5/7/18. Fact-Based Negotiations. Learning objective. Fact-Based Negotiations Overview. Ê Learn to prepare for fact-based contract negotiations

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1 Fact-Based Negotiations Presented by: Lourdes Coss, MPA, CPPO Learning objective Learn to prepare for fact-based contract negotiations Gain understanding of the information components needed in fact-based negotiations Develop models to quickly evaluate counter offers Fact-Based Negotiations Overview A Process for Defining Objectives & Requirements Principles of Collaboration and Leverage Bargaining Knowledge Understanding & Quantification of Expectations Understanding of the product/industry/market Model Identification of components and Should Cost Development of three approaches MSS, LAS, and BATNA 1

2 The Jenga Effect Process High Level Identification Research Analyses Modeling Strategy Development Implementation Savings initiatives progress to date Key developments Savings impact breakdown and progress through realization stages PRELIMINARY LED agreement with XXXXXXXX: Savings model has been updated with terms of the agreement, ready for SIEL Part 2 approval Fleet disposal sales as of June 30, 2014 totaled $2.2 million, for $1,030,968 in savings over baseline More initiatives needed to reach the Mayor s $50M/yr target $M 1 July 16, 2014 Target : $50M RS1 (SIEL1) RS2 RS3 (SIEL2) RS4 Implemented Updated initiatives: SIEL Part 2 for #2 LED Streetlights to be submitted SIEL Part 2 for #3 Fleet Disposal to be submitted SAMPLE RS5 Realized Mid-Oct Mid-Nov Mid-Dec Mid-Jan Mid-Feb Mid-March Mid-April Today 1 Showing top end of the range for all initiatives with ranged savings estimates Source: Team analysis; SIELs 2

3 Spend Analysis: Strategic Wave Plan SAMPLE Spend Analysis & Cost Savings Opportunities A recommended wave plan was developed based on savings opportunity estimates, ease of implementation elements, and the typical number of categories included in a strategic sourcing Wave. High TECH & COMM FACILITIES Vendor E PROFESSIONAL SERVICES Vendor B SCIENCE & HEALTHCARE HIGHWAY & ROAD OTHER GENERAL & ADMINISTRATIVE Vendor D Vendor A LOGISTICS & SHIPPING HUMAN RESOURCES Vendor C SYSTEM SOLUTIONS Size of Opportunity TRAVEL & ENTERTAINMENT FUEL MARKETING & PRINT FOOD & FOOD SERVICES ROAD SALT UTILITIES Low Recommended Sourcing Waves Wave 1 = $16M - $28M Wave 2 = $4M - $7M Wave 3 = $1M - $2M Ease of Implementation Factors Category Complexity Entity Distribution Annual Savings Market Conditions Ordinance Regulations Low Ease of Implementation High 7 Third-party spend prioritization matrix Preliminary opportunity Assessment ($MM) High Medium Low High Spend in all categories: $1.1BN - Existing fleet optimization - Fleet purchase optimization - Water treatment chemicals contract renegotiation Water supply & treatment Telecom 54 Current focus Fleet & fuel IT 81 Non IT professional services Maintenance services & supplies 39 Waste mgmt. & disposal Medium Description of ongoing SIELs 1 Long-term transformative category - LED streetlight retrofit Facilities 129 Electricity General & building constrx. & repair 1 SIELs will address specific opportunities within actionable spend areas and may not address the entire scope of each spend area Water & sewer constrx. & maint Roadways, paving & drainage Size of bubble = FY2013 spend $MM Identified Launched SIEL P1 SAMPLE Low Ease to capture (including timing) PRELIMINARY FOR DISCUSSION Source: City of Houston spend data; interviews; team analysis Pre-Solicitation Market, Industry, and Product/Service Research 3

4 Industry and Market Research Industry Definition Number of firms providing a particular type of goods or services Example: Construction, Office Equipment, Automobiles, Technology Market Definition The customers being served Example: Government, Education, Non-Profit, Fortune 1000, Healthcare, etc. Product/Service Research What s available? How many firms play in your market? What are the features and/or specifications? Suitability for your needs? Alignment with your organization Traditional less tolerance for change Strategic/Traditional some alignment, but traditional tendencies Innovative Value add seeking to align with industry Price and Quality Industry / Market / Product Research Industry Research List of companies that provide the goods and services being sought What portion of the market do they serve? Market Research Government Market Other Vertical Markets (public & private sector) Product and/or Service Research Features / Specifications Price Supply and Demand Availability and Conditions 4

5 Industry Research Areas of consideration Key Players Historical information Industry Growth Size of Industry Trends Major or Notable Changes in the Industry Market Research & Procurement Method Selection Product/Service Availability Market Segmentation Supply and demand Pricing Structure Regulatory Requirements Components of Industry Analysis Reports available Approach the correct industry Supply and demand scenario Competitive scenario Recent developments Industry dynamics 5

6 Market Research Areas of Consideration Competitors (list of firms competing in a specific market) Market Share Demographics, Psychographics & Geographic Behaviors & Trends Number of agencies competing for the services of the pool of firms available Market Research Establish realistic minimum requirements Identify potential sources Determine availability Identify new products, innovative approaches, and potential challenges Agency Profile 6

7 Agency Assessment Level of Maturity of the Organization Traditional Strategic Value-Add, Innovative Payment Policy Accounts Payable Cycle Approval Process Other Agencies in the Market Supply and Demand Procurement Categories, Methods, and Market Research Item complexity/criticality Low High Critical ~$650M Strategic ~$300M Goal Goal Quick turnaround with minimal Maximize value disruption of operations RFP Commodity (Low-touch) ~$50M Leverage ~$200M Goal Goal Compliant and efficient process with Lowest TCO and controlled demand lower price Bid No Yes Value created by aggregation Market Research provide insight into how procurements should be structured (i.e. payment term, value add, scope/ spec development Organizational maturity and structure has an impact on how goods and services are procured Category manager roles in categories requiring mainly Strategic skills Category manager Quadrant Category title Categories included Spend Rationale Strategic 1 High spend but few vendors and Utilities Electricity, Natural Gas and water $165M Low-touch contracts Strategic 2 Complex and strategic Fleet Vehicles, parts, fuels $95M Requires Procurement review of business cases IT/Telecom 3 Network: hardware, software, services Personal: hardware, software, peripherals Telecom: personal and network hardware and services IT staffing Strategic Leverage Critical $79M Very complex category Requires Procurement review of strategic capital projects business cases SAMPLE Airport goods and 1 Health insurance, property and services casualty insurance Strategic $51M Complex contracts TOTAL 7 FTE $390M In areas with more than one FTE, different skill sets may be used to create junior and senior roles. For example, in IT, one category manager could be strongly qualified for the Strategic role while the other two could meet the leverage and critical role descriptions 7

8 Risk Assessment Agency Risk Factor Clarity Requirements Alignment with Industry Practices Budget Knowledge & Experience Timing Coordination and Decision-Making Contract Performance Supplier Management Past Contract Volume Maverick Spend Modeling Negotiated Categories Architectural & Engineering Consulting Services Management Consulting IT Consulting Technology and Equipment Telecommunications Office Equipment Energy Management Natural Gas 8

9 Pricing Components Consulting Labor Overhead + Burden Profit Reimbursable Expenses Complexity and Size of Project IT Consulting Consulting Components Software License Pricing Components (cont.) Telecommunications Volume Equipment Requirements/Features Length of Contract Bonuses and Promotion Discounts Energy (Natural Gas or Electricity) Traded market price + mark up/discount Delivery Energy Management Fee Tariffs Volume SCORECARD Initiative and savings ownership by lead department PRELIMINARY Savings impact breakdown by lead department RS1 (SIEL1) Identified $M July 16, RS2 Assessed RS3 (SIEL2) Approved RS4 Implemented RS5 Realized No initiatives currently led by these departments under the P2P process SAMPLE FIN 0.27 FMD 2.40 HITS LGL PWE HAS1 GSD HCD HPD SWM Other Total 1 In progress Source: Team analysis; SIELs 9

10 Developing the Model Pricing Research Industry Government Market Agency Pricing Risk and Tolerances Establish Pricing Structure Architectural & Engineering Services IT Consulting Services Consulting Services Natural Gas Preparation for Price Negotiations Team Procurement End user Legal Roles Price Lead Volume/Quantity/Quality/Value Add Terms Lead Legal Terms Pre-Negotiation Meeting and Preparation Negotiation Classification Typical Scenarios Engineering Contract Consulting Contract Value Add Procurement Auto Parts Management Managed Office Supplies Managed Print Complex Negotiations Telecommunications Energy Electricity Natural Gas 10

11 Questions Thank you Contact Information Lourdes Coss, MPA, CPPO (312)