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
Elements of a Contract• Competent Parties• Consideration• Lawful Purpose• Certainty of Terms• Offer• Acceptance
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
Different Legal SystemsCommon LawCivil LawIslamic LawCommunist law
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.
First Steps- BuyerIdentify Possible Needs•New service offering•Expand market share•Become more cost effective
Next Steps - Buyer• Identify and Analyze Requirement Functional Performance Design
Buyer: Pre Contract Activity• Establish evaluation criteria – Attributes of interest – Price/quality/delivery – Reputation of seller – Standards – Weighting
Seller: Pre- RFP ActivityMatch customer requirements to applications,assess opportunities and prepare to assist thecustomer in the development of the RFP.• Review opportunity • Review need for• Review own development work capabilities • Provide input to customer• Assess and prioritize on how your company can opportunities provide assistance• Influence design of • Create necessary third customer RFP party agreements
Pre-Contract Activities- SellerMake 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?
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
Contract FormationDevelop contracts that contain cleardeliverables and contractual obligationsand standard terms and conditions, whileidentifying and mitigating all risks.
Contract Formation• Prepare negotiation • Negotiate minor plan issues• Negotiate major • Review and issues approve contract• Prepare draft • Obtain contract contract signature
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
Successful ContractNegotiation Involves thorough preparation and planning Effective team planning Sharp negotiation skills Understanding the other party’s goals Documentation of agreements
Buyer and Seller: ContractAdministrationEnsure that all contractual obligations are metthrough communication among all necessaryparties; manage contract disputes throughnegotiation/resolution and review lessons learnedthroughout performance and at contractcompletion.• Communicate Contract Authorization• Plan Contract Administration• Manage Contract performance• Review Contract Completion
Buyer and Seller: ContractAdministrationCommunicate contract authorization and necessary informationCreate contract administration plan and distribute as necessary Contract Obligations Matrix Responsibility Assignment MatrixManage contract performance: Correspondence control Manage contract changes Prepare final acceptance package Ensure all contractual obligations have been metMonitor financial and operational performanceReview contract completionClose-out
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
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
The ContractA well written agreementanswers who, what, where,when, and what to do if….
FAQ’s -Who Can Sign a Contract? Dollar Value/Area Signature Authority Over $1,000,000 Annually President/Chancellor/Board of Regents From $500,000 to President/Chancellor $1,000,000 Annually Less than $500,000 and Respective Division Heads does not require BOR Approval Up to and Including $50,000 Executive Director – Office of the President for Commencement Ceremonies Up to and Including $50,000 Director of Constituent Relations & for Presidential Events Special Events
FAQ’s -Who Can Sign a Contract? (cont.) Dollar Value/Area Signature Authority Up to and Including $50,000 Associate Vice President of Cumulative per Fiscal Year for Information Technology Information Technology Up to and Including $50,000 Assistant Vice President of Cumulative per Fiscal Year for Facilities Management Facilities Management Up to and Including $50,000 for Director of Contracts and All Areas Institutional Compliance Up to and Including $50,000 for Director of Sponsored Programs Sponsored Programs Related Up to and Including $1,000 for Director of Sports & Fitness Referees and Fitness Instructors
FAQ’s -Is Competitive Bidding Required? • Competitive Bidding is required on all: – Service prior to execution of the contract if the value of the contract is expected to equal or exceed $5,000 in state or local funds.
FAQ’s -Is Competitive Bidding Required? (cont.)• Competitive Bidding is not required for: – Services that cost less than $5,000 – Professional or Consulting services – Proprietary/Sole Source or “One-of-a-kind” services – Workshops, training or seminars – Advertising – Hotels for special events – Internal repairs – Interagency agreements