South West Employers

1. South West Employers Contract Writing & Supplier Relationship Management Trainer: Date:

2. Activity 1 - Icebreaker How many points do you have? _______ One unusual fact I have found out about someone here is? ____________________________ (5 points)

3. Activity 2 - Groundrules • Groundrules help to create a positive and safe learning environment. Discuss and agree a list of between 3 and 5 rules that all participants are comfortable with

4. Objectives • At the end of the session, participants will have knowledge and an understanding of: • Review of the main principles of contract drafting & contract evaluation: • Formation of contracts and the role of tendering • Key terms • Evaluating & finalising terms and conditions • Tools and techniques • Buyer positioning • Supplier positioning • SMR account plans and review meetings

5. Sections • Formation of contracts and tendering • Terms, management and termination • Theory, tools and techniques • Account plans and conflict resolution

6. Define & review need Exit & termination Manage contract performance Develop specification Manage implementation and transition Determineprocurement strategy Contract award Invite Pre-qualify suppliers Negotiate? Evaluate tenders Issue RFQ or ITT The procurement cycle

7. What is a contract? • Offer • Acceptance • Consideration • Intention to create legal relations • Capacity “…a legal agreement to exchange value between two (or more) parties’’ Agreement

8. Offer v Invitation to Treat Offer: • Provides details of the offer • Offerer indicates willingness to enter into a legal binding agreement • Must be communicated • If not communicated, then incapable of being accepted Invitation to treat: • Invites offers but does not express willingness to enter into a legally binding agreement • Provides information only – not an offer in itself • Example: catalogue price list

9. Termination of an offer • Rejection • Acceptance • Counter-offer • Revocation • Time (lapsed)

10. Acceptance • Unconditional acceptance leads to agreement • Acceptance should be communicated to the offerer (preferably in writing) • If posted, acceptance is taken from the point of posting (the ‘postal rule’) otherwise when received • Watch out for acceptance by performance

11. Consideration • There is no contract if one party promises to do something but the other party promises nothing in return – no “deal” has been struck • Consideration is something of value (in the eyes of the law) that is given or accepted in return for a promise • Consideration must be sufficient but not necessarily adequate – the law is not concerned with how “good a deal has been done”

12. Intention • Both parties must intend to enter a legally binding contract: • In social/domestic agreements the law presumes no intention to create a legal relationship unless there is evidence • In business/commercial agreements presumption is that the parties intended to create a legal relationship

13. Battle of forms • Occurs when both parties to a contract try to ensure their respective standard terms and conditions will govern that contract • In a battle of forms situation acceptance often takes place when the purchaser accepts the goods

14. Activity 3 – Contract Law Split into small groups Read through each of the 4 scenarios and agree your answers to the questions Feedback your answers to the wider group and discuss your findings

15. Define & review need Exit & termination Manage contract performance Develop specification Manage implementation and transition Determineprocurement strategy Contract award Invite Pre-qualify suppliers Negotiate? Evaluate tenders Issue RFQ or ITT The procurement cycle

16. Agreeing contract terms • Evaluating and agreeing contract terms can be time-consuming and costly • A negotiation on terms will invariably lead to a compromise that is suboptimal for you as the contracting authority • Where you can: avoid Good tendering practice helps to reduce the degree of negotiation

17. Negotiating contracts • It is usually better to get your terms in first • Put Terms & Conditions into your ITT/RFQ • The other party is already in the position of having to negotiate towards their terms • However be careful if you do not have the expertise, ensure that your T&Cs are right for you • For complex contracts get legal help from an expert • For high risk or high cost contracts get legal advice • Most Contract Procedure Rules or Standing Orders have specific guidance and requirements on this

18. Evaluating terms Adopt a Red Amber Green (RAG) status approach • Red – clauses that must be amended • Amber – clauses that you would negotiate • Green – clauses that are acceptable

19. Activity 4 – Terms Your manager has requested an urgent purchase Each of the 3 quotes you received were made on the suppliers’ T&Cs You cannot afford to miss the timescales, so you will need to evaluate the preferred supplier’s (Strefen Filters) T&Cs and focus on the key priorities Use a R-A-G approach to identify which T&Cs you need to discuss with the preferred supplier

20. The contract • Includes: • T&Cs • Specifications, drawings, standards, key documents • Verbal discussions, decisions, instructions • Records of conversations (formal or informal) • Custom and practice • Rarely ‘set in stone’ – living document

21. Sections • Formation of contracts and tendering • Terms, management and termination • Theory, tools and techniques • Account plans and conflict resolution

22. Implied and express terms Implied Terms: • A contract term that has not been expressly agreed, written and included in a contract • It is ‘implied in the contract’ by law whether or not both parties agree or not • National and international legislation • Case law • May also be dictated by • local custom • fact • obligation Express Terms: • Verbal statements (before and/or during the contract) • Terms and Conditions on forms (such as Purchase Orders) • Written clauses in a contract

23. Contract terms • Three types of term: • Conditions Vital to the agreement, if breached can lead to termination of contract and damages • Warranties Of lesser importance to the parties, if breached may lead to damages but not termination of contract • Innominate ‘Intermediate’ – decided by the Court • Specific to each contract

24. Key clauses • Payment Terms • Indemnity & liability clauses • Confidentiality and data protection • Exclusion clauses • Dispute resolution • Governing law / jurisdiction • Transfer of ownership & risk

25. Contract management • A single nominated role • Responsible for: • Delivery of the contract • Supplier relationship management • Supplier development • Performance management • Dispute management and resolution • Contract variations • Supplier risk management/mitigation • Contract termination • Documenting contract progress

26. Change control • Change happens! • Employ contractual variation procedure • Review consequences of change before ordering it (cost, time, delivery) • Issue CCN and have it signed by return • Log CCNs – forms part of contract

27. Should include: Specification Original tender / RFQ Bid correspondence (including clarifications) Evaluation scoring Award letter Contract Performance measures Minutes of supplier review meetings Evidence of supplier performance Agreed variations Any other relevant documents Must be kept up to date Regulatory compliance Provides detailed audit trail Due process Compliance Public interest Probity Political sensitivity / interest Freedom of Information Act 2000 implications Contract file

28. Contract termination • All contracts terminate • Successfully through the discharge of performance • Unsuccessfully through breach or determination • Key issues: • Exit provisions? • Contingency? • Control? • Avoidance of complete breakdown (…meltdown!)

29. Exit strategy • Commercial “pre-nup” • Handover • Information • Resources • Ramp-down provisions • Surviving provisions post-contract? • Maintaining relationships beyond the contract • Early termination for convenience? • Contingency planning

30. Sections • Formation of contracts and tendering • Terms, management and termination • Theory, tools and techniques • Account plans and conflict resolution

31. Relationships “You’re not going to win someone over by thumping them. You’ve got to love them to death” Source: Bob Crow (General Secretary of the RMT) 13th September 2007 – The Independent

32. RELATIONSHIP SPECTRUM distant relationships distant relationships closer relationships closer relationships destiny destiny adversarial adversarial strategic alliance strategic alliance partnership partnership closer tactical closer tactical outsourcing outsourcing arm’s Length arm’s Length single sourced single sourced transactional transactional - - co co Relationship spectrum

33. RELATIONSHIP SPECTRUM quality of information exchange high low trust lots none openness lots none commitment to maintain & develop relationship to get a good deal duration eternity instant risk assessment done together may not do, or will do on own risk management have integrated process for do on own distant relationships closer relationships destiny strategic alliance adversarial partnership arm’s length outsourcing closer tactical - single sourced transactional co Relationship spectrum

34. Definition of supplier relationship management • The proactive management of business relationships to ensure competitive advantage and excellent customer service. • Driving visibility, compliance, service delivery, operational and cost efficiencies and improvements

35. Components of SRM • Contract management • Managing delivery • Managing the relationship • Performance management • Supplier development • Contract administration • Dispute management and resolution

36. Relationship strategy: Relationship category: Strategic Suppliers Breakthrough performance Performance management & development Key Suppliers Tactical Suppliers Contract delivery Relationship strategies

37. SRM Supplier Classification Tier 1* – Strategic Long term, Value >£1m , high risk Tier 2 * – Key Spend >£100k (Major contract), medium risk Tier 3 – Tactical Ad hoc, low risk Typical supplier tiers

38. Portfolio Analysis Indicative categorisation Anticipated supplier distribution Strategic Suppliers (c1%) Bottleneck Strategic Strategic Supplier Key Suppliers (c19%) Key Supplier Risk or exposure Risk or exposure Non-critical Leverage Tactical Suppliers (c80%) Tactical Supplier Relative value Relative value Analysing suppliers and contracts

39. High orIncreasing Developmental Customer“How can we help?” Preferred Customer“Core business” Actions: Assess for future growth Open discussion on future Apply more resources Consider for KAM programme Actions: Deploy KAM Regular joint reviews Pursue relationship lock-in Secure long-term contract Relative Attractivenessof our Business Irritating Customer“You’re a nuisance” Exploitable Customer“Milk it” Actions: Withdraw from the relationship Aggressively raise prices Reduce effort and resources Actions: Raise prices to maximise margins Reduce dependence Low orDeclining Low orDeclining Relative Value of our Businessto the Supplier High orIncreasing Supplier perception analysis

40. Supplier Classification Alliance Partner KAM Performance Partner Relationship Arm’s length Integrated Performance Closeness of Relationship Selling Managed Solution Selling Preferred Traditional Supplier Selling Method Selling Low Level of Interdependency Hig h Supplier key account management

41. Activity 5 – Client Segmentation For each of the scenarios, assume the role of the service provider and: • categorise the client • determine a selling method

42. Sections • Formation of contracts and tendering • Terms, management and termination • Theory, tools and techniques • Account plans and conflict resolution

43. What suppliers think . . . Key things suppliers want from their clients • Mutual respect • Focus on what the supplier is delivering, not how they do it • Client commitments • Clients need to deliver their side of the bargain, and commit resource needed • Client Management • Need an appropriately skilled SRM • Communication • Share the vision, let the supplier know what is happening, so they can react to change • Governance • Respect the governance process, do not side step it for a short term advantage • Plus being paid on time Source: CIPS – Chartered Institute of Purchasing & Supply

44. Supplier Performance Review Supplier Performance Review - - Development Suppliers Review Review Attendees Attendees Agenda Agenda Inputs Inputs Outputs Outputs Frequency Frequency Strategic Strategic • • Quarterly or monthly, Quarterly or as • • Executive Relationship • • Review performance Review performance • • Value improvement Value improvement • • High impact value High impact value Review Review appropriate. as appropriate. sponsor. sponsor. to expectations, to expectations, ideas log. ideas log. improvement improvement • • SMT relationship SRM relationship objectives and objectives and • • Spend data. Spend data. projects. projects. leader & SMT manager & supplier targets over period targets over period • • Standard KPIs & Standard KPIs & • • Updated value Updated value (supplier mgt. team). management team. using balanced using balanced balanced scorecard. balanced scorecard. improvement ideas improvement ideas • • Supplier senior Supplier senior scorecard. scorecard. • • Issues / risks Issues / risks log. log. representative, e.g. representative, e.g. • • Issues, risks and Issues, risks and register. register. • • Agreed / updated Agreed / updated key account key account corrective actions. corrective actions. • • Supplier improve Supplier improve - - supplier improve supplier improve - - manager, managing manager, managing • • Review supplier Review supplier ment ment action plan. action plan. ment ment action plan. action plan. director, sales director, sales improvement action improvement action • • Supplier survey. Supplier survey. • • Meeting record Meeting record director etc. director etc. plan. plan. (minutes). (minutes). Supplier Performance Review Supplier Performance Review - - Development Suppliers (continued) Review Review Attendees Attendees Agenda Agenda Inputs Inputs Outputs Outputs Frequency Frequency Operational Operational leader and SMT • • Monthly, fortnightly Monthly, fortnightly • • SRM relationship SMT relationship • • Service / delivery Service / delivery • • Weekly or other Weekly or other • • Agreed actions. Agreed actions. Review Review members, as members, as • • or weekly as or weekly as review. review. agreed reports. agreed reports. • • Agreed escalations. Agreed escalations. appropriate. appropriate. • • appropriate. appropriate. Issues / risks. Issues / risks. • • Balanced scorecard. Balanced scorecard. • • Meeting record. Meeting record. • • R&SA user staff, as FRS staff, • • Ad hoc in response Ad hoc in response Performance to Performance to • • Issues / risks Issues / risks as appropriate. appropriate. • • to operational issues to operational issues operational targets. operational targets. register. register. • • Supplier’s key Supplier’s key as required. as required. Review impact on Review impact on • • Actions from Actions from account manager. account manager. supplier improve supplier improve - - previous meetings. previous meetings. • • Supplier staff, Supplier staff, • • ment ment action plan. action plan. as appropriate. as appropriate. Escalation issues. Escalation issues. Typical account management regime

45. Activity 6 – Account Management Plan Read the case study and complete the Account Management Plan

46. BARGAINING POWER OF SUPPLIERS Adapted from: Porter (1980) THREAT OF NEW ENTRANTS RIVALRY AMONG EXISTING MARKET FIRMS BARGAINING POWER OF BUYERS THREAT OF SUBSTITUTES Competition analysis

47. External environment • Political • Economic • Sociological • Technological • Environmental • Legal/regulatory

48. Ongoing supplier reviews Regularly check the following: • Insurance provisions • Financial standing/credit risk • Health & Safety record • Changes in key personnel • Any other documentation or accreditation requirements • Policies, such as equal opportunities, sustainability • Business continuity/contingency arrangements • Any other relevant documentation Always take and retain minutes of review and other meetings with suppliers

49. Key aspects of SRM Effective SRM is founded upon: • Sharing information • Working collaboratively • Team-working • Regular communications (two-way) • Joint problem-solving • Honesty • Mutual understanding • Openness • Trust

50. Conflict resolution - choices • Negotiation • Mediation • Arbitration • Litigation Litigation is the LAST resort