Wednesday, February 2, 2011

Negotiation Preparation - Internal Information Gathering

The first step in the Procurement process is internal information gathering that should be done with the requestor, users, subject matter experts, etc. to determine what is required. Similar to contract commitments you are looking for answers to the 4W’s and an H questions: Who, What, Where, When and How.

The goal of internal information gathering is to define the scope of the transaction, describe the elements that contribute to delivering that scope, and establish the conditions under which the Product or Services will be provided or conducted, tested, and accepted. For major contracts information gathering is extremely important. What you learn as part of the information gathering phase can impact what you look for in a supplier, how your qualify them, the bid approach, contract type and contract terms that may be required.

For a large purchase the types of information gathering would include:

Definition of the Project Scope: The boundaries that define the depth and breadth of the purchase, including functionality. In many cases this would be done by the specification.

Volumes of purchases expected. This should include estimates of both current and future volumes
Key Assumptions: environments or conditions under which the scope of work is defined and the estimates were determined.

Supplier Responsibilities: These are the tasks the Supplier will perform (or assist on) to develop or provide the deliverable product or service and any specific activity (or task), that you want to require and the Completion Criteria for those tasks.

Buyer Responsibilities: This would include activities (tasks) or deliverables which the Buyer must provide, perform (or assist on), to enable the Supplier to fulfill its responsibilities.

Deliverables: These are the Materials produced during the project by the Supplier, and delivered to the Buyer. For example do they provide you with samples or prototypes?

Acceptance criteria. Acceptance criteria are the detailed, objective, measurable conditions, which if stated in an Agreement, must be met by the Supplier in order to accept deliverable Materials provided by Supplier

Completion Criteria for “project-based” SOWs. These are objective criteria by which overall project completion is measured.

Schedule: This could included the total time allowed,  major checkpoints or phase milestones. In discussing schedule you could also discuss schedule requirements for managing critical risks or interruption to the business.  For example when I purchased debit card processing services for a Bank one of the key schedule requirements was a prohibition on any system changes during the peak shopping periods leading up to the Christmas holidays as that was the period during which they had the most transaction and made the most money.

Cost Estimate. How much do they expect to pay? Are there any benchmarks?

Flexibility. How firm are the requirements? How flexible is the schedule

Deliverable Materials Guidelines. How you want things delivered. This could mean things like the number of copies for a report, the media type for Software, etc.

How the performance will be managed and who will manage it? The amount of resources that are available for managing an activity can affect the type of contract you need. For example, you don’t want to do a time and materials relationship unless you have the resources to manage it. What escalation processes are required in the event of a problem? Are there any Project management requirements needed to help manage the performance of the work such as project review meetings?

Recommended, preferred, and portential Suppliers.  Do they know of suppliers that they feel can do the work?

Alternative Suppliers, Products or Services. This can help identify potential leverage from competition.

Risk Management Performance Management Needs
You would also ask whether the agreement will needs any performance or risk management terms such as:
  • Approval of Project Personnel, or changes to Personnel
  • Approval of Suppliers, Lower Tier Subcontractors
  • Audit or Examination of Books and Records requirements
  • Background Investigations
  • Change of Control Rights
  • Conflict of Interest restrictions for key personnel
  • Coordination of Work requirements
  • Stricter Confidentiality Requirements
  • Management Escalation Procedures
  • Escrow requirements
  • Inspection of Facilities rights
  • Additional Insurance Requirements such as
    • Professional Liability and Errors and Omissions
    • Employee Dishonesty and Computer Fraud Insurance
  • Key Employee Restrictions

In addition you might also solicit information such as
  • The financial impact if the supplier failed to perform (for use in determining potential Liquidated Damages.
  • Whether there may be competition with others using the same supplier requiring a Most Favored Customer commitment
  • Future needs to determine if you need multi-year Price Protection or purchase options
  • Whether there is any need to make derivative works (for discussions on ownership and license rights)
  • What type of payment mechanism works (Progress or milestone payments, retainage.
  • If there is a concern about Recruiting/Hiring of Employees.
  • Response Time / Performance Criteria
  • Risk of Loss (different from normal delivery terms)
  • Any special Safety & Security requirements that may be needed
  • If the work will be done on the Buyer’s or Customer’s site,
    • Temporary Use of Facilities
    • Temporary Use of Machines

As the last part of information gathering I would ask:
What, if any, prior communications or discussions they have had with any of the Suppliers? 
The simple reason to ask that is to understand what the Supplier(s) may have learned about your company’s specific needs, schedule, preferences etc. All are things that may provide them with an indication on their competitive position which can take leverage away from you in the negotiation.  If you know, you can be better prepared to deal with it.

What you gather during the internal information gathering activity should do several things. First it should provide you with key information that is needed to prepare the RFP or Bid documents.  Second the better you understand what your users need or want the more prepared you will be for the negotiation in terms of analyzing what may or may not be acceptable.

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