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1. Introduction to
Commercial Contracting
Understanding
The Basics
Week 7

2. 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

3. Elements of a Contract
• Competent Parties
• Consideration
• Lawful Purpose
• Certainty of Terms
• Offer
• Acceptance

4. 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 UCC or UNCISG or
civil law

5. Different Legal Systems
Common Law
Civil Law
Islamic Law
Communist law

6. Laws Governing Contracts
• Uniform Commercial Code
• United Nations Convention on
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.

7. First Steps- Buyer
Identify Possible Needs
•New service offering
•Expand market share
•Become more cost effective

8. Next Steps - Buyer
• Identify and Analyze Requirement
Functional
Performance
Design

9. Buyer: Pre Contract Activity
• Establish evaluation criteria
– Attributes of interest
– Price/quality/delivery
– Reputation of seller
– Standards
– Weighting

10. 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 customer
• Assess and prioritize on how your company can
opportunities provide assistance
• Influence design of • Create necessary third
customer RFP party agreements

11. 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?

12. 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 seller’s terms and conditions of
response- if appropriate

13. Contract Formation
Develop contracts that contain clear
deliverables and contractual obligations
and standard terms and conditions, while
identifying and mitigating all risks.

14. Contract Formation
• Prepare negotiation • Negotiate minor
plan issues
• Negotiate major • Review and
issues approve contract
• Prepare draft • Obtain contract
contract signature

15. 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 company’s business objectives

16. Usual Contentious
Clauses
 Pricing and Payment Terms
 Liquidated Damages/Penalties
 Liability/Indemnification Terms
 Warranties (Scope and Duration)
 Intellectual Property Ownership

17. Successful Contract
Negotiation
Involves thorough preparation and
planning
 Effective team planning
 Sharp negotiation skills
 Understanding the other party’s goals
 Documentation of agreements

18. 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

19. 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

20. 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

21. 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

22. The Contract
A well written agreement
answers who, what, where,
when, and what to do if….

23. FAQ’s -
Who Can Sign a Contract?
Dollar Value/Area Signature Authority
Over $1,000,000 Annually President/Chancellor/Board of Regents
From $500,000 to President/Chancellor
$1,000,000 Annually
Less than $500,000 and Respective Division Heads
does not require BOR
Approval
Up to and Including $50,000 Executive Director – Office of the President
for Commencement
Ceremonies
Up to and Including $50,000 Director of Constituent Relations &
for Presidential Events Special Events

24. FAQ’s -
Who Can Sign a Contract? (cont.)
Dollar Value/Area Signature Authority
Up to and Including $50,000 Associate Vice President of
Cumulative per Fiscal Year for Information Technology
Information Technology
Up to and Including $50,000 Assistant Vice President of
Cumulative per Fiscal Year for Facilities Management
Facilities Management
Up to and Including $50,000 for Director of Contracts and
All Areas Institutional Compliance
Up to and Including $50,000 for Director of Sponsored Programs
Sponsored
Programs Related
Up to and Including $1,000 for Director of Sports & Fitness
Referees and Fitness Instructors

25. FAQ’s -
Is Competitive Bidding Required?
• Competitive Bidding is required on all:
– Service prior to execution of the contract if the
value of the contract is expected to equal or
exceed $5,000 in state or local funds.

26. FAQ’s -
Is Competitive Bidding Required? (cont.)
• Competitive Bidding is not required for:
– Services that cost less than $5,000
– Professional or Consulting services
– Proprietary/Sole Source or “One-of-a-kind” services
– Workshops, training or seminars
– Advertising
– Hotels for special events
– Internal repairs
– Interagency agreements

27. Questions
? ?
? ? ?

28. Sources
National contract management association
(NCMA) World Congress:
Holly K. Walker, CPCM
Corporate Learning Solutions and Contract Mgmt. Consultant