South West Employers
Contract Writing & Supplier Relationship
Management
Trainer:
Date:
Activity 1 - Icebreaker
How many points do you have? _______
Is a middle child
Likes to eat
Japanese food
Is wearing pink
Plays a team sport
Speaks another
language
(1 point)
(1 point)
(1 point)
(1 point)
(1 point)
Wears glasses
Is over 6’ tall
Has less than four
letters in his/her
first name
Has a last name
that starts with a W
Has green eyes
(1 point)
(1 point)
(1 point)
(1 point)
(1 point)
Owns a Vauxhall
car
Likes classical
music
Preferred Maths to
English in school
Knows someone
famous
Has red hair
(2 points)
(2 points)
(2 points)
(2 points)
(2 points)
Has more than 2
children
Has made a
parachute jump
Has visited more
than 10 countries
Has more than 7
letters in his/her first
name.
Has a birthday in the
same month as me
(3 points)
(3 points)
(3 points)
(3 points)
(3 points)
One unusual fact I have found out about someone here is? ____________________________ (5 points)
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
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
 Key
of contracts and the role of tendering
terms
 Evaluating
 Tools
and techniques
 Buyer
positioning
 Supplier
 SMR
& finalising terms and conditions
positioning
account plans and review meetings
Sections
1.
Formation of contracts and tendering
2.
Terms, management and termination
3.
Theory, tools and techniques
4.
Account plans and conflict resolution
The procurement cycle
Define &
review need
Exit &
termination
Manage
contract
performance
Manage
implementation
and transition
Develop
specification
Implement
Planning
Determine
procurement
strategy
Contract
award
Invite
Enquiry
Pre-qualify
suppliers
Negotiate?
Evaluate
tenders
Issue RFQ or
ITT
What is a contract?
“…a legal agreement to exchange value between two (or
more) parties’’

Offer

Acceptance

Consideration

Intention to create legal relations

Capacity
Agreement
Offer v Invitation to Treat
Offer:
Invitation to treat:

Provides details of the
offer


Offerer indicates
willingness to enter into a
legal binding agreement
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

Must be communicated

If not communicated,
then incapable of being
accepted
Termination of an offer

Rejection

Acceptance

Counter-offer

Revocation

Time (lapsed)
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
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”
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
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
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
The procurement cycle
Define &
review need
Exit &
termination
Manage
contract
performance
Manage
implementation
and transition
Develop
specification
Implement
Planning
Determine
procurement
strategy
Contract
award
Invite
Enquiry
Pre-qualify
suppliers
Negotiate?
Evaluate
tenders
Issue RFQ or
ITT
Agreeing contract terms

Evaluating and agreeing contract terms can be timeconsuming 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
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
Evaluating terms
Adopt a Red Amber Green (RAG)
status approach
– clauses that must be
amended
 Red
– clauses that you would
negotiate
 Amber
– clauses that are
acceptable
 Green
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
The contract

Includes:
 T&Cs
 Specifications,
drawings, standards, key
documents
 Verbal
discussions, decisions, instructions
 Records
 Custom

of conversations (formal or informal)
and practice
Rarely ‘set in stone’ – living document
Sections
1.
Formation of contracts and tendering
2.
Terms, management and termination
3.
4.
Theory, tools and techniques
Account plans and conflict resolution
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
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
Key clauses
 Payment
Terms
 Indemnity
& liability clauses
 Confidentiality
 Exclusion
 Dispute
and data protection
clauses
resolution
 Governing
 Transfer
law / jurisdiction
of ownership & risk
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
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
Contract file
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 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!)
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
Sections
1.
Formation of contracts and tendering
2.
Terms, management and termination
3.
4.
Theory, tools and techniques
Account plans and conflict resolution
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
Relationship spectrum
RELATIONSHIP SPECTRUM
distant relationships
closer relationships
Relationship spectrum
RELATIONSHIP SPECTRUM
low
none
none
to get a good deal
instant
quality of information exchange
trust
lots
openness
commitment
duration
may not do, or will do on own
risk assessment
do on own
risk management
distant relationships
high
lots
to maintain & develop relationship
eternity
done together
have integrated process for
closer relationships
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
Components of SRM

Contract management

Managing delivery

Managing the relationship

Performance management

Supplier development

Contract administration

Dispute management and resolution
Relationship strategies
Relationship strategy:
Relationship category:
Strategic Suppliers
Key Suppliers
Tactical
Suppliers
Breakthrough performance
Performance management
& development
Contract delivery
Typical supplier tiers
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
Analysing suppliers and contracts
Portfolio Analysis
Indicative categorisation
Strategic
Supplier
Bottleneck Strategic
Key Supplier
Risk or
exposure
Anticipated supplier distribution
Strategic Suppliers (c1%)
Key Suppliers (c19%)
Risk or
exposure
Non-critical Leverage
Relative value
Tactical
Supplier
Relative value
Tactical Suppliers (c80%)
Supplier perception analysis
Relative Attractiveness
of our Business
High or
Increasing
Low or
Declining
Developmental Customer
“How can we help?”
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
Irritating Customer
“You’re a nuisance”
Actions:
Withdraw from the relationship
Aggressively raise prices
Reduce effort and resources
Low or
Declining
Preferred Customer
“Core business”
Exploitable Customer
“Milk it”
Actions:
Raise prices to maximise
margins
Reduce dependence
Relative Value of our Business
to the Supplier
High or
Increasing
Integrated
Supplier Classification
Alliance
Partner
KAM
Performance
Partner
Relationship
Selling
Performance
Managed
Arm’s length
Closeness of Relationship
Supplier key account management
Solution
Selling
Preferred
Traditional
Selling
Low
Supplier Selling Method
Level of Interdependency
Hig
h
Activity 5 – Client Segmentation
For each of the scenarios, assume the
role of the service provider and:

categorise the client

determine a selling method
Sections
1.
Formation of contracts and tendering
2.
Terms, management and termination
3.
4.
Theory, tools and techniques
Account plans and conflict resolution
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
Typical account management regime
Supplier Performance Review
- Development Suppliers
Review
Strategic
Review
Frequency
Attendees
Agenda
• Quarterly or as
monthly, • Executive
Relationship
• Review performance
as appropriate.
appropriate.
sponsor.
to expectations,
• SRM
SMT relationship
relationship
objectives and
leader & SMT
manager
& supplier
targets over period
(supplier mgt.team.
management
team). using balanced
• Supplier senior
scorecard.
representative, e.g. • Issues, risks and
key account
corrective actions.
manager, managing • Review supplier
director, sales
improvement action
director etc.
plan.
Inputs
Outputs
• Value improvement
ideas log.
• Spend data.
• Standard KPIs &
balanced scorecard.
• Issues / risks
register.
• Supplier improvement action plan.
• Supplier survey.
• High impact value
improvement
projects.
• Updated value
improvement ideas
log.
• Agreed / updated
supplier improvement action plan.
• Meeting record
(minutes).
Supplier
Supplier
Performance
Performance
Review
- Development
Review
Suppliers
(continued)
Review
Frequency
Attendees
Operational • Monthly, fortnightly • leader
and SMT
SMT relationship
SRM
relationship
Review
members, as
or weekly as
appropriate.
appropriate.
R&SAstaff,
user staff, as
• Ad hoc in response • FRS
appropriate.
appropriate.
to operational issues as
• Supplier’s key
as required.
account manager.
• Supplier staff,
as appropriate.
Agenda
• Service / delivery
• review.
• Issues / risks.
Performance to
• operational targets.
Review impact on
supplier improve• ment action plan.
Escalation issues.
Inputs
Outputs
• Weekly or other
• Agreed actions.
agreed reports.
• Agreed escalations.
• Balanced scorecard. • Meeting record.
• Issues / risks
register.
• Actions from
previous meetings.
Activity 6 – Account Management Plan
Read the case study and complete the
Account Management Plan
Competition analysis
THREAT OF
NEW ENTRANTS
BARGAINING
POWER
OF SUPPLIERS
RIVALRY AMONG
EXISTING
MARKET FIRMS
BARGAINING
POWER
OF BUYERS
THREAT OF
SUBSTITUTES
Adapted from: Porter (1980)
External environment

Political

Economic

Sociological

Technological

Environmental

Legal/regulatory
Ongoing supplier reviews
Regularly check the following:
Always take and
retain minutes of
review and other
meetings with
suppliers

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
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
Conflict resolution - choices

Negotiation

Mediation

Arbitration

Litigation
Litigation is the LAST resort
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
 Key
of contracts and the role of tendering
terms
 Evaluating
 Tools
and techniques
 Buyer
positioning
 Supplier
 SMR
& finalising terms and conditions
positioning
account plans and review meetings