer Contract Seller Contract Subcontractor(s)

 Sources of business: For sellers

1. Presales 2. Bid/no-bid 3. Bid or Proposal

Phase 2: Award Phase 3: Postaward

Reference Text, pg. 20

Similarities * (Similar – CM Process)

• Demographics and work environments relate:

• Which metrics are currently used by your organization to

• Which metrics will be used in the next 3 to 5 years?

1. Does your organization/company have a well-defined Contract

2. What is the role of the Contract Manager in your organization/

3. What is the Executive’s role in the CM process?

What is the role

– Usually not well trained in contract management

• There is often a negative bias against contract management

• Contract management appears overbearing to the

 Create a clear vision, mission, and goals.

Separateness and distrust prevail

• Spontaneous, positive interpersonal interaction

 Understand – and use – the correct CM terminology yourself.

One thing said, ten things understood