The Vendor Management Office

IRS Issues Request for Quotation--for Shotguns! Pow! Pow!

stephenguth@vendormanagementoffice.com (Stephen Guth) — Wed, 03 Feb 2010 13:34:00 GMT

If you've ever wondered what an RFQ for shotguns might look like, wonder no more! The IRS has issued an RFQ for shotguns, specifically:

"Sixty Remington Model 870 Police RAMAC #24587 12 gauge pump-action shotguns...with fourteen inch barrel, modified choke, Wilson Combat Ghost Ring rear sight and XS4 Contour Bead front sight, Knoxx Reduced Recoil Adjustable Stock, and Speedfeed ribbed black forend."

Moral of the RFQ? You better pay your taxes--or else!

Rotten Tomatoes: Safeway Foods Purchasing Agent Gets 20 Years

stephenguth@vendormanagementoffice.com (Stephen Guth) — Mon, 01 Feb 2010 20:23:00 GMT

I'm in the process of revising my employer's vendor gifts / entertainment / ethics policies and was doing a little Internet research when I came across a recent article that caught my attention. Apparently, a Safeway Foods purchasing agent is facing 20-years in prison for steering tomato contracts to a specific seller. Ouch! I'm sure there's a good joke in there somewhere, but I'm not creative enough to think of a good one.

Update: For what it's worth, someone sent me a joke... What did the purchasing agent say when he got busted for taking bribes to buy tomatoes? Hey, I was just trying to "ketchup" on my bills!

Semi-Off Topic Post: Gallup Employee Engagement Survey

stephenguth@vendormanagementoffice.com (Stephen Guth) — Mon, 01 Feb 2010 17:27:00 GMT

Actually, it's really on topic since, without engaged staff, procurement departments wouldn't be able to provide much value-add. Some managers find the Gallup Q12 frustrating--in my mind, it's an invaluable tool to build employee engagement. I came across a blog post from an employee engagement expert, David Zinger, who does a great job at getting to some of the controversy of the Gallup Q12 by proposing a tongue-in-cheek Q13. It's a short, enlightening read for any Gallup aficionados out there in my readership.

Debarment and Suspension = I'd Rather Die in a Fire

stephenguth@vendormanagementoffice.com (Stephen Guth) — Fri, 29 Jan 2010 18:17:00 GMT

If you're a commercial buyer but do procurements under a CFR, you've probably run up against debarment and suspension. One of my staff attorneys, Rebecca Mordas, took on the task of explaining the rules in the context of USDA. Here is her analysis.

Understanding 7 CFR 3017 & 7 CFR 3018

Even experienced procurement professionals can become confused when delving into the world of government contracts for the first time. Code of Federal Regulations (CFR), agency specific rules, define the responsibilities of recipients of both federal funding and direct federal contracts. CFRs house rules pertaining to every stage of a contract procurement relating to government contracts. This memo only addresses how and when recipients of federal funding, like RUS borrowers, must comply with the debarment and suspension rules and restrictions on lobbying in their contracts for procurement of goods and services.

Debarment & Suspension Rules

The debarment and suspension rules grew out a response to President Reagan’s 1986 Executive Order 12549 instituting a government-wide initiative to curb fraud, waste and abuse in Federal programs and increase agency accountability, the Department of Agriculture drafted 7 CFR 3017 containing the debarment and suspension rules for non-procurement transactions. Non-procurement is specifically defined in the regulations at 7 CFR 3017.970 as any transaction, excluding direct procurements with the federal government, including but not limited to grants, cooperative agreements, scholarships, fellowships, contracts for assistance, loans, loan guarantees, subsidies, insurances, payments for specified use and donation agreements.

If your company receives any of the above referenced government funding, subsidized treatment or government backed guarantees, then the debarment and suspension rules are directly applicable to your organization. As a recipient of federal funding, your organization owes several duties to the Department of Agriculture.

First, prior to even receiving a non-procurement award, your first obligation to the Department of Agriculture is to certify that your organization or the principal on the prospective project is not currently excluded or disqualified. An excluded person or entity refers to one who has been suspended or debarred by the Department of Agriculture or any other federal agency pursuant to each agency’s applicable regulations, whereas a disqualified person or entity is isolated to those who have been restricted through statutes, executive orders or any other official authorities from participating in federal programs. Disqualification is mandated by an official authority while exclusion is discretionary within each agency. Additionally, you as a prospective participant must disclose to the federal agency from which you are applying for aid or funding whether your organization or your principal have been criminally convicted within the past three (3) years for conduct enumerated in 7 CFR 3017.800 or have had any civil judgments rendered against you for conduct enumerated in the same section, whether your organization or principal is presently indicted or charged, both criminally or civilly, with any of the offenses referenced in 7 CFR 3017.800, and whether your organization or principal have had a federal, state or local contract cancelled with the preceding years for cause or default. Chiefly, the Department of Agriculture is concerned with whether your organization has run afoul of the key standards of good faith and fair dealing in your regular business dealings.

Your obligation to make these disclosures to the Department of Agriculture extends throughout the life of your non-procurement activity. For example, if you have a loan from RUS due in 2020, your disclosure obligation extends until that loan has been repaid. In the event that your organization or principal have a change in circumstances which would alter your initial response to any of the disclosure inquiries referenced above necessitating a new disclosure, you must provide the Department of Agriculture written notice of such additional information tending to incriminate your organization. Failure to make the requisite disclosures at any time in the process could result in the termination of the transaction and could also potentially result in your suspension and debarment from future government transactions in both procurement and non-procurement transactions. Debarment could be devastating to your organization as your exclusion from all government-wide contracts could last for up to three years.

Secondly, you have a regulatory obligation to do business with responsible individuals when entering into “covered transactions” where federal money is funding procurement activities for goods or services. This requirement mandates that prior to entering into a “covered transaction,” participants in non-procurement transactions that are using federal funds actively determine whether the individuals in which they are about to do business are excluded or disqualified. A procurement contract for goods or services will be considered a “covered transaction” under the regulations if a participant in a non-procurement transaction awards a procurement contract for goods or services and either the non-procurement award demands agency consent of all lower tier transactions or the amount of the contract is expected to equal or exceed $25,000. Please note that the regulations specifically state $25,000 and make no reference to terms provided in other federal guidelines like small purchase threshold or simplified acquisition threshold.

In validating the accountability of a party to a covered transaction, the agency gives three options for the participants making the determination: checking the Excluded Parties List System (EPLS), collecting a certification from individuals or adding a clause or condition to your contracts stating that the individual represents and warrants that he or she is and will remain eligible to participate in government contracts throughout the duration of the contract. The EPLS is a publicly available source managed by the General Services Administration (GSA) which houses information regarding the disqualified and excluded individuals. You may access EPLS through the Internet at http://epls.arnet.gov or subscribe to a printed version by calling the Government Printing Office Inquiry and Order Desk at (202) 783-3238.

Finally, 7 CFR 3017.330(b) requires participants to non-procurement transactions to mandate incorporation of the debarment and suspension rules into all contractor’s subcontracts which either require consent or are expected to exceed the $25,000 threshold, as well as create the obligation on the procurement contractor to determine the accountability of all its subcontractors in accordance with any of the methods stated above. The inclusion of these clauses in a subcontract would not be subject to any negotiation, unless the subcontractor simply walks away from the negotiations altogether.

In the event that you find that your organization or principal or your business partners are excluded individuals, please be mindful that there are regulatory procedures that allow you to seek an exemption from the Department of Agriculture to enter into a contract or continue to fulfill a contract (7 CFR 3017.120) or appeal the excluded status (7 CFR 3017.720 - 890). Please note that disqualification is not appealable under the Department of Agriculture’s regulations; however disqualification under a statutory scheme may not necessarily prevent the Department of Agriculture from entering into a non-procurement transaction with a participant nor will it automatically prevent a participant from entering into a contract with a disqualified lower tier participant. The regulations emphasize disclosure allowing some room for agency flexibility if the parties act candidly in the initial disclosure phase.

Restrictions on Lobbying

Restrictions on lobbying originated from the notion that it is improper for the government to subsidize special interests. This principle of responsible government spending attempts to ensure contracts are rewarded fairly, thus securing the public’s trust in their government and in their elected officials. Codified at 7 CFR 1726.17, RUS Borrowers complying with 7 CFR 1726 must adhere to the restrictions on lobbying contained in 7 CFR 3018. These regulations place constraints on how recipients of federal grants, loans or cooperative agreement may use federal monies. The regulations restrict the advocacy voice of recipients by prohibiting the direct or indirect use of funding to “pay any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress” in connection with the receipt, extension, continuation, renewal, amendment or modification of any federal contracts, grants, loans or cooperative agreements.

There are three specific exclusions from the bar on the use of appropriated funding to lobby. First, the Department of Agriculture allows an employee or officer to receive reasonable compensation if acting as an agency and legislative liaison as long as the liaison’s activities are not directly related to the federal opportunities. Pursuant to 7 CFR 3018.200(c), permissible liaison efforts may include discussions with the agency concerning the value of products or services, any specifics related to the terms or conditions of sale, or the potential to adapt or create products or services for agency’s specific use or purpose. Only prior to the official submission for federal opportunities may the legislative liaison discuss the proposal with the agency or provide information requested by the decision-making branch of the government awarding the federal money.

The second exclusion the Department of Agriculture allows on the use of appropriated funds is for professional and technical services. According to 7 CFR 3018.205 and 7 CFR 3018.300, you may reimburse employees, officers or other contracted individuals for professional and technical services rendered directly in the preparation, submission, or negotiation of any bid, proposal, or application for the federal opportunities or for professional and technical services related to your contractual or regulatory compliance with the terms of the federal arrangements. This exclusion is limited to professional and technical positions rendering advice or providing analysis that affects either the technical or legal aspects of your submission and would not extend to those who are in professional or technical positions who are advocating the selection of your bid or proposal. Contracted individuals who are not employees are not required to file the disclosure discussed below of their lobbying activities related to the federal award under which they are receiving reimbursements if their services were employed only in the preparation, submission, or negotiation phase of the federal procurement or non-procurement process.

The third exclusion for utilizing appropriated funds extends to the reimbursement for the reasonable compensation made to regularly employed officers or employees involved in the preparation, submission or negotiation of any bid, proposal or application for federal support.

In making a request for agency consideration for a federal contract, grant, or cooperative agreement that exceeds $100,000 or a federal loan exceeding $150,000, you must certify that you have not and will not charge the government for costs you incurred to influence your receipt or continued receipt of the appropriated funding. In addition, you must disclose, at the same time, whether you have made or have agreed to be made any payments using non-appropriated funds to attempt to gain influence over governmental decision-makers involved in managing and controlling federal appropriations. Any subgrants, contracts or subcontracts under any of the aforementioned federal opportunities which exceed $100,000 must make the same certifications and disclosures concerning their lobbying activity related to the federal opportunity under which they have contracted.

The regulations do not limit an organization’s ability to lobby with non-federal resources, the regulations do require disclosure of any lobbying activities related to the receipt, extension, continuation, renewal, amendment or modification of any of the federal opportunities referenced above. Disclosures are collected by the head of the Department of Agriculture and then submitted in a report to the Secretary of the Senate and the Clerk of the House. The reports become publicly available unless the information is deemed sensitive because it pertains to intelligence or contains classified information.

If you are asking the government for a commitment to insure or guarantee a loan exceeding $150,000, you must file a statement with the appropriate government party indicating whether you have made or have agreed to make any payments to influence or attempt to influence any government body in connection with receipt of the loan insurance or guarantee. If you have made or agreed to make such payment(s), you must file a disclosure with the appropriate department or agency revealing the proposed or actual amount(s), the identity of the individual(s) attempting to influence government behavior and the government officers, employees or Members that are potentially being influenced.

After receipt of federally appropriated money, you must determine at the end of each calendar quarter whether any events have occurred which materially affected the accuracy of the information previously certified to or disclosed to the federal agency. The regulations give examples of material changes to include an increase of $25,000 in the amount of private funds given to influence the receipt of federal funding, a change in the person lobbying, or a change in the parties being lobbied.

There are costly ramifications for noncompliance. Failure to abide by the lobbying restrictions or amend the disclosures may result in a civil penalty of not less than $10,000 per infraction not to exceed $100,000. In addition, the federal government reserves the right to pursue other remedies, possibly criminal sanctions, for the same conduct that was the basis for the imposition of any civil penalties.

Conclusion

If already receiving a federal grant of money, whether it is a loan, grant or cooperative agreement, you should consult the terms specific to your agreement before looking to the regulations. The regulations contain a standard for conduct, however, each agency reserves the right to set conditions for receiving funds within the actual award documents. Remember the intent of these regulations is to foster the public’s trust which rests upon the government being openly accountable for its decisions to enter contracts with responsible individuals like you. Therefore, you must be particularly cognizant of the public’s trust when carrying out obligations under government contracts.

Got Some Grant-Based Stimulus Money? Congrats! Here's How to Spend It.

stephenguth@vendormanagementoffice.com (Stephen Guth) — Thu, 21 Jan 2010 13:12:00 GMT

Did your organization get a grant from a Federal agency under the American Recovery and Reinvestment Act? If so, congratulations, but you need to start thinking about the process by which you go about spending the grant money. Your procurement process will need to conform and comply with the corresponding Code of Federal Regulations (CFR) and with any grant-specific procurement requirements. If you've just started looking at this, you know there's an appropriate amount of red tape involved (hey, it's my tax money and I want to make sure it gets spent properly so I'm OK with a little red tape). The good news is that most Federal agencies have very similar CFRs as they relate to the subject of procurement. For example, the procurement regulations in USDA's 7 CFR 3019 look very much like those contained in USAID's 22 CFR 226 which look very much like those contained in DOE's 10 CFR 600. (However, there are nuances from CFR to CFR.) I recently drafted a procurement policy and a Master Purchase Agreement to comply with the DOE codification of OMB Circular A-110 at 10 CFR 600. My work (attached below) is yours for free. As implied above, you can easily convert this work product from DOE to USDA to USDAID to any other Federal agency. The attached Master Purchase Agreement contains all of the contract provisions required by 10 CFR 600. Both the attached policy and the Master Purchase Agreement contain specific CFR citation references, so you don't have to figure it out for yourself as to where the content was derived from.

P.S. and a disclaimer: The attached are "as-is" without any representations. The Internet is still the wild, wild West and my work product is free, so use it at your own risk

DOE 10 CFR 600 Purchasing Policy

DOE Master Purchase Agreement

VMOs, Organizationally

stephenguth@vendormanagementoffice.com (Stephen Guth) — Fri, 08 Jan 2010 17:36:00 GMT

A blog reader recently asked me this question (I'm paraphrasing): "How do VMO / procurement roles differ and how are the responsibilities divided organizationally?"

Roughly 10-years ago, companies with large IT consumption became dis-satisfied with their purchasing departments' attention and focus. It was hard to get the purchasing folks engaged, and when they did get engaged, their focus was lowest cost. That lowest cost focus didn't work when it came to complex IT goods and services because the consumers of those strategic, competitive edge-providing goods and services were worried first about getting what they paid for and less about squeezing costs out the old-fashioned way (i.e., vendor bashing).

These IT departments also wanted to establish strategic relationships with value-adding vendors--predominately, IT systems have a lot of "stickiness," so IT departments want long-lasting (read "maintenance and support") relationships. So, unable to control the purchasing departments (usually buried many layers below a CFO), CIOs went on the hunt for procurement talent that had the ability to get a fair (fair for both parties) deal but, more importantly, could extract value out of IT vendors without decimating the relationship. These small groups of procurement talent commonly took on the name of a "vendor management office" or "VMO." One reason for the name was to mask the purpose of the group: the organizational redundancy and budget questions that a corporate procurement department and an IT procurement department raised wasn't something a CIO wanted to explain. The other reason was to emphasize the mission to manage vendors, not dollars.

The CIOs implementing these types of vendor management departments could have been wrong, but they weren't. In fact, VMOs were such a success that other C-levels, also tired of crusty and grizzled purchasing agents, wanted their own VMO function to boost their business lines. That presented an organizational problem--the CIO could get away with having a psuedo-procurement department but everyone having their own little VMO in addition to the purchasing department wasn't going to fly. So, around 2004, companies started to implement enterprise-wide VMOs.

There were, and are, two major variants: one is with the vendor management and purchasing functions combined and the other is with the functions are separate. Having the functions separate (in my opinion) is a symptom of a problem--the leadership doesn't want to take the time or energy to revamp the purchasing function... So, the thought is, just push purchasing to the side, build-up the VMO, and hope the purchasing folks take early retirement.

The better organizational move is to combine the functions, horizontally / vertically align the staff, and have it report into the C-level. Some staff cut POs, other staff order piece parts, other staff just do competitive bids, and other staff manage / monitor strategic vendor performance. While there may be distinct differences in skills, roles, and focus (you have to match job requirements to staff strengths), the overarching benefit of having a combined VMO is to drive the right attitude when it comes to managing vendors--and that's to get value.

News You Can Use: Insurance Terms and Clauses

stephenguth@vendormanagementoffice.com (Stephen Guth) — Tue, 05 Jan 2010 18:17:00 GMT

The following article was contributed by Ki W. Nam, Esq., who is Contracts Counsel at NRECA.

In most commercial contracts, commercial insurance will be required, particularly in those instances where a purchaser is procuring goods and services over an extended period of time. As a purchaser of goods or services, the buyer seeks and is entitled to protect itself from third-party claims and damages arising from the seller’s intentional or unintentional acts such as negligence. Liability insurance coverage from licensed, solvent and reputable insurers can substantially provide most protections to a purchaser in a commercial contract.

As any contracts professional is aware, insurance terms and conditions are laced with confusing and complex words, terms and phrases. Even for seasoned contracts professionals, such insurance language is a quagmire of arcane and confusing terminology. The following is a brief summary of some of the more esoteric insurance provisions commonly seen in contracts.

"Additional Insured" — An insurer providing extended coverage under an existing insurance policy to cover a third party for a special purpose or purposes. As an "additional insured," the covered party does not have primary insurance. Compare this to "additional named insured" which is primary coverage.

"All-Risk Insurance" — Obsolete terminology.

"Broad Form Indemnity" — A very broad insurance coverage obligating the insurer to indemnify against any and all claims submitted under the insurance policy even in cases where the insured party is not at fault.

"Causes of Loss-Special Risk" — Current and updated terminology replacing obsolete "all-risk insurance" terminology.

"Comprehensive General Liability" — Obsolete terminology.

"Commercial General Liability" — Current and updated terminology replacing obsolete "comprehensive general liability" terminology.

"Disclaimer" — A denial or disavowal (waiver) of a legal claim or rights.

"Guaranty" — An undertaking to assume or to be liable for the debt or obligation of another party.

"Surety" — The party undertaking a guaranty obligation.

"Self Insured" — Protecting against loss by setting aside one's own money. This can be done on a mathematical basis by establishing a separate fund into which funds are deposited on a periodic basis. Most often seen where the entity does not want to pay insurance premiums, usually very high, or a particular transaction is not insurable by commercial insurers. Generally not a favored form of risk protection as a bankruptcy proceeding will wipe out any "self insurance."

"Self-Insured Retention (SIR)" — Amount specified usually in a liability insurance policy that the insured must pay before the insurance company (insurer) pays. Unlike a deductible (which the insured pays to the insurer), SIR is paid directly to the claimant by the insured.

"Waiver of Subrogation" — Subrogation means the assumption by or transfer to a third party of the legal rights of another party. In case of insurance, most insurance policies stipulate that any legal claims (i.e., basis for a lawsuit) under which an insurer pays a claim under the insurance coverage is subrogated — transferred — to the insurer so the insurer can recoup the payment from any other parties potentially at fault. Any "waiver of subrogation" must generally be affirmatively consented to by the insurer.

Hopefully, the above information will assist you with negotiating favorable terms and conditions. Check with your insurance broker and your attorney before executing contracts with provisions that include use of confusing and complex words, terms and phrases like those in this article.

Test Your Procurement Skills: Find the One Word Death Trap

stephenguth@vendormanagementoffice.com (Stephen Guth) — Thu, 31 Dec 2009 13:37:00 GMT

A supplier recently tried to get the following indemnification provision past one of my staff. I'm always preaching that contracts should contain identifiable remedies for specified breaches. If you don't include identifiable breaches, and a breach does occur, the parties end up arguing over an appropriate remedy. What a waste of time! That's why I actually like the following provision--it clearly specifies potential breaches and then provides a number of potential remedies. Actually, the provision is quite strong and favorable for the customer except that there is one word (yep, only ONE word) which renders the entire provision utterly worthless. My guess is that most folks would blow right past this one word and think that they were golden--in reality, that one word leaves the customer holding the bag if things go sour. Oops!

So, drop your sudoku or crossword puzzle! Test your skills and post your thought (which word and why) on what I'm calling the One Word Death Trap! I'll post the right response in a few days. Have fun!

Indemnity by Supplier. Supplier will indemnify, defend and hold harmless at its own expense any suit or action against Customer brought by a third party to the extent that the suit or action is based upon a claim that the Software infringes any U.S. copyright or U.S. patent, or misappropriates any trade secrets recognized as such in the U.S., and Supplier will pay those costs and damages finally awarded (or agreed to in settlement) against Customer in any such suit or action that are specifically attributable to such suit or action. The foregoing obligations are conditioned on Customer providing Supplier with prompt written notice of the suit or action for which indemnity is claimed(provided that any failure to give notice will not affect Supplier’s liability for reimbursement hereunder unless such failure has resulted in the loss of substantive rights with respect to its ability to defend such suit or action); giving Supplier sole control of the defense thereof and any related settlement negotiations; and providing (at Supplier’s expense) Supplier with all assistance, information and authority reasonably required to defend or settle the suit or action. Notwithstanding the foregoing,Customer may participate at its own expense in the defense of such suit or action. Supplier will have no obligation under this Section or otherwise for any infringement suit or action based on (i) the use of a superseded or altered release of the Software, (ii) the combination,operation or use of the Software with software, hardware, data, or other materials not furnished by Supplier, (iii) the combination, operation or use of the Embedded Software other than with the Hardware, (iv) use of the Software other than as permitted under this Agreement or the Documentation, (v) modification to the Software made by a party other than Supplier, if a suit or action would not have occurred but for such modification, or (vi) Supplier’s compliance with any specifications or plans provided by Customer. If the Software becomes, or Supplier believes is likely to become, subject to an infringement suit or action, Supplier may,at its option and expense: (a) replace or modify the Software so that it becomes non-infringing; (b) procure for Customer the right to continue using the Software under the terms of this Agreement, or (c) accept return of the infringing Software, terminate this Agreement as to the infringing Software,and refund or credit for the fees paid by Customer for such infringing Software less a reasonable allowance for the period of time Customer has used the Software. The foregoing states Supplier’s entire liability and Customer's sole and exclusive remedies for infringement or misappropriation suits and actions of any kind.

UPDATE: DING! DING! DING! WE HAVE A WINNER! Try to find the word yourself and then check out the comments for the right answer (thanks, Jeff Gordon).

Stephen Guth to Speak at the Institute for Supply Management's Annual Conference

stephenguth@vendormanagementoffice.com (Stephen Guth) — Sat, 19 Dec 2009 13:09:00 GMT

For those of you heading to the must-attend premier annual conference for procurement professionals, the 95th Annual Institute for Supply Management International Supply Management Conference and Educational Exhibit, please consider attending my presentation on procurement best practices or please stop by just to say hi.

My presentation is "Session CH, Implementing Best Practices: The Procurement Maturity Model" and will be held on Monday, April 26, 10:40 - 11:40 a.m.

If you've purchased one or more of my books, please bring your copy so that I can shake your hand, thank you personally, and sign your book (signed copies will be worth more when I become super-famous one of these days).

See you in San Diego!

Procurement, Negotiating, and Contracting Axioms

stephenguth@vendormanagementoffice.com (Stephen Guth) — Mon, 14 Dec 2009 13:38:00 GMT

I'm trying to develop a "fun" list of self-explanatory and illuminating procurement, negotiating, and contracting axioms. If you have any axioms that you think are particularly interesting, fun, or true-to-life in a tongue-in-cheek way, please post your comments or e-mail me at stephenguth@vendormanagementoffice.com and I'll put together a complete list of axioms for all to enjoy.

Procurement. Begin with the End in Mind.
If You Don’t Manage the Vendor the Vendor will Manage You
Negotiation? Preparation, Preparation, Preparation!
Knowledge = Power = Negotiation Leverage
There is a Direct Relationship Between Urgency and Money Left on the Table
Money Creates Abnormal Behavior
The Smaller the Deal, the Greater the Legal Risk
20% of Vendors Account for 80% of Spend
20% of Vendors (Usually Different from Those Above) Account for 80% of Your Headaches
You Can’t Manage What You Don’t Measure
Something Will Go Wrong
A PDF Contract Template From a Vendor is a Leading Indicator of the Future (Poor) Relationship

Contributed Axioms:

In negotiations, time is money. Use time wisely to save yourself money. Don't jump on the first offer tooquickly. (Thanks to Gordon G. Benning,Sr., American Financial Group. I agree,time is probably the most critical element of negotiations.)
When for savings opportunities, pick up the fish on thebeach first. (Thanks to DaleBartholomew, NRECA. An underlyingmessage here is that if you don’t take the easy savings, they get “stinky” andsomeone else will notice that you haven’t done your job as a procurement pro.)

Institute for Supply Management Takes One Step Forward, Two Steps Back

stephenguth@vendormanagementoffice.com (Stephen Guth) — Thu, 10 Dec 2009 13:20:00 GMT

I'll probably be banned from the Institute for Supply Management (ISM) for speaking my mind, but I'm not one to be shy...

First, in my opinion, ISM took one huge step forward with the Certified Professional in Supply Management (CPSM) certification in terms of adding some additional credibility to the certification by requiring a degree (although, I do believe there should be an interim certification like the old A.P.P. that doesn't require a degree).

So, kudos to ISM on the CPSM. But, after getting the proxy from ISM for the Board of Director appointments and the bylaw changes, I believe ISM is taking two steps back. The first step back is allowing folks to be appointed as a director who don't have at least an A.P.P. certification. If you haven't been in the profession long enough to qualify for a CPSM or you haven't taken the time to get the certification, you don't belong on the board. The second step back is the bylaw amendment allowing "persons who are primarily engaged in sales activity" to be ISM members. Huh, what!? Despite the eloquent explanation in the Membership Vote Information brochure as to why the bylaw amendment is good for ISM and ISM members, I think allowing sales folks to be members dilutes ISM as a professional trade association for supply management professionals. If ISM needs the dues revenue so badly, propose a membership increase or think about additional fee-for-services programs to cover revenue shortfalls.

Anyway, I voted accordingly...

Sorry, Candidate #1, your qualifications are great but you need to get your ISM certification first and it would be nice if you had some history of involvement with ISM (maybe you do have certification and prior ISM involvement--in which case I apologize--but your bio in the proxy brochure didn't mention either).

Welcome, Candidate #2, to the ISM Board of Directors, and congratulations on having your C.P.M. and for being involved with ISM for years.

Oh yeah, and "no" on the bylaw amendment--I don't want to be in my local ISM chapter meeting discussing negotiation tactics while I'm sitting next to a bunch of sales folks. No offense, I love you sales folks, but I really doubt you'll let me in to your meetings to hear your "secrets."

I encourage all ISM members to not blow off the proxy and vote your position.

Civility in Negotiations

stephenguth@vendormanagementoffice.com (Stephen Guth) — Thu, 10 Dec 2009 00:30:00 GMT

I came across a short pamphlet produced by the DC Bar entitled "Voluntary Standards for Civility in Professional Conduct" which contains a few civility standards specific to negotiations. I thought they were particularly well done and I adapted them to the procurement profession since I haven't come across anything similar in the past. I'd like to create a more robust list, so if you have any other standards you'd like to suggest, please do!

A buyer will stand by all proposals the buyer has made in negotiations unless newly received information or circumstances provide a good faith basis for rescinding them.

A buyer will not engage in abusive or discourteous conduct in negotiations.

A buyer will not make changes to written documents under negotiation in a manner calculated to cause the seller to overlook or fail to appreciate the changes. A buyer will clearly and accurately identify for the seller all changes that the buyer made in documents submitted to the seller for review.

In memorializing oral agreements the parties have reached, a buyer will do so without making changes in substance and will strive in good faith to state the oral understandings accurately and completely. In drafting proposed agreements based on the expressed intent of the parties, the buyer will strive to draft documents that fairly reflect the agreement of the parties.

Meta + Data = Trouble for Procurement Professionals

stephenguth@vendormanagementoffice.com (Stephen Guth) — Tue, 08 Dec 2009 21:45:00 GMT

In procurement settings, both buyers and sellers routinely use electronic documents within their respective organizations to collaborate on negotiation positions and strategies. Once finalized, these same electronic documents are frequently sent to the other party in furtherance of the procurement. For example, a buyer may use a Microsoft Word contract template to gather input from internal stakeholders on initial and fall-back negotiation positions. These stakeholders provide input in the form of "redlines" (called "track changes" in Word) and electronic comments. After all of the stakeholder input is reconciled, the buyer accepts the redlines, deletes any comments not intended to be seen by the seller, and then e-mails the electronic document to the seller.

Normally, as the next step in negotiations, a seller would review the buyer's document and develop a response to the buyer's offer. Some sellers add an extra step: after receiving the buyer's document, they run it through their "metadata" mining tool. These tools, cheaply and readily available on the Internet, reveal a document's revision history and all of the comments previously deleted. Sometimes, the "extra step" exposes a buyer's negotiation position and strategies to the seller.

Metadata is basically "data about data." In the context of Microsoft Word, metadata describes characteristics of a document such as size, date created or modified, word count, and past revisions and comments. In other words, when a user makes redlines or inserts comments which are later accepted or deleted, the detail of those changes are maintained (but are not obviously visible in the document) as metadata. Special tools, called metadata mining tools, can be used to then reveal the "invisible" metadata contained in a document.

In the legal profession, the issue of metadata is a hot ethical debate. Some jurisdictions take a strong stance and say that it is unethical to mine documents for metadata and that it is a breach of a lawyer's ethical obligations to send a document which reveals--via metadata--a client's confidential information to a non-privileged party. Other jurisdictions take a wholly contrary position.

Forget the ethical debate for a moment and first think about not becoming a "victim" to a metadata mining tool. Similar to metadata mining tools, there are metadata scrubbing tools cheaply and readily available on the Internet. These tools typically provide the user with an option to truly delete certain types of metadata (such as previously deleted comments) from a document and to keep other, innocuous types of metadata. Fortunately, Microsoft Office 2007 includes a metadata scrubbing tool called "Document Inspector" that helps to protect users from metadata miners. More about Document Inspector can be found here.

Now, the ethics... Is it ethical for a buyer to use a metadata mining tool for the purpose of exposing a seller's metadata to advantage the buyer and disadvantage the seller? The Institute for Supply Management Principles and Standards of Ethical Supply Management Conduct states that a buyer "Accept no confidential or proprietary information unless you have the
right and need to use it." While not directly on-point, this guideline can be creatively extended to address the ethical issue of metadata in a procurement context. When a seller mistakenly or unknowingly sends a document containing metadata to a buyer and the metadata describes information that the seller intended to not be revealed, that information, by way of the seller's intent, is confidential and proprietary. While a buyer may have a "need to use" that information to his or her advantage, the buyer does not necessarily have the "right" to use the information.

I believe that the best course of action for procurement professionals is to not use a metadata mining tool, and, if a procurement professional has any reason to believe that a document sent by a seller contains metadata confidential or proprietary to the seller, the procurement professional should advise the seller to use a metadata scrubbing tool.

Stephen Guth Sworn-in Before District of Columbia Court of Appeals

stephenguth@vendormanagementoffice.com (Stephen Guth) — Mon, 07 Dec 2009 23:34:00 GMT

It's official! After passing the July 2009 District of Columbia Bar exam on the first attempt with only a 53% overall pass rate (ouch!), I was officially sworn-in before the District of Columbia Court of Appeals on December 7, 2009. Virginia, watch out--you're next.