Procurement and Contracting Support Branch
Contracting and Legal Division
Commercial Group
Defence Materiel Organisation
Department of Defence
Commonwealth of Australia
Contract Negotiation
Directive V1.2
Released 1 July 2012
Defence Scope
This publication should be considered best practice guidance for Defence and DMO staff undertaking
procurement activities.
Note to External Agencies
External agencies intending to use this template will need to tailor it in order to meet their specific
procurement requirements (including relevant internal guidance) and should seek appropriate
professional guidance as required.
Disclaimer
The information in this publication is provided by Defence and DMO for the purpose of disseminating
procurement guidance to its staff. While every effort has been made to ensure the guidance in this
publication is accurate and up-to-date, any user should exercise independent skill and judgment before
relying on it. Further, this publication is not a substitute for independent professional advice and users
external to Defence and DMO should obtain appropriate advice relevant to their particular
circumstances.
Defence and DMO does not make any representation or warranty about the accuracy, reliability,
currency or completeness of any material contained in this publication and nothing in this publication
should be considered a representation by the Commonwealth. In publishing this information, Defence
and DMO does not warrant that the information will be used in any particular procurement process.
Defence and DMO is not liable for any loss resulting from any action taken or reliance made on any
information or material in this publication (including, without limitation, third party information).
Copyright
Commonwealth of Australia 2012
With the exception of the Commonwealth Coat of Arms, this publication is provided under a Creative
Commons Attribution 3.0 Australia licence.
The details of the relevant licence conditions are available on the Creative Commons website
(accessible using the links provided) as is the full legal code for the CC BY 3.0 AU licence.
This publication should be attributed as Department of Defence Contract Negotiation Directive V1.2.
Use of the Coat of Arms
The terms under which the Coat of Arms can be used are detailed on the It’s an Honour website.
Feedback
All feedback on this publication and suggestions for improvement should be sent to:
Procurement.Instructions@defence.gov.au.
Amendment Record
Version
Release Date
1.2
1 July 2012
Closure Date
Description of
Amendments
Delegations
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PROCESS TEMPLATE
Contract Negotiation Directive
General Information For Users
Use Of The Contract Negotiation Directive Process Template
1.
This Contract Negotiation Directive (CND) process template has been developed for
Complex Procurements. The template will require tailoring to suit the complexity of the
acquisition. This template may not be suitable for Strategic Acquisitions which may require
more comprehensive documentation.
2.
Prior to entering into negotiations a Contract Negotiation Directive must be completed for all
Complex Procurements. Drafters should refer to the Defence Procurement Policy Manual
(DPPM), and DMO users must also refer to relevant Defence Materiel Instructions (DMIs)
including DMI(PROC) 13-0-001.
3.
If the Commonwealth proposes to enter into parallel negotiations with more than one
tenderer, separate CNDs should be prepared for each of the preferred tenderers. Refer to
the DPPM Chapter 5.7A for information on additional probity and confidentiality issues that
may need to be managed and included in each CND, and the resource implications of
entering into parallel negotiations.
4.
All paragraphs can be tailored to suit the requirements of the acquisition. CORE and
OPTIONAL paragraphs have not been used in this template.
5.
Text utilising examples has been included where appropriate to further guide the types of
information that should be contained in various sections of the template. The example text
uses a different formatting style; the text is shaded grey and bordered to differentiate it from
the rest of the process template and bullet points are used to ensure that the automatic
numbering of paragraphs is not adversely affected. The examples are merely suggestions
and not definitive prescriptions of what might be contained in each of the sections.
6.
All ‘Notes to drafters’ and ‘Examples’ must be removed before the completed document is
provided to the delegate for signature. The section entitled ‘General Information for Users’
should also be deleted.
Formatting in the Template
7.
Within the template sections of text may be contained in table boxes. When modifying the
template, if drafters wish to retain the text they should first cut the text out of the box (using
Ctrl x), paste it into the document (Ctrl v) and then delete the box. If the text formatting is lost,
simply highlight the text and then select the relevant formatting style from the ‘Styles and
Formatting’ drop down menu on the Microsoft Word tool bar.
Contracting Assistance
8.
Where assistance with drafting a Contract Negotiation Directive is required, contact your
relevant contracting specialist. For DMO personnel please refer to DMI(PROC) 13-0-001.
COMMERCIAL-IN-CONFIDENCE
[…INSERT GROUP OR DIVISION…]
[…INSERT UNIT…]
[INSERT...Correspondence Reference Number]
[INSERT...File Reference Number]
Note to drafters: Position descriptions should be used for all addressees. Insert relevant
delegate and addresses as appropriate.
[…INSERT SECTION 44 DELEGATE...]
(Location)
(for Signature)
[…INSERT LEAD NEGOTIATOR…]
(Location)
(for Action)
If the Contract
CONTRACT NEGOTIATION DIRECTIVE FOR […INSERT RFT NUMBER AND DESCRIPTION…]
References:
Note to drafters: Include any relevant references and authorisation documentation.
A.
B.
C.
D.
To:
Tender Evaluation Plan (TEP), signed […INSERT DATE…];
Source Evaluation Report, signed […INSERT DATE…]
Delegate Submission seeking Regulation 9 Approval, signed […INSERT DATE…];
[…INSERT ADDITIONAL REFERENCES AS APPLICABLE…]
[…INSERT TITLE OF LEAD NEGOTIATOR…]
Purpose
1.
This Contract Negotiation Directive (CND) authorises the […INSERT TITLE OF LEAD
NEGOTIATOR…] to act as lead negotiator for the Commonwealth and negotiate for the
[…INSERT EITHER “acquisition” OR “support”…] of […INSERT DESCRIPTION OF
SUPPLIES…] from […INSERT NAME OF PREFERRED TENDERER…].
2.
You are to confirm that the […INSERT NAME OF PREFERRED TENDERER…]’s lead
negotiator has been provided an appropriate level of authority to negotiate prior to
commencing negotiations.
Negotiating Team Membership and Responsibilities
3.
You, together with the advisers, are appointed pursuant to this Directive to form the
Commonwealth’s negotiating team. As lead negotiator for the Commonwealth, you are
responsible for ensuring the terms and conditions of the negotiated contract comply with
Commonwealth requirements.
4.
Your responsibilities and those of the advisers are:
Lead Negotiator:
[…INSERT NAME AND TITLE…]
To lead the Commonwealth negotiation team and ensure that the
supplies or services described in the contract, and financial
arrangements of the proposed contract, meet the technical,
commercial (FIS, contracting and legal) and departmental
requirements of the Commonwealth.
COMMERCIAL-IN-CONFIDENCE
1
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5.
During the negotiations the lead negotiator may call on the following specialist advisers for
assistance. Their responsibilities are:
Note to drafters: In the DMO, a minimum of two Commonwealth personnel (which for the DMO
must include the Contracting Officer, if allocated in accordance with DMI(PROC) 13-0-001) must
be present during all contract negotiations. Any key advisers who are available for all sessions
should be identified as “Team Leaders” as indicated below.
Technical Advisers
[…INSERT TEAM LEADER
REQUIRED…] (Team Leader)
IF
As appropriate, and under the guidance of the lead negotiator,
lead and conduct negotiations on technical areas. Additionally,
provide technical expertise and guidance to other areas of the
negotiations as required.
[…INSERT NAMES AND TITLES…]
Contracting Advisers:
[…INSERT
TEAM
(Team Leader)
LEADER…]
[…INSERT NAMES AND TITLES…]
As appropriate, and under the guidance of the lead negotiator,
provide specialist advice on those aspects of the negotiations
relating to the Contract and Commonwealth and departmental
procurement policy, and ensure that the negotiated Contract
meets the Commonwealth’s requirements.
Note to drafters: Within DMO, if
allocated in accordance with
DMI(PROC)
13-0-001
the
Contracting Officer must be the
nominated Team Leader.
FIS Advisers:
[…INSERT NAMES AND TITLES…]
Legal Advisers:
[…INSERT TEAM LEADER
REQUIRED…] (Team Leader)
IF
As appropriate, and under the guidance of the lead negotiator,
provide specialist advice on those aspects of the negotiations
relating to price, arrangements for payment, and financial issues,
As appropriate, and under the guidance of the lead negotiator,
provide specialist legal advice.
[…INSERT NAMES AND TITLES…]
[…INSERT OTHER ADVISERS AS
REQUIRED…]
[…INSERT REQUIREMENTS…]
Secretariat:
The Secretariat does not form part of the Commonwealth
Negotiation Team. The Secretariat is responsible for maintaining a
record of the negotiations and for the configuration management
of the draft Contract and associated documents as agreed during
the conduct of negotiations.
[…INSERT NAMES AND TITLES…]
The Secretariat will maintain an electronic copy of the draft
contract on disk. Changes will be made in ‘track changes’ during
negotiations in full view of the other party through a projector. Both
parties will retain a disk copy after completion of negotiations each
day.
Note to drafters: Prior to entering into negotiations the
Secretariat should ensure that the RFT draft contract is
modified to remove: any notes to tenderers; any
Requirements Prioritisation indicators such as “Essential”,
“Important”, and “Desirable” markings; and any information
that is no longer applicable after receipt of tenders.
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Participation
6.
At the start and end of each negotiating session the lead negotiator must ensure that the
representatives from […INSERT PREFERRED TENDERER…] are clearly informed that any
positions reached during negotiations are “subject to contract” and further delegate
consideration..
7.
The negotiation team should not give tenderers the impression that they are certain to get a
contract. Such an impression undermines the Commonwealth’s negotiating effectiveness
and may give rise to a claim of damages based on estoppel or misrepresentation if the
relevant tenderer ultimately does not get the contract.
8.
Team Leaders have been nominated in the table above. The lead negotiator and each of the
adviser team leaders are to be present at all negotiating sessions where practical. The lead
negotiator is to determine which advisers are required to attend each negotiating session and
notify those advisers of the session’s details. Between negotiating sessions, members of the
negotiating team are to consult sufficiently with their advisers to ensure that matters of
concern are addressed quickly to allow them to discharge their responsibility in respect of the
negotiations. The number of Commonwealth participants is to be kept to a practical
minimum.
9.
During negotiating sessions, negotiation team members’ and advisers’ comments are to be
confined to the particular matter being addressed. Comments on other matters should be
passed privately to and between members of the negotiating team.
Referral of Negotiation Issues to the Delegate
10.
If any issues arise which are outside the scope of this Directive they must be addressed to
[…INSERT TITLE OF THE SECTION 44 DELEGATE…]. Any advice or guidance obtained
from the Delegate during negotiations is to be formally recorded.
Offers of Employment
11.
If any members of the nominated Defence negotiating team are, or expect to be, in receipt of
offers for employment from a prospective contractor or related parties, they are to notify the
Lead Negotiator immediately. Such members are to be withdrawn from negotiations until a
determination is made whether there is any possible conflict of interest necessitating their
removal from the negotiations.
Conduct
12.
The lead negotiator is to control correspondence and communications to and from
[…INSERT PREFERRED TENDERER…] during the negotiation. The negotiation team
members are to exercise the utmost discretion in all dealings with company officials or
representatives throughout the contract negotiations.
13.
The lead negotiator must ensure that no members of the Negotiation team are allowed to
give the preferred tenderer the impression that it is certain to win the contract or that any
changes to the RFT are agreed. All negotiated changes must be approved by the Section 44
delegate.
14.
The negotiating team must exercise the utmost discretion with regard to gifts and hospitality
offered by the preferred tenderer or its representatives. The negotiation team must guard
against accepting gifts or hospitality which may later be misconstrued as hampering their
independence or which may become the subject of criticism.
15.
Negotiation team members must notify the lead negotiator of any possible conflict of interest.
16.
All negotiation team members must be conversant and comply with the content of Defence
Procurement Policy Manual (DPPM) Chapters 3.13 - Ethics and Fair Dealing and 5.7 Negotiation and Contract Formation.
Objective
17.
The objective of the negotiations is to, where possible, formally agree to finalise and
recommend for signature, a contract between the Commonwealth and […INSERT
PREFERRED TENDERER…] for the […INSERT EITHER “ACQUISITION” OR “SUPPORT”
OF “DESCRIPTION”…].
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Limitation of Authority
18.
A Negotiation Issues Matrix is provided at Annex A and includes all negotiation issues
categorised as either “Minor”, “Significant” or “Critical”. This matrix details, as applicable for
each issue, […INSERT PREFERRED TENDERER…]’s stated position and the
Commonwealth’s objectives for negotiation and minimum fallback position. This matrix
constitutes a record of issues to be negotiated by, and the objectives for, the Defence
negotiating team.
19.
The negotiating team does not have authority to:
a.
deviate from normal Commonwealth policies;
b.
agree to any significant changes to the draft contract outside of guidance provided in
this document without first obtaining agreement from the undersigned; or
c.
sign any document or give verbal undertakings on behalf of the Commonwealth
committing it to a position until all specialist reports have been received and Section
44 delegation is being exercised.
Security and Confidentiality
20.
Normal Departmental security provisions are to be observed. The negotiations and
associated papers are to be regarded as Commercial-In-Confidence. Representatives from
[… INSERT PREFERRED TENDERER…] are to be advised accordingly and they are to be
requested not to make known to third parties the contents of the papers provided to them for
the purpose of negotiations, or the fact that negotiations are in progress.
21.
The lead negotiator must ensure that […INSERT PREFERRED TENDERER…] does not
receive any information regarding competing tenders unless the disclosure of such
information is in accordance with the Conditions of Tender, and contracting advice has been
sought. Pricing information submitted by other tenderers is particularly sensitive and must not
be conveyed to any other tenderer.
Negotiation Issues
Note to drafters: Only significant negotiation issues will be listed here. The Negotiation Issues
Matrix at Annex A will provide full details of the preferred tenderer’s non-compliances with the
RFT and a suitable approach for negotiation.
22.
Detailed evaluation of the […INSERT PREFERRED TENDERER…]’s tender identified
several issues which must be resolved during negotiations. Further information is provided in
a Negotiation Issues Matrix at Annex A, and references to that annex appear against each of
the negotiation issues below.
23.
Specific issues which are Critical or Significant are as follows:
Note to drafters: Examples of possible negotiation issues that may arise are provided below,
however the actual negotiation issues will be determined through detailed evaluation of the
preferred tender. The headings used for categorisation are suggestions only, and that issues
may be categorised or listed in any order that aids readability.
The “Savings Target” and “Profit” examples below may be applicable to limited tender
processes and other tender processes where cost investigation takes place or negotiation on
price is required. For further information on cost investigation refer to the Conditions of Tender
specific to the procurement, DPPM Chapters 3.3, and for further information on negotiating on
price, refer to DPPM Chapter 5.7.
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a.
Pricing Issues
Example:

Savings Target: The tendered price (without options) is […INSERT PRICE…]. The lead
negotiator is to seek a price reduction of […INSERT PRICE REDUCTION…] (or […INSERT
PERCENTAGE…]). If the lead negotiator cannot achieve a price (without options) equal less
than […INSERT MAXIMUM PRICE …], the matter is to be brought to my attention
whereupon I will decide if negotiations should continue. Refer to Annex A Reference 3.

Profit: To assist in achieving the savings target identified above, the lead negotiator is to
seek to reduce the tendered profit margin from […INSERT PERCENTAGE…] to […INSERT
PERCENTAGE…]. Refer to Annex A Reference 4.

Price Adjustment: The tenderer has nominated a Price Base Index which FIS have advised
is not suitable in accordance with Commonwealth Policy. The lead negotiator is to ensure
that any proposed Price Base Index is maintained by a Government approved independent
third party and is endorsed by FIS. Refer to Annex A Reference 5.

Price Increases: The negotiation team may agree to an increase in price that is directly
traceable to […INSERT REASONS eg. technical scope change, commercial risk profile
change…]. The negotiation team will review the Source Evaluation Report (SER)
[…INSERT SER REFERENCE…] and ensure that the negotiated outcome continues to
represent value for money when compared to other tenders that were evaluated.
b.
Technical Issues
Example:

Specification: The preferred tenderer has indicated a non compliance with clause 1.3.4 of
the specification marked as “Important”. The lead negotiator may accept modifications to this
specification on advice from the Chief Engineer. Refer to Annex A Reference 7.
c.
Contracting/Legal Issues
Example:

Intellectual Property: Modifications to clause 5.3 and the tendered IP Plan result in no right
for the Commonwealth to sub-licence IP. The Commonwealth needs to obtain IP licence
rights for life of type sufficient to enable third party contractors to provide ILS services. Refer
to Annex A Reference 1.

Limitation of Liability: As stated in the RFT the preferred Commonwealth position is for
liability to be assessed via common law principles. […INSERT PREFERRED TENDERER…]
has indicated that the tendered offer is contingent on a liability cap. The minimum
negotiation position is to accept individual caps on each head of liability in accordance with
the Commonwealth Liability Risk Assessment approved on […INSERT DATE…]. Refer to
Annex A Reference 2.

Attachment M (Glossary) Definitions. The definitions provided in the RFT draft contract
have been modified in […INSERT PREFERRED TENDERER…]’s tender. The preferred
position is that the standard ASDEFCON definitions are used. However the lead negotiator
may accept changes to the definitions as indicated in the “minimum position” column of
Annex A. Refer to Annex A Reference 6.
Note to drafters: It may be necessary to include other headings for significant issues such as:
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d. Project Management/Schedule
e. Integrated Logistics Support
f. Australian Industry Capability
Reporting
24.
At the conclusion of contract negotiations, a report is to be prepared showing the position
reached, highlighting any significant differences with the RFT draft contract, pre-negotiation
expectations or relevant aspects of this Directive. The report is to prepare recommendations
on further actions deemed necessary to conclude satisfactory contractual arrangements.
25.
Should a satisfactory position not be reached by […INSERT TARGET DATE…] the matter is
to be brought to the Section 44 delegate’s attention, who will decide if negotiations should
continue.
26.
A copy of the draft contract is to accompany the contract negotiation report.
Note to drafters: All notes to tenderers and Requirements Prioritisation indicators should be
removed prior to negotiations. Refer to the role of the Secretariat above and associated notes
to drafters.
[…INSERT ADDRESS BLOCK OF SECTION 44 DELEGATE…]
[…INSERT DATE…]
Annexes:
A.
B.
Negotiation Issues Matrix
[…INSERT OTHERS AS REQUIRED SUCH AS “Limitation of liability risk assessment.”
ETC...]