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1 2 Holly K. Walker, CPCM Corporate Learning Solutions and Contract Mgmt. Consultant Introduction to Commercial Contracts Understanding the Basics Session #: 310 April 16 1:30 2:30 pm 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 THE PARTIES TO AN AGREEMENT ARE, BY MUTUAL CONSENT, usually FREE TO CHANGE THE RESULT OF THE LAW FOR PURPOSES OF THAT AGREEMENT. Uniform Commercial Code United Nations Convention on the International Sale of Goods (CSIG) 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 Match customer requirements to applications, assess opportunities and prepare to assist the customer in the development of the RFP. Seller: Pre- RFP Activity 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 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 ManagementContract Management ResponsibilitiesResponsibilities 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 sellers terms and conditions of response- if appropriate 14 Develop contracts that contain clear deliverables and contractual obligations and standard terms and conditions, while identifying and mitigating all risks. Contract Formation 15 Contract Formation Prepare negotiation plan Negotiate major issues Prepare draft contract Negotiate minor issues Review and approve contract Obtain contract signature 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 companys 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 partys goals Documentation of agreements 19 Buyer and Seller: Contract Buyer and Seller: Contract AdministrationAdministration 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 Buyer and Seller: Contract AdministrationAdministration 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 R
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