Post on 03-Jan-2016
description
South West Employers
Contract Writing & Supplier Relationship Management
Trainer: Date:
Activity 1 - Icebreaker
Is a middle child
(1 point)
Likes to eat Japanese food
(1 point)
Is wearing pink
(1 point)
Plays a team sport
(1 point)
Speaks another language
(1 point)
Wears glasses
(1 point)
Is over 6’ tall
(1 point)
Has less than four letters in his/her
first name
(1 point)
Has a last name that starts with a W
(1 point)
Has green eyes
(1 point)
Owns a Vauxhall car
(2 points)
Likes classical music
(2 points)
Preferred Maths to English in school
(2 points)
Knows someone famous
(2 points)
Has red hair
(2 points)
Has more than 2 children
(3 points)
Has made a parachute jump
(3 points)
Has visited more than 10 countries
(3 points)
Has more than 7 letters in his/her
first name.
(3 points)
Has a birthday in the same month as me
(3 points)
One unusual fact I have found out about someone here is? ____________________________ (5 points)
How many points do you have? _______
Activity 2 - Groundrules
Groundrules help to create a positive and safe learning environment. Discuss and agree a list of between 3 and 5 rules that all participants are comfortable with
Objectives
At the end of the session, participants will have knowledge and an understanding of:
Review of the main principles of contract drafting & contract evaluation:
Formation of contracts and the role of tendering
Key terms
Evaluating & finalising terms and conditions
Tools and techniques
Buyer positioning
Supplier positioning
SMR account plans and review meetings
Sections
1. Formation of contracts and tendering
2. Terms, management and termination
3. Theory, tools and techniques
4. Account plans and conflict resolution
The procurement cycle
Planning
Enquiry
Implement
Define & review need
Define & review need
Develop specification
Develop specification
Determine procurement strategy
Determine procurement strategy
InviteInvite
Pre-qualify suppliers
Pre-qualify suppliers
Issue RFQ or ITT
Issue RFQ or ITT
Evaluate tenders
Evaluate tenders
Negotiate?Negotiate?
Contract award
Contract award
Manage implementation and transition
Manage implementation and transition
Manage contract performance
Manage contract performance
Exit & termination
Exit & termination
What is a contract?
“…a legal agreement to exchange value between two (or more) parties’’
Offer
Acceptance
Consideration
Intention to create legal relations
Capacity
Agreement
Offer v Invitation to Treat
Offer:
Provides details of the offer
Offerer indicates willingness to enter into a legal binding agreement
Must be communicated
If not communicated, then incapable of being accepted
Invitation to treat:
Invites offers but does not express willingness to enter into a legally binding agreement
Provides information only – not an offer in itself
Example: catalogue price list
Termination of an offer
Rejection
Acceptance
Counter-offer
Revocation
Time (lapsed)
Acceptance
Unconditional acceptance leads to agreement
Acceptance should be communicated to the offerer (preferably in writing)
If posted, acceptance is taken from the point of posting (the ‘postal rule’) otherwise when received
Watch out for acceptance by performance
Consideration
There is no contract if one party promises to do something but the other party promises nothing in return – no “deal” has been struck
Consideration is something of value (in the eyes of the law) that is given or accepted in return for a promise
Consideration must be sufficient but not necessarily adequate – the law is not concerned with how “good a deal has been done”
Intention
Both parties must intend to enter a legally binding contract:
In social/domestic agreements the law presumes no intention to create a legal relationship unless there is evidence
In business/commercial agreements presumption is that the parties intended to create a legal relationship
Battle of forms
Occurs when both parties to a contract try to ensure their respective standard terms and conditions will govern that contract
In a battle of forms situation acceptance often takes place when the purchaser accepts the goods
Activity 3 – Contract Law
Split into small groups
Read through each of the 4 scenarios and agree your answers to the questions
Feedback your answers to the wider group and discuss your findings
The procurement cycle
Planning
Enquiry
Implement
Define & review need
Define & review need
Develop specification
Develop specification
Determine procurement strategy
Determine procurement strategy
InviteInvite
Pre-qualify suppliers
Pre-qualify suppliers
Issue RFQ or ITT
Issue RFQ or ITT
Evaluate tenders
Evaluate tenders
Negotiate?Negotiate?
Contract award
Contract award
Manage implementation and transition
Manage implementation and transition
Manage contract performance
Manage contract performance
Exit & termination
Exit & termination
Agreeing contract terms
Evaluating and agreeing contract terms can be time-consuming and costly
A negotiation on terms will invariably lead to a compromise that is suboptimal for you as the contracting authority
Where you can: avoid
Good tendering practice helps to reduce the degree of negotiation
Negotiating contracts It is usually better to get your terms in first
Put Terms & Conditions into your ITT/RFQ
The other party is already in the position of having to negotiate towards their terms
However be careful if you do not have the expertise, ensure that your T&Cs are right for you
For complex contracts get legal help from an expert
For high risk or high cost contracts get legal advice
Most Contract Procedure Rules or Standing Orders have specific guidance and requirements on this
Evaluating terms
Adopt a Red Amber Green (RAG) status approach
Red – clauses that must be amended
Amber – clauses that you would negotiate
Green – clauses that are acceptable
Activity 4 – Terms
Your manager has requested an urgent purchase
Each of the 3 quotes you received were made on the suppliers’ T&Cs
You cannot afford to miss the timescales, so you will need to evaluate the preferred supplier’s (Strefen Filters) T&Cs and focus on the key priorities
Use a R-A-G approach to identify which T&Cs you need to discuss with the preferred supplier
The contract
Includes:
T&Cs
Specifications, drawings, standards, key documents
Verbal discussions, decisions, instructions
Records of conversations (formal or informal)
Custom and practice
Rarely ‘set in stone’ – living document
Sections
1. Formation of contracts and tendering
2. Terms, management and termination
3. Theory, tools and techniques
4. Account plans and conflict resolution
Implied and express terms
Implied Terms: A contract term that has not
been expressly agreed, written and included in a contract
It is ‘implied in the contract’ by law whether or not both parties agree or not National and international
legislation Case law
May also be dictated by local custom fact obligation
Express Terms:
Verbal statements (before and/or during the contract)
Terms and Conditions on forms (such as Purchase Orders)
Written clauses in a contract
Contract terms
Three types of term:
Conditions
Vital to the agreement, if breached can lead to termination of contract and damages
Warranties
Of lesser importance to the parties, if breached may lead to damages but not termination of contract
Innominate
‘Intermediate’ – decided by the Court
Specific to each contract
Key clauses
Payment Terms
Indemnity & liability clauses
Confidentiality and data protection
Exclusion clauses
Dispute resolution
Governing law / jurisdiction
Transfer of ownership & risk
Contract management
A single nominated role
Responsible for:
Delivery of the contract
Supplier relationship management
Supplier development
Performance management
Dispute management and resolution
Contract variations
Supplier risk management/mitigation
Contract termination
Documenting contract progress
Change control
Change happens!
Employ contractual variation procedure
Review consequences of change before ordering it (cost, time, delivery)
Issue CCN and have it signed by return
Log CCNs – forms part of contract
Contract fileShould include:
Specification
Original tender / RFQ
Bid correspondence (including clarifications)
Evaluation scoring
Award letter
Contract
Performance measures
Minutes of supplier review meetings
Evidence of supplier performance
Agreed variations
Any other relevant documents
Must be kept up to date
Regulatory compliance
Provides detailed audit trail
Due process
Compliance
Public interest
Probity
Political sensitivity / interest
Freedom of Information Act 2000 implications
Contract termination
All contracts terminate
Successfully through the discharge of performance
Unsuccessfully through breach or determination
Key issues:
Exit provisions?
Contingency?
Control?
Avoidance of complete breakdown (…meltdown!)
Exit strategy
Commercial “pre-nup”
Handover
Information
Resources
Ramp-down provisions
Surviving provisions post-contract?
Maintaining relationships beyond the contract
Early termination for convenience?
Contingency planning
Sections
1. Formation of contracts and tendering
2. Terms, management and termination
3. Theory, tools and techniques
4. Account plans and conflict resolution
Relationships
“You’re not going to win someone over by thumping them. You’ve got to love them to death”
Source: Bob Crow (General Secretary of the RMT) 13th September 2007 – The Independent
Relationship spectrum
RELATIONSHIP SPECTRUM
adve
rsar
ial
arm
’s L
engt
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ansa
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nal
stra
tegi
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lianc
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sing
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ourc
ed
outs
ourc
ing
co-d
esti
ny
distant relationships closer relationships
clos
er ta
ctic
al
part
ners
hip
adve
rsar
ial
arm
’s L
engt
htr
ansa
ctio
nal
stra
tegi
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lianc
e
sing
le s
ourc
ed
outs
ourc
ing
co-d
esti
ny
distant relationships closer relationships
clos
er ta
ctic
al
part
ners
hip
Relationship spectrumad
vers
aria
l
arm
’s le
ngth
tran
sact
iona
l
stra
tegi
c al
lianc
e
sing
le s
ourc
ed
outs
ourc
ing
co-d
esti
ny
distant relationships closer relationships
low
none
none
to get a good deal
instant
may not do, or will do on own
do on own
high
lots
lots
to maintain & develop relationship
eternity
done together
have integrated process for
quality of information exchange
trust
openness
commitment
duration
risk assessment
risk management
clos
er ta
ctic
al
part
ners
hip
RELATIONSHIP SPECTRUM
Definition of supplier relationship management
The proactive management of business relationships to ensure competitive advantage and excellent customer service.
Driving visibility, compliance, service delivery, operational and cost efficiencies and improvements
Components of SRM
Contract management
Managing delivery
Managing the relationship
Performance management
Supplier development
Contract administration
Dispute management and resolution
Relationship strategies
Strategic Suppliers
Key Suppliers
TacticalSuppliers
Relationship category: Relationship strategy:
Breakthrough performance
Contract delivery
Performance management& development
Typical supplier tiers
Tier 1* – StrategicLong term, Value >£1m , high risk
Tier 2 * – KeySpend >£100k (Major contract), medium risk
Tier 3 – TacticalAd hoc, low risk
SRM Supplier Classification
Analysing suppliers and contracts
Relative value
Risk or exposure
TacticalSupplier
Strategic Supplier
Strategic Suppliers (c1%)
Key Suppliers (c19%)
Tactical Suppliers (c80%)
Indicative categorisationAnticipated supplier distribution
Key Supplier
Relative value
Risk or exposure
Leverage
Strategic
Non-critical
Bottleneck
Portfolio Analysis
Supplier perception analysis
Irritating Customer“You’re a nuisance”
Exploitable Customer“Milk it”
Low orDeclining
High orIncreasing
Relative Value of our Businessto the Supplier
Low orDeclining
High orIncreasing
Rel
ativ
e A
ttra
ctiv
enes
so
f o
ur
Bu
sin
ess
Developmental Customer“How can we help?”
Preferred Customer“Core business”
Actions:Withdraw from the relationshipAggressively raise pricesReduce effort and resources
Actions:Raise prices to maximisemarginsReduce dependence
Actions:Deploy KAMRegular joint reviewsPursue relationship lock-inSecure long-term contract
Actions:Assess for future growthOpen discussion on futureApply more resourcesConsider for KAM programme
Supplier key account management
Clo
sen
ess
of
Rel
atio
nsh
ip
Low Level of Interdependency Hig h
Arm
’s l
eng
th
In
teg
rate
d
Supplier Classification
Supplier Selling Method
Preferred
PerformanceManaged
PerformancePartner
AlliancePartner
KAM
RelationshipSelling
SolutionSelling
TraditionalSelling
Activity 5 – Client Segmentation
For each of the scenarios, assume the role of the service provider and:
categorise the client
determine a selling method
Sections
1. Formation of contracts and tendering
2. Terms, management and termination
3. Theory, tools and techniques
4. Account plans and conflict resolution
What suppliers think . . . Key things suppliers want from their clients
Mutual respect
• Focus on what the supplier is delivering, not how they do it
Client commitments
• Clients need to deliver their side of the bargain, and commit resource needed
Client Management
• Need an appropriately skilled SRM
Communication
• Share the vision, let the supplier know what is happening, so they can react to change
Governance
• Respect the governance process, do not side step it for a short term advantage
Plus being paid on time
Source: CIPS – Chartered Institute of Purchasing & Supply
Typical account management regime
Supplier Performance Review - Development Suppliers
StrategicReview
Review Frequency Attendees Agenda Inputs Outputs
• Quarterly or monthly,as appropriate.
• Relationshipsponsor.
• SMT relationshipleader & SMT(supplier mgt. team).
• Supplier seniorrepresentative, e.g.key accountmanager, managingdirector, salesdirector etc.
• Review performanceto expectations,objectives and targets over periodusing balancedscorecard.
• Issues, risks andcorrective actions.
• Review supplierimprovement actionplan.
• Value improvementideas log.
• Spend data.• Standard KPIs &
balanced scorecard.• Issues / risks
register.• Supplier improve-
ment action plan.• Supplier survey.
• High impact valueimprovementprojects.
• Updated valueimprovement ideaslog.
• Agreed / updatedsupplier improve-ment action plan.
• Meeting record(minutes).
Supplier Performance Review -
StrategicReview
Review Frequency Attendees Agenda Inputs Outputs
• Quarterly or asappropriate.
• Executivesponsor.
• SRM relationshipmanager & suppliermanagement team.
• Supplier seniorrepresentative, e.g.key accountmanager, managingdirector, salesdirector etc.
• Review performanceto expectations,objectives and targets over periodusing balancedscorecard.
• Issues, risks andcorrective actions.
• Review supplierimprovement actionplan.
• Value improvementideas log.
• Spend data.• Standard KPIs &
balanced scorecard.• Issues / risks
register.• Supplier improve-
ment action plan.• Supplier survey.
• High impact valueimprovementprojects.
• Updated valueimprovement ideaslog.
• Agreed / updatedsupplier improve-ment action plan.
• Meeting record(minutes).
Supplier Performance Review - Development Suppliers (continued)
OperationalReview
Review Frequency Attendees Agenda Inputs Outputs
• Monthly, fortnightlyor weekly asappropriate.
• Ad hoc in responseto operational issuesas required.
• SMT relationshipleader and SMTmembers, asappropriate.
• R&SA user staff, asappropriate.
• Supplier’s keyaccount manager.
• Supplier staff,as appropriate.
• Service / deliveryreview.•Issues / risks.•Performance tooperational targets.•Review impact onsupplier improve-ment action plan.•Escalation issues.
• Weekly or otheragreed reports.
• Balanced scorecard.• Issues / risks
register.• Actions from
previous meetings.
• Agreed actions.• Agreed escalations.• Meeting record.
Supplier Performance Review -
OperationalReview
Review Frequency Attendees Agenda Inputs Outputs
• Monthly, fortnightlyor weekly asappropriate.
• Ad hoc in responseto operational issuesas required.
• SRM relationshipmembers, asappropriate.
• FRS staff,as appropriate.
• Supplier’s keyaccount manager.
• Supplier staff,as appropriate.
• Service / deliveryreview.•Issues / risks.•Performance tooperational targets.•Review impact onsupplier improve-ment action plan.•Escalation issues.
• Weekly or otheragreed reports.
• Balanced scorecard.• Issues / risks
register.• Actions from
previous meetings.
• Agreed actions.• Agreed escalations.• Meeting record.
Activity 6 – Account Management Plan
Read the case study and complete the Account Management Plan
Competition analysis
THREAT OFNEW ENTRANTS
THREAT OFSUBSTITUTES
BARGAININGPOWER
OF BUYERS
RIVALRY AMONGEXISTING
MARKET FIRMS
BARGAININGPOWER
OF SUPPLIERS
Adapted from: Porter (1980)
External environment
Political
Economic
Sociological
Technological
Environmental
Legal/regulatory
Ongoing supplier reviews
Regularly check the following:
Insurance provisions
Financial standing/credit risk
Health & Safety record
Changes in key personnel
Any other documentation or accreditation requirements
Policies, such as equal opportunities, sustainability
Business continuity/contingency arrangements
Any other relevant documentation
Always take and retain minutes of review and
other meetings with
suppliers
Key aspects of SRM
Effective SRM is founded upon:
Sharing information
Working collaboratively
Team-working
Regular communications (two-way)
Joint problem-solving
Honesty
Mutual understanding
Openness
Trust
Conflict resolution - choices
Negotiation
Mediation
Arbitration
Litigation
Litigation is the LAST resort
Objectives
At the end of the session, participants will have knowledge and an understanding of:
Review of the main principles of contract drafting & contract evaluation:
Formation of contracts and the role of tendering
Key terms
Evaluating & finalising terms and conditions
Tools and techniques
Buyer positioning
Supplier positioning
SMR account plans and review meetings