The Commercial Manager's Summer School Training Course

Welcome and introduction

Module 1: Understanding and Managing Contracts

Purpose and structure of a commercial contract

• Legal protection
• Clarity, avoiding misunderstandings, misinterpretation, and disputes due to ambiguity
• Assign liability 
• Governance / Supply Chain Management (SCM) and Supply Relationship Management (SRM)
• Proactive risk management 
• Realising potential opportunities

Protection: Ensuring contract is legally binding

• Exercise – Co-op v ILC (International Computers Limited now part of Fujitsu) 
• Creating a legally binding contract:
  • Legality
  • Intent 
  • Legal capacity
  • Consideration
  • Agreement (battle of the formal)
  • Invitation to treat v Offer
• Letter of Intent v Authority to proceed

Structure of an express term contract

• Understanding the relationship between Civil (Contract and TORT) and Criminal law
• Understanding difference between Contract law (‘promises’ law) & TORT (‘duty of care’ law)
• Components of the ‘whole’ Agreement
  • Implied terms (statute) 
  • Express terms (negotiated terms agreed verbally, in writing or by conduct)
• Understanding the starting position in statute (Implied terms) and how, and why, Express terms are used to amend or deviate from the Implied terms
• Focus of the ‘why’ being:
  • Clarity - removing ‘one size fits all’ subjective, ambiguous elements of implied terms 
  • Proactive risk management 
• Effective governance

Structure of an express term contract: 3 simple areas

• Promise clauses – contractual obligations
• Procedural clauses – governance / control & managing relationship
• Liability / consequence clauses – proactive risk management
• Exercise - Multiple choice questions on implied terms in statute, focus on Sale of Goods Act, to understand how express terms may deviate from statute / amend default position in statue and why, which of the contracting parties benefits from such deviations / amendments from statute

 

Module 1: Understanding and Managing Contracts continued

Express Term Promise clauses

• Deviating from Sale of Goods Act / Supply of Goods and Services Act
• Capturing ALL promises within the legal contract – those of Supplier AND Buyer 
• Implications of the ‘Reasonable’ rule in English contract law
• Best endeavours v reasonable endeavours
• Importance of using the ‘Definitions’ section in the contract
• Defining ‘Satifactory quality’, use of KPIs / SLA:
  • Changing qualitative into quantitive measures
  • Ownership of liability of ‘fit for purpose’
  • Conformance specification v Performance specification
• Use of terminology: ‘shall / will’ v ‘should / could’
• Exercise - Reviewing a real-life scope of supply to identify ownership of contractual obligations 
• Exercise – Identifying ambiguity in a real-life scope of supply 
• Exercise – Drafting KPIs for a Performance Specification

Express Term Procedural clauses

• Applicable law
•  Privity of contract v Contracts (Rights of Third Parties) Act
• Right to assign, right to subcontracting
• Complete / Entire Agreement, Order of Precedence, Contract Amendments, Waivers, Right of visibility / transparency of progress
• Reporting, reviews, auditing, witnessing
• Frustrated Contracts Act v Force Majeure
• Late Payment of Commercial  Debts (Interest) Act, Set off
• Limitation Act, dispute resolution, termination for breach, frustration and convenience

Express Term Consequence / liability clauses

• Different liability if breach a ‘terms’ compared to breaching a ‘conditions’
• Liability in statute of monetary compensation and termination v practical remedies in express terms of Plan B’s / contingency planning 
• Use of express terms to pass liability / risk
  • Exclusion, Disclaimer, Indemnity clauses
• Use of express terms to limit liability / risk 
  • Express term limit of / capping liability clauses
• Use of express terms to exclude liability in TORT (duty of care)
• Application of the Unfair Contract Terms Act 

Extracting and compiling information from the contractual documents into a user-friendly format

• Importance of cross-checking ALL documents for inconsistencies / contradictions
• ‘Toolkit’ methodology to review express term contractual documents to easily identify:
  • Ambiguous promise clauses
  • Impractical procedural clauses
  • Unacceptable liability clauses
• Action Plan proforma – an effective approach for capturing all the information needed to proactively manage a contract
• Exercise – Applying the ‘toolkit’ methodology delegates will review and cross-check a real scope of supply document and a real set of contract terms and conditions to identify where there is ambiguity and ownership of legal liability of contractual obligations. This review will then provide the information necessary to populate an Action Plan proforma summarising where clarity needs to be established and liabilities need to be appreciated to enable all parties to proactively management a project

Module 2: Successful Procurement Strategy

Effective procurement

• Difference between a buyer and a procurement professional: strategic approach
• Ensuring right product / service, right supplier, right relationship for optimum outcome
• Selection process:
  • Preparing a Request for Quotation (RFQ) / Invitation to Tender (ITT)
  • Responding to a RFQ / ITT
  •  Vendor selection process / understanding the supplier
• Appreciating interdependency of buyer/supplier relationship
• Identifying requirement / need
• Involvement of 'stakeholders' / cross-functional teams
• Exercise - Listing the 5 Whys of a procurement
• Classifing type of purchase
• Exercise - Kraljic exercise

Developing a strategy / plan

• Understanding procurement options
• Determining appropriate contractual relationship
• Exercise – Determining most appropriate contracting relationships
• Determining optimum approach to tendering

Creating RFQ / ITT documentation

• Time / cost spent drafting Request for Quotation (RFQ) / Invitation to Tender (ITT) v benefits 
• Establishing the selection criteria / evaluation process:
  
  • Cost analysis 
  • Alignment of procurement with organisation’s strategic objectives
  • Value adding proposals from Suppliers
  • Allocation of liability / risk between the parties
• Information to include in a RFQ / IT:
  • Instruction to bidders to enable easy evaluation / comparison, like for like
  • Benefits of an Executive Summary
• Need for fairness, transparency and accountability. Compliance with regulations
• Asking the ‘right questions’ / requesting evidence as part of due diligence process:
  • Sources of information
  • Pre-qualification process
  • Supplier selection criteria:  10Cs
• Getting  visibility of a Supplier’s risk register 
• Evaluating a supplier’s present approach to risk
• Challenging any fully compliant supplier
• Exercise - listing 10 C’s and selection criteria

Responding to RFQ / ITT from a Suppliers perspective

• Answering the exam question
• Understanding each party’s Strengths, Weakness, Opportunities and Threats (SWOT)
• Understanding your market position and the competition:
  • What are your Unique Selling Points (USP), what differentiates you from the competition?
  • Kraljic – target market, price v differentiation
• Understanding how bid fits with own objective / business strategy - Boston Matrix
• Demonstrating alignment between the buyer’s needs and your USP
• Writing a selling document but also a legal document, reflecting your organisations attitude to risk (risk taker or risk adverse) and achieving the right balance between profit and risk
• Exercise - Alignment between buyer’s needs and supplier’s USP / what differentiates them from competition?

Module 3: Effective Risk Management

Pro-active Risk Management (RM) / Supplier Relationship Management (SRM)

• High level objectives:
  • Placing risk with party best able to manage that potential risk
  • Understanding why no one wants monetary compensation or litigation, neither the Supplier nor the Buyer – both are looking for solutions, remedies, moving forward to achieve the optimum outcome when Plan A is no longer possible
• How to achieve this:
  • Project planning and management being a combination of the ‘Waterfall process’ (upfront planning) and ‘Agile’ (responsive to changes / contingency plans / plan B’s) 

5 Stages of Pro-active Risk Management

• Pre-signing:
  • Stage 1 – Identification
  • Stage 2 – Evaluation
  • Stage 3 – Contingency planning
• Post-signing:
• • Stage 4 – Monitoring and updating
  • Stage 5 – Lessons learnt

Stage 1 – Identification

• Storyboarding / visualisation / brainstorming / information gathering / vulnerability assessment of supplier
• Types of risk:
  • Micro / Macro / Market / Supply / Relationship / Compliance / Legal / Reputational / Ethical / Economic / Financial / Environmental / Technological
• Use of checklists: STEEPLE(D)

Stage 2 – Evaluation

• Probability (likelihood)and Impact (cost / schedule)
• Risk appetite: ‘adverse’ or ‘taker’ 
• Risk – Reward calculation - ‘acceptable level of exposure’
• Exercise - Traffic light analysis
  

 

Stage 3 – Mitigation/Contingency planning

• 4 T’s: Transfer, Tolerate, Treat, Terminate
• Treat / ‘What if’ planning: solutions not problems approach - ‘Optimum’ outcome if ‘Best’ outcome is not possible 
• Business Contingency Planning (BCP) v Disaster Recovery Planning (DRP)
• Appreciating best time for buyers to negotiate / agree ‘Plan B'
• Maintain good relationships and saving time, if a risk does materialise

During this course delegates are introduced to the ‘toolkit’ methodology and the Action Plan proforma. This is now extended to consider how risks are managed, through the legally binding contract but in a more practical manner, moving a project forward, providing solutions not merely monetary compensation when plans go wrong. Proactive risk management with the Buyer having full visibility of potential risks and agreeing win-win, acceptable mitigation / contingency plans.  

Stage 4 – Monitoring / updating: stages 1 – 3

• Ensuring you have the legal right to transparency / visibility of the Suppliers progress
• Creating a relationship which facilitates the optimum outcome is achieved

Stage 5 – Capturing lessons learnt / best practise

• The experiential learning cycle

Supplier Relationship Management (SRM)

• Management (SCM)
• Drucker – ‘if it cannot be measured, it cannot be managed’ 
• Embedding Supply Chain Risk Management into corporate culture
  • Risk management policies and procedures
  • Quality Management System (QMS): Total Quality Management (TQM) v Quality Assurance (QA)
  • Six Sigma (define, measure, analysis, improve, control)
  • Deming’s PDCA (plan, do, check, act) 
• Action Plan approach to capture any misunderstanding between stakeholders, internal and external
  • SERVQUAL ‘service gaps’ – gap, explanation, remedy 
• Gathering meaningful performance information to enable early warning of risk / challenges materialising but also opportunities arising:
  • Ensure easy means to collect information / KPIs etc 
  • Using technology to collect and analyse
• Different approaches to managing performance - ‘carrot versus stick’ 
• Exercise – ‘carrot v stick’
• Exercise - PDCA

Module 4: Commercial Negotiating Skills

Commercial Negotiations: Content

• Greenhalgh Negotiation model:
  • Preparation
  • Relationship
  • Information gathering
  • Information using
  • Closing
  • Implementing the agreement

Understanding your strategy – objectives / goals

• Establishing the drivers influencing you:
  • Company policy / mission
  • Relationship (with other party) or Task (achieving the best outcome for you)
  • Win-win v win-lose: Carter’s pie theory 
  • Time v Quality v Price (Slack, Chambers & Johnson’s Iron Triangle)
  • Attitude to risk: risk minimisation or sharing risk
• Methodology for determining priorities: MIL - Must have; Intent to have; Like to have
• Methodology for cost v benefit analysis of amount of time and effort given to negotiation reflecting the criticality of the outcome: Kraljic matrix – leverage; strategic; non-critical; bottleneck
• Exercise – Price v Scope or Risk
• Exercise - Preparing your MIL 

Determining your bargaining position

• Determining the bargaining power of each of the negotiating parties:
  • Different sources of power: Reward; Coercive; Expert; Informational; Referent; Legitimate
  • 'BRA': Best Realistic Alternative / 'BATNA': Best Alternative To a Negotiated Agreement
  • Porter’s 5 Forces: Bargaining power of suppliers; of buyers; threat of new entrants; threat of substitutes; industry rivalry
  • Porter’s Generic Strategies for Competitive Advantage model: cost leadership; cost focus; differentiation; differentiation focus
  • Steel & Court’s Supplier Preferencing model – Development; Core Business; Nuisance; Exploitable. Attractiveness of buyer’s organisation and value of buyer’s business to the supplier
  • SWOT analysis: Strengths; Weaknesses; Opportunities; Threats
  • Cox’s Power and Dependency matrix
• Exercise – Porter’s Generic Strategies

Commercial Negotiations: Process - undertaking the negotiation

• Greenhalgh Negotiation model
• Aligning your negotiation style and tactics to your bargaining position and strategy

Negotiation style

• Exercise – Negotiation questionnaire identifying delegates default style
• Different theories, same message:
  • 6 styles theory: acceptance, compromise, threat, emotion, bargain, logic
  • Cooperative (bargaining & logic) v Competitive (threats)
  • 3 C’s: Compromise, Compete, Collaborate
  • 3 types: Assertive (aggressive), Accommodator (relationship oriented), Analyst (conflict avoidant)
  • Thomas–Kilmann dual concern model: Competing, Accommodating, Avoiding, Compromising or Collaborate
  • Constructive v Destructive 
  • Push (exerting power) / Pull (persuasion) influences during a negotiation
  • Rational compromise
• Consciously selecting an appropriate style to achieve objectives
• Exercise – ‘Push’ / ‘Pull’; ‘Constructive’ / ‘Destructive’ approaches

Negotiation tactics

• Confidence v arrogance
• Honesty and trust, more than just rapport. Relationship values and drivers. Avoiding getting trapped in the ‘vicious circle of blame’
• Acknowledgement of past interactions – good or bad
• ‘Framing’ the negotiations
• Opening the negotiation / effective listening & asking questions, gaining insight
• Exchange of information / being aware of your own disclosures
• Getting a reply: ‘rephrasing / reframing’ the same question
• Use of empathy for ‘win-win’ and/or to encourage disclosure of information
• Ury & Fisher’s ‘Getting to Yes’: separating people from the problem; focusing on interest rather than position (not what but why, reasons behind stance); generating options; focus on objectives
• Body language
• Silence tactic – using it / diffusing it
• Breaking deadlock and moving negotiations forward
• Exercise – Effective questioning 

Approach and environment to reflect objectives and maximise desired outcome

• Timing
• Mode / venue
• Environment
• Atmosphere
• Attendees

Structuring negotiations and good ‘housekeeping’

• Establishing power of attorney of attendees
• Ensuring confidentiality
• Keeping negotiation open until formal written agreement signed
• Focus – use of agenda: pros and cons
• Summarising and capturing the agreement accurately

Final questions