answer the 4 question attach

Project Procurement Management Chapter 09: Leal Aspects of Project

Procurement Management

Contract Negotiations Chapter 09: Commercial Contract

Negotiations – Correcting Misconceptions and Applying Best Practices

Week 9

Basic Concepts / Principles:  Contract: An agreement between two or more parties  Parties: Must have legal and mental capacity to contract, and be of age

 Must “promise” to do or not do a particular thing

 Offer: Must be communicated by offeror to offeree  Acceptance: Must be unconditionally accepted by each side

 Modification and/or partial acceptance ONLY negates the offer – Begins an iterative process until Mutual Ascent is reached

 Mutual Ascent: There must be a “meeting of the minds” – the same understanding by all parties

 Consideration: There must be something of value exchanged in fulfillment of the “promise”

 Legality: Contract must be for a purpose that is legal

 Must be (in most states) in writing and be specific

Contract Law Overview (Review)

PMI / PMBOK Definition “A contract is a mutually binding agreement that obligates the seller to provide the specific product and obligates the buyer to pay for it.”

(PPM, p.169)

The Agency Concept  The legal concept covering the relationship between two parties when one

is authorized to act for and on behalf of the other.  Definition of Individuals:

- Principal: The “individual for whom the Agent acts”

- Agent: The “individual who acts for the Principal”

The Agency Challenge  When the Agent’s interests don’t align with those of the Principal’s

Contract Definition

The “Business” Definition  Express Authority

The highest form of Agency Authority “conveyed and/or delegated” to an Agent by the Principal – e.g., Government Contracting Officer

May be in specific written form outlining any limitations

 Implied Authority

Authority that is conferred to an Agent by mere position, but not by written authorization – e.g., A project manager has “Implied Authority” for elements related to their project

 Apparent Authority

The most confusing form of Agency Authority. Typically occurs by Agent “holding out” to others that they have Authority AND due to the silence of the Principal negating the this supposition – e.g., Assumption that a company Vice President has authority to commit the Company

Forms of Agency

Definition  The common platform accepted (and possibly modified) by each State

such that commercial transactions – except Federal procurements covered by the FARs – such that conditions are consistent across U.S. Commercial Business Transactions

 Addresses concepts (Terms & Conditions) such as:

- Termination: Must be specifically conveyed. Silence does not terminate an agreement. May be “for cause” or “for convenience”

- Warranty of Title: Requirement that proper title is held to transfer goods

- Express Warranty: Occurs when a specific statement is made about the goods or services by the seller

- Implied Warranty: Requires that the goods or services be fit for the purpose intended

The Uniform Commercial Code (U.C.C.)

 Addresses concepts (Terms & Conditions) such as (continued):

- Right to Inspect Goods: Buyer has the right to inspect the goods PRIOR to completing the transaction. Deficiencies found must be specifically communicated to the seller.

- Liquidated Damages: Compensation for breach of contract by either side. Not a penalty, but to cover expected costs to make other accommodations

 Special Terms and Conditions

- Time is of the Essence: Makes completion time a material breach of contract

- Alternative Dispute Resolution (Methods): Mandates other dispute resolution methods PRIOR to Litigation:

- Mediation: A facilitated Negotiation – intended to arrive at a “middle ground”

- Arbitration: A “mini trial” before by a group of relevant professionals. Not subject to the rules of Law, but intended to arrive at an “informed” decision

The Uniform Commercial Code (U.C.C.)

Guarantor versus Surety  Surety: The entity in the primary position along with the Principal for

performance under the Agreement. Must make every effort to perform  Guarantor: In the secondary position to the Principal and the Surety for

assuring performance of the Agreement.

BOTH typically in the form of a Bond or a series of Bonds

Types of Bonds  Bid Bond: Guaranties the validity of the Lowest Bid

 Payment Bonds – Labor, Materials, Subcontractors: Protects unpaid entities for the work they have performed

Bonding

Types of Bonds (continued)  Completion Bonds:

“A form of surety or guarantee agreement which contains the promise of a third party, usually a bonding company, to complete or pay for the completion of a construction contract if the contractor defaults.” (PPM, p.178)

 Performance Bonds:

“The type of contract bond which protects against loss due to the inability or refusal of a contractor to perform his contract. Such are normally required on public construction projects.” (PPM, p.178)

 Bonding Thought “There is no substitute for a well qualified, reputable, and responsible seller, and all the bonds in the world will not make a difference.” (PPM, p.178)

Bonding

Project Procurement Management Chapter 09: Leal Aspects of Project

Procurement Management

PPM Week 8 Discussion Question

Question 09a: Should a procurement manager have an understanding of contract law, or should that be left to corporate attorneys? Why or why not?

Conceptions, Misconceptions, and Realities:  Commercial Contracting SIGNIFICANTLY differs from Federal Procurement

Reality: Most terms and conditions are similar. The main difference is in procurement process and documentation formalities.

 The U.C.C. is Specific, clear, and Informative

Reality: The U.C.C. provides a general framework, but is not nearly as specific as the FARs.

 All Private-Sector Terms & Conditions are the SAME

Reality: Each private-sector entity crafts T & C’s specific to its’ own needs  Commercial Contracts don’t Require MUCH Documentation

Reality: Article 2 of the U.C.C. requires that each agreement over $500 be in writing

 Commercial Contract Managers are SKILLED Negotiators

Reality: Managers are skilled in contract management, not negotiation

Commercial Contract Negotiations

Best Practices:  Establish a contract management and negotiation methodology

Every company should have defined, yet flexible, procurement process  Establish a List of Preferred / Prequalified Suppliers

Prescreen and/or repeat use of qualified and successful suppliers  Take advantage of Electronic Communication and Exchanges of

Information Establish secure and efficient electronic procurement system – it expands competition and data quality

 Adopt Value Pricing Seek top down pricing rather than individual component bottom up pricing – focus on customer needs, not internal needs

 Use Universal Sales Agreements Establish “Basic Ordering Agreements” (a/k/a: ID-IQ contracts) for consistent commodity procurement

Commercial Contract Negotiations

Best Practices (continued):  Evaluate Risk versus Opportunity / Reward

Consistent and timely evaluation of the Bid/No-Bid, Go/No-Go, and Make/Buy decision(s)

 Simplify (to Standard) Terms and Conditions

Edit / Simplify Standard Terms and Conditions for applicability to each procurements opportunity. Avoid the unnecessary and complicated!

 Use Skilled Negotiators and Employ Mock Negotiations

Establish a Corps of Experts , don’t rely on management to have the requisite skills

 Use Volume Pricing / Discounts

Seek large volume / long term contacts to obtain consistent results  Maintain Best Practices / Lessons Learned

Historical data – successful and unsuccessful - generates FUTURE success!

Commercial Contract Negotiations

Contract Negotiations Chapter 09: Commercial Contract

Negotiations – Correcting Misconceptions and Applying Best Practices

CN Week 9 Discussion Question

Question 09b: Select four of the contract negotiations best practices and discuss their relevance/importance to the project procurement process and why?

Project Procurement Management Chapter 09: Leal Aspects of Project

Procurement Management

Contract Negotiations Chapter 09: Commercial Contract

Negotiations – Correcting Misconceptions and Applying Best Practices

Week 9