Contract Management

Chapter 14

OSCM 3660:002 Strategic Sourcing

Spring 2016

Sandeep Jagani

PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e

© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

1

Chapter Overview

Elements of a contract

How to negotiate and write a contract

Types of contracts

Long-term contracts in alliances and partnerships

Nontraditional contracting

Settling contractual disputes

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Managing Contractual Relationships with Suppliers

Impossible to predict every single possibility at beginning of a contractual relationship

Importance of moving beyond legal contractual guidelines to improve long-term suppliers and those that supply critical and strategic goods and services

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Pitfalls in Global Commerce

Signing contracts without reading and understanding them

Making risky assumptions

Making or accepting unreasonable demands

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Pitfalls in Global Commerce

Assuming terms in one market are same as in another

Not recognizing cultural or legal landmines

Failing to utilize sufficient resources in contract negotiations

Ongoing commitment and relationship often supersede written contracts

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Preventive Contracting

Spending time in initial stages to …

More fully understand stakeholder requirements and expectations of contractual elements

Flexibility in contract terms and clauses

Usually costs less to avoid getting into trouble than to pay for getting out of trouble

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What Does a Purchase Contract Do?

Establishes terms and conditions by which parties agree to conduct business

Defines type of relationship

Provides way for parties to obtain mutual benefits

Represents the understanding of parties

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Basic Parts of a Contract

Introduction

Identifies parties

Clauses

Describe different sets of conditions that parties agree to follow

Schedules and appendices

Provides specific details behind clauses

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Sample Beginning of a Contract

THIS AGREEMENT IS MADE this ___________

day of ___________ 2011 BETWEEN

ABC COMPANY LIMITED, a company registered in England and having registered offices at 44 Downing Street, London, U.K. (the “Buyer”) and

XYZ, INC., a corporation duly organized under the laws of the State of Illinois and having its principal place of business at 123 Ridge Road, Chicago, Illinois 60014, U.S.A. (the “Supplier”).

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Elements of a Purchase Contract

Introduction

Definitions

Scope of agreement

Purchase orders

Supply and delivery

Specifications, quality, and health, safety, and environment

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Elements of a Purchase Contract

Payment

Liability

Force majeure

Effective date and termination

Intellectual property

Assignment and contracting

Technology improvements

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Elements of a Purchase Contract

Most favored customer

Confidentiality

Statistics

Key performance indicators and compensation

Notices

Severability

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Elements of a Purchase Contract

Third-party rights

Free trade areas

Minority- or women-owned business enterprises

General

Governing law

Signatures

Appendices (schedules)

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Typical Contract Schedules

Product/process/service specifications, statement of work, or scope of work

Prices and price adjustment mechanisms

Health, safety, and environmental guidelines and requirements

Packaging materials

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Typical Contract Schedules

Approved method of manufacture, delivery, or service deployment

Delivery targets and lead times

Supplier’s hours of operation

Storage and inventory control

Quality assurance manual

Loss allowance calculations and throughput allowances

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How to Negotiate and Write a Contract

Often modified from earlier agreements without material changes

Minimizes administrative effort

Assumes that previous contracts are appropriate in current agreement

Start with general form and/or sample contracts

Get advice from corporate counsel

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Information in Purchase Contracts

What is being bought and cost

How purchased item is to be shipped and delivered

How items are to be installed (if appropriate)

How and when buyer will accept products

Acceptance clause

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Information in Purchase Contracts

Appropriate warranties

Remedies

Including liquidated damages

Clauses specifying consequences for late performance

Boilerplate

Standard terms and conditions

Dispute resolution mechanisms

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Key Details in International Contracts

Forum selection in the event of dispute

Choice of applicable law

Payment currency

Language

Force majeure

Excuses contract performance under non-controllable circumstances

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Types of Contracts

Fixed-price contracts

Firm fixed price

Fixed-price contract with escalation

Fixed-price contract with redetermination

Fixed-price contract with incentives

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Types of Contracts

Cost-based contracts

Cost plus incentive fee

Cost-sharing contract

Time and materials contract

Cost plus fixed-fee contract

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Firm Fixed Price

Most basic contractual mechanism

Price stated does not change

Regardless of environmental changes

Can be obtained using

Price quotation

Supplier response to RFP

Negotiation

Simplest and easiest contract

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Firm Fixed Price

Supplier bears financial risk in rising market

Buyer assumes financial risk in declining market

Supplier may add contingency fee if uncertainty is high

Important for buyer to understand underlying market conditions

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Fixed-Price with Escalation

Used for longer-term contracts

Where costs are likely to increase over time

Escalation clauses allow either price increase or decrease of base price

Should be tied to independent, well-established published third-party index

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Fixed-Price with Redetermination

Used when parties cannot accurately predict labor or material costs and quantities required upfront

Target price is determined using “best guess” estimates

At predetermined time, buyer and supplier review actual experience and redetermine fixed price

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Fixed-Price with Incentives

Terms and conditions allow cost-savings sharing with supplier

Predetermined rate of sharing – often 50/50

Similar to fixed-price with redetermination contract

Typically utilized under conditions of high unit cost and relatively long lead times

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Cost-Based Contracts

Used when there is high risk of supplier contingency fee that would be included in fixed-price contract

Lower risk of economic loss for supplier

Economic risk is transferred from supplier to buyer

But can result in much lower cost to buyer

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Cost-Based Contracts

Need to include terms and conditions that require supplier to carefully monitor and control costs

Parties must agree on allowable costs

Generally applicable when goods and/or services are expensive, complex, or important to buyer and there is high degree of uncertainty

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Cost Plus Incentive Fee

Similar to fixed-price plus incentive except incentive is based on changes in allowable costs

May include cost-savings sharing at predetermined rate

Appropriate when parties are confident of initial target cost estimates

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Cost-Sharing

Allowable costs are shared between parties on predetermined percentage basis

Key is identification of firm set of operating guidelines, goals, and objectives

Need to spell out expectations clearly

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Time and Materials

Generally used in plant and equipment maintenance agreements

Costs cannot be determined prior to actual repair

Based on agreed upon hourly labor rate plus overhead and profit percentage

Requires “not to exceed” amount

Little buyer control over estimated maximum price

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Cost Plus Fixed-Fee

Supplier receives reimbursement for all allowable costs up to predetermined level plus fixed fee

Fixed fee represents percentage of targeted cost

Supplier is guaranteed minimal level of profit above its costs

Little motivation to control costs

Should include cost productivity

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Types of Contracts

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Type of Contract Buyer Risk Supplier Risk
Firm-fixed price Low High
Fixed-price with escalation
Fixed-price with redetermination
Fixed-price with incentives
Cost plus incentive fee
Cost-sharing
Time and materials
Cost plus fixed-fee High Low

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Contract Selection Considerations

Component market uncertainty

Long-term agreements

Degree of trust between parties

Process or technology uncertainty

Supplier’s ability to impact costs

Total dollar value of purchase

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Desirability of Contract Types

Environmental Condition Fixed-Price Contract Incentive Contract Cost-Based Contract
High component market uncertainty Low Desirability of Use High
Long-term agreements Low High
High degree of trust Low High
High process/ technology uncertainty Low High
Supplier’s ability to affect costs Low High
High $ value Low High

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Contract Length

Spot contracts

Purchases that are made on nonrecurring or limited basis

Short-term contracts

Contract purchases that are routinely made over relatively limited time horizon

Long-term contracts

Made on continuing basis for specified or indefinite period (often >1 year)

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Potential Benefits of Long-Term Contracts

Assurance of supply

Access to supplier technology

Access to cost/price information

Volume leveraging

Supplier receives better information for planning

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Questions in Long-Term Contracts

What is the potential for opportunism?

How likely is supplier to take advantage of buyer? Or vice versa?

Is this right supplier to engage in long-term contract?

Is there fair distribution of risk and gains between parties involved?

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Risks of Long-Term Contracts

Supplier opportunism

Selecting the wrong supplier

Supplier volume uncertainty

Supplier foregoes other business

Buyer is unreasonable

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Contingency Elements of Long Term Contracts

Initial price

Too high  inflated future profits

Too low  lower supplier motivation

Price-adjustment mechanisms

Choice of index or related product

Supplier performance improvements

Evergreen, penalty, and escape clauses

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Nontraditional Contracting

IT systems contracts

Systems contracting risks

Level of service

Turnkey vs. modular vs. shared

Price

Performance criteria

Procedures

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Other Service Outsourcing Contracts

Facility management services

Research and development

Logistics and distribution

Order entry and customer service operations

Accounting and audit services

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Minority/Women-Owned Business Enterprise Contracts

At least 51% ownership required for federal classification for …

African-American

Hispanic American

Native American

Asian-Pacific American

Women

Physically disabled

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Consulting Contracts

Consultant is agent (or independent contractor), not employee

Buyer vs. supplier

Ownership of intellectual property

Issue of residuals

Copyright ownership

Works made for hire

Need for written contract

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Outside Consultant Goals

Avoidance of misunderstanding

Maintenance of working independence and freedom

Assurance of work

Assurance of payment **

Avoidance of liability

Prevention of litigation

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** Most important

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Consultant Contract Terms

Payment on delivery of final report

Late-payment penalties

Negotiable promissory note or collateralized promissory note

Arbitration agreement

Need to develop standard consultant agreement template

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Construction Contracts – Sequence of Events

Determine base of preferred contract bidders

Contact potential bidders for interest

Distribute bid requests

Hold pre-bid meeting to answer questions

Final bid submissions

Award bid

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Construction Contracts

Stated completion period

Realistic timetable

Overhead costs

Safety requirements

Substantiated cost summaries

Contractor claims

Liquidated damages clauses

i.e., penalty clauses

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Other Types of Contracts

Purchasing agreements

Online catalogs and e-commerce contracts

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Types of Purchasing Agreements

Annual contracts

National contracts

Corporate agreements

National buying agreements

Blanket orders

Pricing agreements

Open-ended orders

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Online Catalogs and E-Commerce

Parity between electronic and paper records

Enforceability of shrinkwrap, clickwrap, and boxtop agreements and licenses

Attribution procedures

Digital signatures

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Settling Contractual Disputes

All contracts are subject to dispute and interpretation

The more complex and larger the dollar volume, the more likely dispute will arise

Build in dispute resolution terms and mechanisms

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Alternative Means of Settling Disputes

Action Description
Legal action File a lawsuit in federal/state/local court
Non-legal actions
Arbitration Use of impartial third party to resolve contractual dispute
Mediation Intervention by third party to promote settlement, reconciliation, or compromise between parties
Minitrial Exchange of information between managers in each organization, followed by negotiation
Rent-a-judge Neutral party conducts “trial” between parties and is responsible for final judgment
Dispute prevention Progressive schedule of negotiation, mediation, arbitration, and legal proceedings agreed to in contract

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Legal Action

Traditional dispute resolution mechanism

Grounded in commercial law

Case heard before impartial judge

Issues

Uncertainty

Cost

Length of time

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Arbitration

Fastest growth alternative to legal action

Helps deal with negative emotions

Arbitration clause is often built into contract’s boilerplate language

Source of trained and qualified arbitrators

American Arbitration Association

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Contractual Terms for Arbitration

Spell out location and method of conducting arbitration

Review state statutes to ensure presence of appropriate legal provisions

Word arbitration clauses carefully using applicable laws and American Arbitration Association guidelines

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Dispute Resolution Factors

Relationship between parties

Choice of mechanism

Type of outcome desired by buyer

Setting precedence for future disputes

Need for direct involvement by parties

Level of emotion present

Cost to resolve dispute

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Dispute Resolution Factors

Time pressures

Information required to reach settlement

Strict rules of evidence

Likelihood of publicity

Credibility of available experts and other witnesses

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Negotiation and Conflict Resolution

Chapter 13

OSCM 3660:002 Strategic Sourcing

Spring 2016

Sandeep Jagani

PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e

© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

1

Chapter Overview

What is negotiation?

Negotiation framework

Negotiation planning

Power in negotiation

Concessions

Negotiation tactics: trying to reach agreement

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Chapter Overview

Win-win negotiation

International negotiation

Comprehensive global negotiation skills and enhanced cultural understanding

Impact of electronic media on negotiations

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What Is Negotiation?

Process of formal communication, either face-to-face or via electronic means, where two or more people come together to seek mutual agreement about issue or issues

Involves management of time, information, and power between individuals and organizations who are interdependent

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What Is Negotiation?

Relationships between people, not just organizations

Persuasion

Negotiation skills can be honed and practiced

Supports implementation of supply management strategies and plans

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Common Terms Used in Negotiation

BATNA

Best alternative to a negotiated agreement

Positions

Interests

Needs

Wants

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BATNA

Bottom line or reservation point

BATNA should never be revealed to other party

All settlements must be judged in light of all other viable alternatives existing at time of the agreement

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Positions

Negotiator’s opening offers

Represent the optimistic or ideal target value of issues being negotiated

Stated demands at negotiation table

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Interests

Unspoken motivations or reasons that underlies any given position(s)

Unlikely to be explicitly declared or acknowledged during negotiation

May not be directly germane to stated position

Often personal in nature

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Key Points on Interests

Learn to play detective

Try to discern other party’s interests through series of open-ended, probing questions

Then listen carefully

Always focus on other party’s underlying interests, not its stated positions

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Needs vs. Wants

Needs

Negotiated outcomes that negotiator must achieve

Wants

Negotiated outcomes that a negotiator would like to have

May often be exchanged as concessions

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Triangle Talk

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The

Negotiation Process

Step 1:

“Know Exactly What You Want”

Step 2:

“Know Exactly What They Want”

Step 3:

“Propose Action in a Way that They Can Accept”

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Know Exactly What You Want

Determine and write down specific goals and objectives

Helps retain clear focus and minimize distraction

Can be referred to readily during negotiation

The more clearly defined, the more likely that they can be achieved

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Know Exactly What They Want

Attempt to discern other party’s likely needs and wants

Estimate underlying interests to other party’s stated positions

Beware of expecting other party to think in same way

Ask probing, open-ended questions to confirm or counter assumptions

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Propose Action in a Way that They Can Accept

Frame your own needs in terms of other party’s needs

Make it easy for other party to say “Yes”

Remain fair, flexible, and reasonable

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The Negotiation Framework in Supply Management

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Identify or anticipate sourcing requirement

Determine if negotiation or bidding is required

Plan for the negotiation

Execute the agreement

Conduct the negotiation

Identify or Anticipate the Sourcing Requirement

Purchase requisitions

Inventory counts

Reorder point systems

New product development

New facilities

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Determine If Negotiation or Bidding Is Required

Is bid process inadequate?

Are many non-price issues involved?

Is contract large?

Are technical requirements complex?

Does contract involve plant and equipment?

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Determine If Negotiation of Bidding Is Required

Does contract involve a partnership?

Will supplier perform value-adding activities?

Will there be high risk and uncertainty?

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When to Negotiate

Identification of allowable costs

Delivery schedules and lead times

Expected product and service quality levels

Performance metrics and how information is gathered

Technological support and assistance

Contract volumes

Special packaging

Liability for loss and damage

Payment terms and currency issues

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When to Negotiate

Progress payment schedules

Transportation mode selection

Carrier selection

Filing freight claims

Warranties and replacements

Capacity commitments

Material lead times

Penalty clauses

Performance incentives

Contract length

Contract renewal mechanism

Protection of proprietary information

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When to Negotiate

Ownership of intellectual property

Resources related to developing closer relationships

Improvement requirements

Quality, delivery, lead time, cost, responsiveness

Contract dispute resolution mechanisms

Spare parts

After-sale service

Operator or maintenance training

Access to technology

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Reasons for Negotiation

Total contract value or volume is large

Complex technical requirements

Product and process requirements and specifications may still be evolving

Purchase involves utilization of capital-intensive plant and equipment

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Reasons for Negotiation

Agreement involves special or collaborative relationship

Supplier will perform important value-adding activities, requiring …

Appropriate compensation

Performance standards

Performance metrics

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Planning for the Negotiation

Better planning  better outcomes

Use of electronic communication tools vs. face-to-face negotiations

Expensive and time consuming travel

Use of online RFPs and RFQs

Quick turnaround on changes

Allows simultaneous negotiations with multiple suppliers

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Points to Focus On

Defining issues

Assembling issues and defining bargaining mix

Defining interests

Defining own objectives and opening bids

Assessing constituents and social context

Analyzing other party

Planning issue presentation and defense

Defining protocols

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Phases of the Negotiation

Phase I

Fact finding and information sharing

Clarify or confirm information

Phase II

Recess to assess new information and findings

Assess relative strengths and weaknesses

Review and revise objectives and positions, if necessary

Organize agenda

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Phases of the Negotiation

Phase III

Meet face-to-face or electronically

Narrow differences on issues

Offer proposals and counterproposals

Exchange concessions

Phase IV

Seek agreement

Conclude negotiation

Agree to follow-on activities

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Being an Effective Negotiator

Willing to compromise or revise goals

When faced with new information

View issues independently

Establish upper and lower ranges for each major issue

Explore more options

Build on common ground between parties

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Being an Effective Negotiator

Avoid making irritating comments

Avoid argumentation

Too many reasons can dilute an argument

Make fewer counterproposals

Too many concessions

Too much compromising

May indicate lack of adequate planning and show invulnerability

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Execute and Follow Up on the Agreement

Actual performance or management of contract

Load into organization’s contract management system

Provide performance feedback

Build on success of negotiation

Monitor contract provisions

Reaffirm commitment of parties

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Negotiation Planning

Develop plan and overall strategy

Specific strategies

Research

Actions

Tactics

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Reasons for Failed Negotiations

Neglect other party’s problems

Focus too much on price

Focus on positions instead of interests

Focus too much on common ground

Neglect BATNAs

Over-adjust perceptions during negotiation

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Develop Specific Objectives

Objective

Aspiration or vision to work toward in future

Typical objectives

Fair and reasonable price

Contract quantities

Required delivery lead times

Improved supplier quality

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Develop Specific Objectives

Not all objectives are equally important

Need to prioritize

Must have

Would like to have

Serves as basis for concession strategy

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Analyze Each Party’s Strengths and Weaknesses

Understand through research and experience

Personality

Negotiation style

Education and experience

History

Assess relative strengths and weaknesses, i.e., your “due diligence”

Each negotiation experience is unique

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Gather Relevant Information

Previous experience with other party

What happened between parties?

Was negotiator satisfied with previous outcome?

Are we negotiating with same people or with new negotiators?

What were important issues to supplier? To buyer?

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Gather Relevant Information

Previous experience with other party

What were areas of disagreement?

Is there anything about previous protocols that should be changed?

What is relative power between parties?

Who has most to lose? To gain?

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Sources of Information

Other buyers or organizations with experience with supplier

Published sources of information

Trade journals, other business publications, and Internet websites

Trade association and government data

Annual reports

Financial evaluations and databases

Direct inquiry with supplier

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Recognize Your Counterpart’s Needs

Must consider long-term success

Issues critical to supplier may not be issues critical to buyer, and vice versa

Give-and-take must be considered

Each party should not expect to prevail in all issues

Setting priorities for concessions and issue tradeoffs

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Identify Facts and Issues

Fact

Reality or truth that parties can state and successfully verify

Issue

Items or topics to be resolved

Triangle Talk is a helpful tool

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Establish a Position on Each Issue

Need for agility and flexibility

Range of positions

Minimum acceptable position (BATNA)

Maximum, or ideal, position

Most likely outcome

Overlapping positions create bargaining or settlement zone

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Bargaining Zone Example

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Buyer

Seller

Aspiration Point

Aspiration Point

BATNA

BATNA

Zone of Likely Agreement

Note:

Example shown is typical buyer-seller price negotiation

$11.45

$11.15

$11.00

$11.50

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Factors in Modifying Positions

Desire for the contract

Revelation of irrefutable information that challenges accuracy and credibility of original position

Major concession that promotes reciprocation

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Develop the Negotiation Strategy and Accompanying Tactics

Strategy

Overall approach used to reach mutually beneficial agreement

Tactic

Art or skill of employing available means to accomplish an end, objective, or strategy

Includes supporting action plan and activities

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Brief Other Stakeholders

Stakeholder

One who has an interest in or is affected by negotiation outcome(s)

Need to be aware of and in agreement with desired objectives

Includes major issues and initial positions for those issues

Prevent unwanted surprises

Develops stakeholder buy-in and support

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Practice the Negotiation

Applies to complex and formal negotiations that are …

Large dollar amount

Long span of time

Crucial to success of organization

Mock or simulated negotiation

Helps raise awareness of unanticipated questions and issues

Role play other party to develop empathy

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Power in Negotiation

Power

Ability to influence another person or organization to do something

Power by itself is neither good nor bad

It is actual application or use of power that makes it good or bad

Sources of negotiating power

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Sources of Negotiating Power

Informational power

Reward power

Coercive power

Legitimate power

Expert power

Referent power

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Informational Power

Ready access to relevant and useful information

Presentation of facts, data, and persuasive arguments

Need for selective disclosure

Can be manipulated by withholding information or by providing false information

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Reward Power

One party is able to offer something of perceived value to other

Direct attempt to exert control

Individuals respond and behave accordingly when valued rewards are available

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Coercive Power

Taking away or withholding something of value to other party

Ability to punish

Financially, physically, or mentally

Can have damaging effects on long-term relationships

Promotes retaliation or getting even

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Legitimate Power

Power based on job position held

The higher the job position or title, the greater the power inferred

May be separate from reward power or coercive power

Buyer has legitimate power due to his/her ability to award contract

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Expert Power

Special form of informational power

Development and retention of body of knowledge

Often represented by verifiable credentials

Reduces likelihood of refuting position

Other party must value expertise in order to be effective

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Referent Power

Comes from attraction based on socially acceptable personal qualities and attributes

Personality or attractiveness characteristics such as …

Physical

Honesty

Charisma

Friendliness

Sensitivity

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Application of Power

Used to support one’s advantage

Need to be careful not to abuse power

Damaged relationships

Invited retaliation

Diminished value of that power

Some types of power interact synergistically with others

Example – expert and referent power

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Concessions

Movement away from position that has perceived value to other party to gain something of value

Give-and-take process is normal in most negotiations

Need to avoid giving away concessions without receiving something of equal or greater value in return

Always keep BATNA in mind

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Concessions

Without effective concessions strategy, negotiation may result in impasse

Concessions should be made in decreasing increments, not increasing ones

Increasing concession values encourage other party to wait you out for even greater concessions

Based on length and cost of negotiation

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Guidelines for Making Concessions

Give yourself enough room to make concessions

Try to get other party to reveal his/her needs and objectives first

Be first to concede on a minor issue but not first on a major one

Make unimportant concessions and portray them as valuable

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Guidelines for Making Concessions

Make other party work hard for every concession made

Use tradeoffs to obtain something for every concession you make

Generally, concede slowly and give little with each concession

Do not reveal your deadline to other party – ever

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Guidelines for Making Concessions

Occasionally, say “No” to other party

Be careful trying to take back concessions, even tentative ones

Keep a record of concessions made and try to identify a patterns

Do not concede too soon, too often, or too much

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Negotiation Tactics: Trying to Reach Agreement

Short-term plans and actions employed to ...

Execute strategy

Cause a conscious change in other party’s position

Influence others to achieve one’s own objectives

Can be either ethical or unethical

Tricks or ploys

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Common Negotiation Tactics

Low ball

Honesty and openness

Questions

Caucus

Trial balloon

Price increase

High ball

Best and final offer

Silence

Planned concessions

Venue

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Cialdini’s Power of Influence

Reciprocation

Consistency

Social proof

Liking

Authority

Scarcity

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Reciprocation

Obligation to give something back of equal or greater value to someone after having received something from them

Creates powerful obligation response

Can be used effectively when giving concessions

Patterns of concession

Quid pro quo

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Consistency

People tend to want to be perceived as being consistent in their beliefs and actions

Otherwise considered to be irrational

It is difficult to back away from something already agreed to

Beware of the consistency trap

Small commitments often lead to much larger ones

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Social Proof

Looking to behavior of others to determine what is desirable, appropriate, and correct

Power of endorsement

Everyone else is doing it

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Liking

People work well and are more agreeable with others that we like or who are like us

Get to know other party better to build on relationship when concessions are being offered

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Authority

People are more likely to accept positions, arguments, and directions from recognized authority figures

Power of titles and perceived importance

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Scarcity

Can also be “perception” of potential scarcity

“Act now!”

“For a limited time only!”

“Offer expires tomorrow!”

Suppliers often use potential price increases as a scarcity technique

“Twenty percent price increase effective at the first of the month!”

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Overcoming Tactics

Modify tactics when they don’t work

Prepare for likely tactics to be used against you

Tactics are more effective on you if you are unprepared, stressed, under severe deadlines, inexperienced, fatigued, or disinterested

Try not to react without thinking

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Win-Win Negotiation

Win-lose

Competitive or distributive bargaining

“Fixed sum game” perception

Win-win

Collaboration or integrative bargaining

Expand the value or resources available to all participants

Requires time, patience, and creativity

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Win-Win Methods

Expand the pie

Logroll

Use nonspecific compensation

Cut costs for compliance

Find bridge solution

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International Negotiation

Added complexity and challenge, with different

Languages

Customs

Laws

Cultures

Extra time and effort required

Culture shock

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International Negotiation

Barriers and obstacles

Miscommunication

Time limitations

Cultural differences

Limited authority of foreign negotiators

Need for knowledgeable translators

Culture and language

Industry and business concepts

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Culture Shock

Negotiator’s pre-existing values, beliefs, rules, and decision-making schema are challenged

Emotions run higher

May encounter substantial

Anxiety

Disorientation

Confusion

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Characteristics to Overcome Barriers

Patience

Knowledge of contract agreement

Honest and polite attitude

Familiarity with foreign cultures and customs

Recognize that common words may have different meanings, even between similar countries or cultures

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Caveats when Negotiating Overseas

Don’t think that everyone else thinks and negotiates like you do

There is danger in stereotyping or oversimplifying the interpersonal characteristics of other cultures

There is always substantial interpersonal variation within any culture

However, there are often common tendencies

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Impact of Electronic Media on Negotiations

Electronically-based negotiations tend to equalize differences between parties

Normal visual and auditory clues are diminished or not readily apparent

Status differences and social differences are less discernible

Problem of being anonymous

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Impact of Electronic Media on Negotiations

E-negotiations take more time than face-to-face negotiations

Outcomes tend to be less satisfying

E-negotiations are more impersonal and do not promote rapport

Interchange is often more aggressive and less diplomatic

Messages are often misconstrued and taken out of context

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Impact of Electronic Media on Negotiations

Negotiators tend take more risks

Real time vs. asynchronous

Loss of information richness

More difficult to provide feedback and conduct active listening

E-negotiators ask fewer questions and tend to make more assumptions

What does “silence” mean?

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Mitigating the Negative Effects of Electronic Negotiation

Conduct an initial face-to-face meeting to build rapport

At a minimum, have an extended telephone conversation

Take extra time to carefully reread and edit e-mails before sending them

They are irretrievable and can be easily forwarded to others

Double-check “to:” and “cc:” addresses

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Mitigating the Negative Effects of Electronic Negotiation

Use generally accepted e-mail protocols

Clear, concise language

No all caps, excessive punctuation symbols, underlining, bolding, italics, or “off-the-cuff” comments

Don’t copy e-mail to recipient’s superiors

Perceived as you not trusting the recipient

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