Introduction to Commercial

ContractsUnderstanding the Basics

Breakout Session E05

Holly Walker, Corporate Learning
Solutions

Date: Tuesday July 29, 2014

Time: 2:30 pm 3:45 pm
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 the UCC, CISG 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 Contracts
for 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 need for

Review own development work
capabilities Provide input to
Assess and prioritize customer on how your
opportunities company can provide
assistance
Influence design of
customer RFP 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 Continued
Prepare Negotiate
negotiation minor issues
plan
Review and
Negotiate approve
major issues contract
Prepare draft Obtain contract
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.

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