Contracting And Negotiation Flashcards
The definition of specifications includes two components
The first component defines what the product must look like or do
The second component is quantitative
What is Statement of work?
A specification for service to be performed
Acceptance criteria for tangible goods
Measurement to be taken during an incoming inspection process and allowable results
Acceptance criteria for equipment
The level of performance at which the equipment must operate and for how long it must operate at the level before it is deemed acceptable
Acceptance criteria for service
May be a result, a look, a report, a product or performance equipment
Method of communicating attributes of a product or service
A. Performance and design specification (e.g. SOW)
B. Internal vs. external specifications
C. Supplier samples
Types of solicitations/bids
- Offer to buy vs. offer to sell
- Informal bid/quotation
- Electronic solicitation (RFx)
- Competitive proposals
- Sealed bids/formal advertising
- Restrictive competition
- Non-competitive negotiation
- Two step bidding
- Alternative/innovative proposals
- Pricing model/market baskets
- Lotting strategies (online bidding)
Informal bids are generally manifest in one of two ways
First, refer to telephone, written or electronic quotation
Second, used to solicit budgetary information for estimating purposes
Competitive proposal is a procurement practice that
- Is initiated by a request for proposals, setting out the organization’s requirement and criteria
- Contemplates the submission of timely proposal by the maximum numbers of suppliers
- Usually provides discussion with those suppliers found to be within competitive range
- Concludes with the award of contract to the one supplier whose proposal most advantageous
What is formal advertising being used for?
Procurement of services such as building or maintenance contracts, construction and equipment. Also appropriate for selling scraps and surpluses
What are the two steps in two steps bidding
First step, the bid are requested only for technical proposals, without any prices
Second steps, bids are sent only to those suppliers that submitted acceptable technical proposals
What are various degree of competition? 6 of them
Monopoly Monopolistic Oligopolistic Perfect competition Oligopsonictic Monopsony
What is monopolistic?
Few seller, many buyers
Create the illusion of many seller through product differentiation. I. E breakfast cereal
What is oligopolistic?
Few seller, many buyers
Prices is controlled by industry leader or cartel. i.e. OPEC
What is oligopsonistic?
Many seller few buyers
Buyers have a major affect on pricing
What is monopsony?
Several sellers and one buyer
i.e. Military aircraft
When to use RFI?
To obtain general information about products, services or suppliers
What are the potential benefits of RFI?
Informal request, thus non-binding
Quick survey and is responded to easily
May help budgeting
What is potential drawback of RFI ?
The method is used too often, potential supplier may refuse to respond
When to use bidder’s conference?
A bid situation that are more complex due to specification, number of supplier, the amount of business to be awarded or the critical nature of the contract
What is the potential benefit of bidder’s conference?
They establish a forum for two way communication to discuss the details of RFQ, RFI, RFP or IFB packages at the beginning of the bid process
What should happen before bidder’s conference?
The participant will received the bid packages well in advance so that hey have adequate time to review the contents
What is the potential problem with bidder’s conference?
It takes time.
Overuse might discourage supplier from attending, especially during peak season for their industry
What is general solicitation procedures and concepts?
A. Comparability B. Fairness/business ethics C. General format/content of bid request D. Fair response time E. Issue dates F. Opening/closing dates G. Inclusion of potential contract and Ts and Cs
What the general format/content of bid request should consist?
A complete spec of item or SOW of the service
The quantity to be quoted
Where and when the items are to be shipped or installed
The due date for quotation
The due date for the product or service
What are the 7 types of bonds in negotiation?
Bid bonds Performance bonds Payment bonds Deposits Letter of credit Real estate Cash
What is bid bonds?
A third party that need to bear the extra cost of going into alternative source
What is performance bonds?
A bonds that guaranteeing prompt delivery of goods that meet specifications. In construction will be according to spec and time requirements
Why do we need deposit in negotiation?
To discourage financially unstable suppliers
What are the potential problem related to the solicitation and receipt of offers
A. Time extensions and amendments to solicitation
B. Late bids
C. Offer with errors, irregularities or omission
D. Conflict of interest
E. Protest
F. Confidentiality/security
G. Alternate proposals
H. Debriefing process
I. Procedure for cancellation of solicitation
Court allow the withdrawal of bids when it meet the two conditions what are they?
- The mistakes was mechanical or clerical in nature, not an error in judgement
- The bidder was not guilty of blame de serving negligence in making the error
Why do we need to prepare for negotiation?
- Are unlikely to now the negotiation position
- Are unlikely to anticipate what the other party likely to do or to understand what motivates the other party
- Are unlikely to know what results or goals they want to achieve
- Will be unable to respond realistically to the other party’s proposal
- Will not know whether the negotiation is reasonable
What are Porter 5 forces?
SWOT Trends
What is he first thing need to do in negotiation plan?
Evaluate supplier’s proposal such as evaluate price, delivery specification or statement of works, terms and any deviations from your requirements
What is the second thing that we should do in negotiation plan?
Set objective
Is lower price, higher quality or accelerate delivery
What are the negatiation objectives?
A. Fair and reasonable price
B. Timely performance
C. Meeting the minimum essential needs of the organization
D. Control over how the contract is performed
E. Maximum supplier cooperation
F. Sound relation with suppliers
What are the 9 things we need to know in analyzing sellers?
- Seller’s desire for a contract
- Seller’s certainty of getting a contract
- Amount of time for negotiation
- Adequacy of cost/price analysis
- BATNA
- Seller’s competitive position
- Skill and authority level of the negotiator/negotiation team
- Extend of planning for the negotiation
- Seller’s financial condition
What are the potential seller’s competitive advantages?
A. Patented design or feature B. Closest producers C. Higher quality product D. Better engineering support E. Better production capacity Other superior customer service, low reject rates, comfortable payment term, performance track record
What are the 5 things that should be included in document of negotiation?
A. Subject B. Introduction summary C. Particulars D. Procurement situation E. Negotiation summary
What is the maximum percentage of purchase in market place that will not qualified as anti trust ?
25-35%
What are the potential issue with collaborative purchasing?
Protection from antitrust problems
Limitation of liabilities concerns
Ease of entry and exit
Definition of right and obligations of members
Cost and membership fees
Requirements to buy from participating suppliers
Special needs such as storage, delivery or quality requirements
Rules of behavior
A contract has four essential elements
A. Offer and acceptance
B. Consideration
C. Competent parties
D. Legality of purpose
What is the statue of frauds?
A law designed to prevent fraud and perjury by requiring that certain contracts be in writing. Contract for goods worth $500 and more, as well as any other contract that cannot fully performed in a year are not enforceable
What does UCC article 2 does?
It increased the statue of fraud amount into $ 5,000 from $ 500
When is the letter of intent might be used?
- Reserving a place “in line” for standard equipment
- Basing volume discount on future business without giving firm order
- Encouraging seller to stock items of interest
- Providing supplier with evidence to secure bonding
What are the two types of letter of intent?
Binding
non-binding
What are the 9 types of contracts?
Fixed price Cost reimbursable Indefinite delivery contract Letter contracts Dealer's agreement Service agreement Master purchase agreement Construction contract
What are the 7 types of fixed price agreement?
Firm fixed price Fixed price with escalation Fixed price with re-determination Fixed price with incentive Fixed price level of effort Fixed price with downward price protection Fixed price with remedies
What is firm fixed price?
Agree to pay the supplier a set of price for the specific goods or service
What is fixed price with escalation?
Buyer may wish to use an adjustment/escalation clause, which provide for both upward and downward changes either in material or labor cost. Usually ties to indices and used during economic uncertainties
What is fixed price with redetermination?
Used when both future cost and amount of labor or material are uncertain. The differences is the amount of labor and material are unknown
What is fixed price with incentive ?
A contract that provide supplier with incentive to control cost by establishing target cost, target profit, a ceiling price and final profit formula. Typically if there is a saving, both supplier and buyer will share at predetermine rate. Appropriate in high cost, long lead time project
What is fixed price level of effort?
Where the fixed price per unit level of effort are used when neither the work or results can be specifically defined prior to performance
What is fixed price with downward price protection?
A contract that provides maximum protection for the buying organization. It can only adjusted downward.
What is fixed price with remedy?
A fixed price contract with remedies provides fixed pricing with an option to obtain reimbursement for extraordinary expenses. For example when delivery date is extended
What are the 6 types of cost reimbursable contract?
Cost plus a fixed fees Cost plus percentage cost Cost plus incentives Cost plus award fee Cost without fee Cost sharing
What is cost plus a fixed fee?
This form guarantee the supplier reimbursement for allowable cost plus a negotiated fixed fee
What is cost plus percentage of cost?
This is the most undesirable form for buyer as it provide no incentive to control cost
What is cost plus incentive fee?
This is similar to fixed price with incentive contract
What is cost sharing?
A contract provides for both buyer and supplier to share the costs and benefits
What is indefinite delivery contract?
A contract is used when the buyer is not sure of its production or operation schedule
What are the 5 types of indefinite delivery contract?
Indefinite delivery/quantity Task order and delivery order Time and material contract Blanket agreement Requirement contract
What is time and material contract?
Generally provide payment for labor and overhead at a given rates per hour, plus sales price of parts, supplies and material. Most automobiles are repaired under time and material contract
What is dealer agreement?
The dealer is granted the right to purchase, sell, distribute or service the supplier merchandise
What are the 4 types of service agreement?
Master service agreement : tied to Maintanance of capital equipment
Professional service agreement: contract for legal, accounting, auditing
Maintanance agreement : contract for preventive Maintanance
Performance based agreement : contract for services in which outcomes or timelines are specified in terms
What are the five types of intellectual properties?
Patent Copyrights Trademark Licensing Confidentiality
What is patent?
A monopoly created by law that gives the patent holder the sole right to make, use and sell the patented item as well as the right to prevent others from doing so for a set amount of time
What is copyrights?
Right to the author of literary, artistic or audiovisual work the exclusive right to publish, reproduce, display, sell, perform, transmit or prepare derivative works for the original works
What is trademark?
A name, symbol or design registered with the country trademark office for exclusive use in association to a given product or service
What is licensing?
A license issue that grant the licensee the right to use the protected property. Often one time fee or an on going royalty
What are the 4 primary US law dealing with antitrust?
Sherman
Clayton
Federal trade commission
Robinson-Patman act
What are the primary objective of HSPD 12?
To establish a process to enhance security, increase government efficiency, reduce identity fraud and support the fight against global terorism
What are the 4 primary US law dealing with antitrust?
Sherman
Clayton
Federal trade commission
Robinson-Patman act
What are the primary objective of HSPD 12?
To establish a process to enhance security, increase government efficiency, reduce identity fraud and support the fight against global terorism
What are the 4 primary US law dealing with antitrust?
Sherman
Clayton
Federal trade commission
Robinson-Patman act
What are the 4 primary US law dealing with antitrust?
Sherman
Clayton
Federal trade commission
Robinson-Patman act
What are the 4 primary US law dealing with antitrust?
Sherman
Clayton
Federal trade commission
Robinson-Patman act
What is estoppel?
The doctrine of promissory estoppel holds that if one party make a promise, even orally, they cannot renege on that promise if the other party has acted in reliance of it
What is boilerplate terms and conditions?
Intended to protect buyer on matter such as contract acceptance, delivery performance, contract termination, shipment rejections, assignment and subcontracting, patent rights, trademarks, copyrights and payment procedures
What are the termination option?
For cause or default. Typically result in cancellation
For convenient. Agreement between parties
Frustration of purpose. Also known as commercially impracticable. Doesn’t cover lose money, shifts in markets, changes in cost
Inexcusable delay. Not because of force majeure
What is estoppel?
The doctrine of promissory estoppel holds that if one party make a promise, even orally, they cannot renege on that promise if the other party has acted in reliance of it
What is estoppel?
The doctrine of promissory estoppel holds that if one party make a promise, even orally, they cannot renege on that promise if the other party has acted in reliance of it
What is estoppel?
The doctrine of promissory estoppel holds that if one party make a promise, even orally, they cannot renege on that promise if the other party has acted in reliance of it
