Procurement and Contract Negotiations. Special presentation for: 2017 APICS Supply Chain Summit October 19, 2017 Vancouver, BC

Transcription

1 Procurement and Contract Negotiations Special presentation for: 2017 APICS Supply Chain Summit October 19, 2017 Vancouver, BC

2 Facilitator Introduction Maureen A. Sullivan, BA, LLB Owner and President of NECI Curriculum developer for the PSPP and Signature Seminars An experienced litigator, mediator and dispute-resolution practitioner In-depth knowledge of procurement law, contracting issues, and negotiations Legal Editor and Publisher of The Legal Edge

3 Let us never negotiate out of fear. But let us never fear to negotiate. -JFK

4 Preliminary Comments Discussing negotiations DURING a competitive process Will look at both issuer (owner) and bidder (respondent) perspectives Use ITT, RFP interchangeably ( RFx ) Designed to help you maximize resources spent on these processes Will also discuss negotiations more generally

5 Key Distinction of Binding Competitive Contracting: Contract A and Contract B Offer Acceptance A A A Offer B A Acceptance

6 Exercise: Trucking Troubles

7 Court Perspectives Martel (SCC, 2000), reflecting on MJB (SCC, 1999) the basic rationale of tendering seeks to replace negotiation with competition Tercon (BCSC, 2006) However new breeds of procurement model, called hybrids, have both an element of negotiation and competition Double N (SCC, 2007) MJB case makes clear that the tender documents control the contractual obligations of the parties to a tender [and here] the documents clearly indicated that some measure of negotiation was anticipated.

8 Negotiation Processes In general terms, what should suppliers watch for with negotiation rights in RFx documents? What do owners need to consider? Rocks to avoid?

9 How NOT to Handle Procurement Negotiations Borshcherdt Concrete v Port Hawkesbury (2008, NSCA)

10 Borcherdt Concrete v. Port Hawkesbury (2008, NSCA), Continued Issue: Did Owner breach its KA obligations, its implied duty of fairness? Bid shopping? RFx clause: The Owner reserves the right to reject any and all Tenders that, in its sole discretion, are not in [its] interests. But, slow to reject, and RFX silent on Owner s ability to go to third party, or take work in-house.

11 What do You Think the Outcome Will be?

12 Borcherdt Concrete v. Port Hawkesbury (2008, NSCA), Continued Courts: Purchaser liable for breach of Contract A, duty of fairness (yes, this was bid shopping) Damages of $68K awarded (reduced on appeal to $44K)

13 Caution: Bid Shopping the practice of soliciting a bid from a contractor, with whom one has no intention of dealing, and then disclosing or using that in an attempt to drive prices down amongst contractors with whom one does intend to deal Double-N Earthmovers v. Edmonton (2007, SCC), para.56

14 Where do negotiations fit in Within Contract A Outside of Contract A

15 Within Contact A Must be defined as part of process Read RFx carefully as part of go/no go decision Follow submission requirements exactly

16 Weigh Risks Is negotiation process poorly defined? Is negotiation too wide open? What are the implications of building in a risk premium? Must follow submission and process requirements exactly.

17 Outside of Contract A Emerging trend to avoid Contract A If private owner, means no legal recourse if unfair Understand what is in and what is out of scope for negotiations

18 If public sector owner is unfair Have Judicial Review recourse Court will review reasonableness of decision May set aside the decision or order remedial steps But will not award damages

19 Three Typical Options 1. No negotiations 2. Option to negotiate 3. Negotiations on specific items/terms Possible fourth option: frontrunner will be invited to negotiate an agreement

20 Option 1: No Negotiations Why? The less there is to negotiate, the greater the competitive tension on price. Provides most certainty for bidders.

21 Option 1 Clause Offer language on page signed/submitted with bids: hereby offers to perform the Services in accordance with the Contract Documents. Supporting clause in RFx Instructions: Each Proposal submitted shall constitute an irrevocable offer, open for acceptance by the Owner from the Closing Time until 90 days later.

22 Option 2: Option to Negotiate Why? Preserve flexibility. Is there a downside?

23 Option 2 Clause Same element as Option 1 RFx sets stage for acceptance without negotiation But, RFx also includes a right to negotiate: Owner reserves the right, in its sole and absolute discretion, to accept any Proposal without negotiation, or to enter into negotiations with any or all Bidders on [insert scope of intended negotiations].

24 As a bidder, what is 1 pro and 1 con of this approach?

25 Option 3: Negotiate Specific Items/Terms RFx defines scope of intended negotiations

26 Option 3 Clause The highest ranked proponent will be invited to enter into negotiations with the purchaser on the issue of: who owns Intellectual property in the Work Product; terms of the software license agreement between the parties; other In the event negotiations fail, the Owner may, at its discretion: Commence negotiations with the second highest ranked proponent, or Collapse this RFx and cancel the process.

27 Should Depend on the Nature of the Project/Contract High Simplicity/ Certainty High Complexity/ Uncertainty No Negotiations Option to Negotiate Negotiation on Specific Items/Terms

28 Regardless of Approach, Owners Still Need to Ensure Fairness How?

29 Some Tips to Ensure Fairness Proper planning what s in and what s out No fishing expeditions Transparent, well defined process Owner must follow process, treat respondents equally Use of fairness advisor/monitor may increase bidder confidence

30 Sequential versus Concurrent Negotiations Sequential (UN s Model Provision 17 Example) Rank the bids Invite top-ranked bidders to talk Give bidder reasonable time to form BAFO, BAFO ends talks Can move to next-ranked bidder if BAFO not accepted Concurrent (NAFTA Article 1014 [4] Example) Invite all compliant bidders to talk Make amendments, typically to specs or scope Compliant bidders re-submit to the amended solicitation terms (BAFO)

31 Other Considerations What is the project timeline? What if you can t reach a deal? Do you have a BATNA? What skillset is needed?

32 Negotiation Skills The greater the reliance on negotiation, the higher negotiation skillset required

33 Interest-Based Negotiations Fisher and Ury Getting to Yes Explore the interests that lie behind the positions Uncover interests through open-ended questions Use interests to create options Leads to more integrative solutions assumes a shared interest in expanding the pie

34 Thoroughly Prepare for Negotiations Gather the Facts Prepare your Budget Create an Agenda Review the legal issues Develop your BATNA Set the Stage Consider the personalities Examine the underlying interests

35 Fisher and Ury Getting to Yes Most negotiations are won or lost, done well or done poorly, based on the strength of the preparation. Bidders must weigh cost of participation in process against potential reward if successful. Is this opportunity too uncertain? Is the process too complex to justify the time spent participating? Given the market, what are our chances?

36 Concluding Thoughts Negotiation should never be a substitute for proper planning watch for sloppy RFx Should define scope and process for negotiations The less negotiation, the more competitive tension on price Ask questions before closing if not clear Watch for RFIs, market sounding opportunities

37 Concluding Thoughts, Continued Whether public or private, owners must act fairly and in good faith, follow their declared process Bidders must weigh risk/cost of challenge competitive process should not be undertaken lightly Consider SME negotiators

38 Questions, Comments?

39 Thank you! Drop Your Card to be Added to our FREE Newsletter List Maureen Sullivan, NECI