Holly K. Walker, CPCM

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Introduction toCommercial ContractsUnderstanding
the BasicsSession 310April 16 130 230
pm
Holly K. Walker, CPCM Corporate Learning
Solutions and Contract Mgmt. Consultant
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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

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Elements of a Contract

• Competent Parties
• Consideration
• Lawful Purpose
• Certainty of Terms
• Offer
• Acceptance

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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
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Different Legal Systems
Common Law Civil Law Islamic Law Communist law
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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.
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First Steps- Buyer

• Identify Possible Needs
• New service offering
• Expand market share
• Become more cost effective

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Next Steps - Buyer

• Identify and Analyze Requirement
• Functional
• Performance
• Design

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Buyer Pre Contract Activity

• Establish evaluation criteria
• Attributes of interest
• Price/quality/delivery
• Reputation of seller
• Standards
• Weighting

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Seller Pre- RFP Activity

Match customer requirements to applications,
assess opportunities and prepare to assist the
customer in the development of the RFP.

• 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

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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?

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Contract Management Responsibilities

• 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

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Contract Formation

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

• Prepare negotiation plan
• Negotiate major issues
• Prepare draft contract

• Negotiate minor issues
• Review and approve contract
• Obtain contract signature

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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

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Usual Contentious Clauses
Pricing and Payment Terms Liquidated
Damages/Penalties Liability/Indemnification
Terms Warranties (Scope and Duration) Intellectual
Property Ownership
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Successful Contract Negotiation
Involves thorough preparation and
planning Effective team planning Sharp
negotiation skills Understanding the other
partys goals Documentation of agreements
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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

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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
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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

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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

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