In my over twenty years in the Procurement profession, I’ve noticed that there are rolling trends in which contract provisions bring pushback from our suppliers.
Sometimes it’s Limitation of Liability. Everyone wants something different. For a while it was Intellectual Property. That’s always a hot topic.
The recent trend we’re seeing, and by trend I mean three open contracts currently sitting on Procurement Heroes’ desks right now, is Governing Law (sometimes called Choice of Law).
Ah, my old friend Governing Law. Everybody wants their own. Well, by everybody I mean every lawyer. This makes sense, right? In-house counsel wants governing law to be a state where they are licensed to practice. They know and understand the law. The laws of other states can be tricky and time consuming to research.
Here’s where the head-to-head happens at the negotiation table. As the buyer, I want my state to govern. As the seller, they want their state to govern.
This issue goes away by doing business with local businesses.
This issue becomes orders of magnitude more complex in international deals.
But dealing with a supplier who exists in a different one of the 50 states than The Company can be challenging. A few suppliers will get really worked up on this issue.
If you are a buyer and your supplier does this, get worked up in return.
To be perfectly honest, the buyer and seller need to look at the procurement. Where will the product be delivered and used? Where will the service take place? Where are each of the entities incorporated?
At one corporation that employed me, the inside counsel had passed the bar in several states, so we had a few choices and could usually find something that worked for all.
If you don’t have the luxury, then you need to fight for this. You, as the buyer, are paying the money. You, as the buyer, are receiving the service. You, as the buyer, are taking delivery of the product.
Your stuff, your money, your laws.
Don’t back down off of this one. That’s my mentoring advice.
However….here’s where the caveat comes along…
One of the three open deals that a Procurement Hero on my team is fighting the good fight is worth the sum total of $11,000.
Now really, we have spent hours, cycles and effort to negotiate this term for an $11,000 deal where we’ve already agreed that the limit of liability is the value of the contract.
I am currently trying to get approval from my legal to just let it drop. Just let it ride. Honestly, if something goes wrong, we can just cut them check and walk away.
I say let it ride for very small value, low-risk deals if the proposed governing law is one of 47 of the 50 United States.
Louisiana – They work under a partial version of the Uniform Commercial Code and it can be tricky to litigate there.
Maryland and Virginia – They have adapted a revised version of the Uniform Commercial Code called UCITA that heavily favors the software OEM and not the buyer.
Do some research if you are not familiar with UCITA, as it can matter a lot. I am not an expert. My advice is that it is always best to just avoid governing law in those states.
So when it matters, fight for it. It could matter a whole lot down the road. When the deal is low risk, see if your Legal and Risk teams are ok with just letting it ride.
And one possible final solution is to have the contract be silent on choice of law. Sometimes when you’ve fought and fought and neither side will budge this is the best answer.
The upside is you can settle the deal and move on. The potential downside is if something goes wrong in the deal, one of the first thing the lawyers on both sides will have to fight is choice of law. That means a few more hours paid to litigating counsel. But that may be ok too.
Ok, now get out there Procurement Heroes and close some deals!
Image found here.
When I teach procurement, negotiation and software licensing classes, I always add a caveat to my first few slides:
“Nothing in this presentation is a substitute for the advice of a good lawyer.”
Throughout the course of the class, I always refer back to this. “Make sure you speak with your attorney” and “Don’t undertake this without first consulting with your corporate counsel.”
I learned early on in my career that the relationship between Procurement and Legal is deeply intertwined. Procurement needs Legal’s help to finish the deal on particularly complicated contracts or with especially pesky suppliers.
Having a corporate attorney who understands both the legal side and the business side of the business is vital. Having a lawyer who can deftly move between them in order to find the best resolution is like gold.
When you have a good lawyer, you can really fly as a Procurement Hero. Having a not-so-good lawyer is like lead bricks tied to your contractual superhero feet.
I have worked with some of the most amazing attorneys over the course of my career, even a few who I still call up to ask for guidance when I get stuck.
This past week, I had reason to stand back and rejoice in the work of a good corporate counsel.
I have been working with a regional telecom company to establish a contract for some data lines. Due to the nature of my company and the work we do, I am required to use our paper for these types of deals.
Anyone who has worked with a telecom company in any capacity will understand what that means. Lots and lots of redlines and unreasonable demands. The telco industry is mind boggling in that regard.
This is a pretty small deal and by my count we had gone through eight rounds of redlines, redlines to the redlines, and more redlines.
We had been on many negotiation calls and I had used every weapon in my arsenal to get this deal done. The clock was ticking for my end users, they needed this data line provisioned very soon.
My style is to work with legal to get feedback and comments but then do my best to negotiate all of the issues away. I am experienced enough so that they are comfortable with me. I know when to pull in Legal, and I only do so judiciously.
After all of these rounds and back and forth and language tweaking, we finally came down to the last item that we just couldn’t agree to. I pushed and pushed but that rock just would not go up the hill.
It was then I finally had to go to my last resort. I facilitated a call between both sets of lawyers to discuss this one last hairy issue.
These days I work for a fairly small company and my interactions with our Legal team have showed me that they have a fairly soft touch. I didn’t want them to give on this issue, so before the meeting I prepped my legal team, asking them to hold the line.
My usual legal rep then informed me that an attorney from our parent company is helping out our very small and overworked legal team and that he would be on the call and would take the lead.
I hadn’t worked with this person before, but I said ok.
The conference call was scheduled to begin at 10:00am. By 10:14am the call was over.
You know what happened on that call? The attorney from our parent company quietly, calmly and completely trounced every objection from the supplier’s legal team.
He was deft, quick with the words, explained everything completely, took the supplier’s example and turned it around, wrapped it around them and pulled the ripcord.
There was that moment of beautiful silence on the call. The silence that follows a particularly well argued point and the supplier simply has no response.
On this call, it was a silence that said you’ve just been lawyered.
“Ok, fine, I understand,” the supplier’s attorney said, quickly abdicating his hard fought point, thus bringing negotiations to an end.
I swear, for a moment tears almost came to my eyes. When you have a damn good attorney sitting on your side of the table, you realize the very potential you have as a Procurement Hero.
I think this new-to-me attorney and I are going to get along just fine.
As The Company wraps up another fiscal year, today I have a little time to look back and reflect on the past couple months.
I have this time because the flow of orders has slowed to a trickle as the drop-dead date for getting requisitions in has come and gone.
It’s nice to have a little breathing room.
Despite all the claims of a still lingering down economy and budget austerity, I sure did see a whole lot of money come blowing through the procurement organization in the last 60 days.
For the most part, the buying team conducted themselves like champions, pushing out double and in come cases triple their usual monthly production amounts.
But the trouble is that it’s not just Procurement that has to come together to make a smooth fiscal year end work.
Here are a few areas that broke down this month and caused more than the average amount of year end stress:
1) The vendor desk – The crush of fiscal year end combined with an untimely change in process caused a tremendous backup. Instead of the usual 24-hour commitment to set up a new vendor, it took more like 48 to 72 hours. One or two days can mean a lot at the end of the fiscal year.
Somehow Procurement gets blamed for this delay.
2) Receiving – The crush of fiscal year end combined with either not staffing up or not approving overtime caused shipments to back up. You know the drill, no receiving, no invoice payment. No invoice payment means whoopsie-doodle, we didn’t spend your have-to-spend it year-end money.
And yet, somehow procurement gets blamed for this.
3) IT – The crush of fiscal year end combined with not planning ahead for upgrades caused the financial and procurement system to crash on multiple occasions. And even when it didn’t crash, at times the buyer would click to release the purchase order and it would take two to three minutes to complete. Sometimes it would time out before that happened which would send the PO to the great Ethernet bit bucket in the sky. The buyer would then have to start over from scratch.
And of course, this is Procurement’s fault too.
Honestly, everything I listed is pretty much par for the course. Don’t these same issues happen every year? They do in my career which traverses many different organizations.
It’s kind of like living in a place where it snows a lot. You know that every single year without fail that the snow is coming. But every year, when it starts snowing everybody loses their mind, forgets how to apply the brakes in their car and start spinning out.
Thankfully, this bunch of Procurement Heroes have made it past the spun out on the side of the road phase and are driving down the straight and narrow again.
To continue the metaphor, we have sustained quite a few dings and scratches on the bumpers, but onward we drive.
Bring on the new fiscal year! Budgets aren’t set yet and probably won’t be for at least a month. Things should go pretty slack around here.
We’re sure ready for a little quiet time.
Image found here.
Corporate security is of vital importance to any company of any size these days. It starts with simple safety of the employees and the company’s possessions, but extends to a frantic need to keep company specific and competitive information off the real and virtual streets.
Intellectual property and emerging designs are like high-powered currency in a competitive marketplace, regardless of commodity.
To that end, every company of any size implements a badging system so they can try to keep track of who is coming and going. No badging system is perfect as tailgating is common, but it’s something.
So why are we talking about corporate security on a Procurement blog?
Because the idea of issuing badges to vendors is a sore point for me. This topic has recently reared its ugly head in my workday life and I wanted to address it here. This is a good discussion point for any new Procurement Heroes who might get this request from ambitious supplier reps.
It is my firmly held belief that no vendor should have badge access to any customer’s facility.
The only situation where I will grant leniency is if we have asked the supplier to do desktop delivery of goods, or shipping and receiving is behind a badge access and delivery drivers need a badge to get there. In those instances, providing a vendor badge is fine.
One area where I hesitate but will consider is if we require onsite technical support.
Other than that, no employee of your vendor needs to have a badge including and especially any and all salespeople. Your supplier reps will explain how easy it will make your life if they can come and go and you don’t have to go get them or sign them in.
It seems that procurement organizations all over the world hand out access to salespeople who can then simply wander the halls looking for ways to make more commission.
No. The answer is no.
Procurement Heroes, be willing to put a little extra work in. Be willing to police the comings and goings of your vendors. Be willing to ask exactly why they need to be there when they do show up.
Further, you must train The Client to understand this as well. It may make their lives seem easy to have the vendor already waiting for them in the conference room when the meeting starts, but trust me, in the long run, there is a cost.
Your supplier should not have unrestricted access to your facility, your clients, your information and your time.
Image found here.
Occasionally in the course of my career I have had coworkers ask me why I get so cranked up about salespeople.
The truth is, a fair majority of the Sales Folk I deal with are decent, hardworking people just doing the job they chose to do and trying to make a living.
I even actually like some of the sales people I work with. Mainly the people who are honest, decent and advocate for The Company within their own internal hierarchy.
But what spoils the whole lot is the very bad apples. These are the sales weasels who will lie, cheat and steal to make a sale and then brag about it with buddies over beers on the airplane home.
I ran into a particularly rotten apple yesterday.
The meeting was with a well known consulting company, along with my two main clients, a project manager and a finance person.
We already have a pretty substantial agreement with this company and recently they stumbled in a huge way. I would not call it a fail, but it was a mess up of very large and quite expensive magnitude.
So one might think after an epic mistake that this sales team would come a bit humble to the table to discuss the possibility of a new bit of business. One (namely me) would be wrong.
Nope, this crew was arrogant as only a name brand consulting company can be.
During the meeting we discussed this new bit of business, an area where they have a strength, and we talked about how to structure a potential deal.
The Sales Weasels said that we could modify the current agreement to add this new business, which is good news because 1) it saves time by not doing a new deal from scratch and 2) we can take advantage of the excellent rates we negotiated last year.
“Should we do this as a time and materials or firm fixed price?” the very good Client asks me.
“Firm fixed price, absolutely,” I reply.
Then Rotten Sales Weasel chimes in, using a laconic airplane pilot voice, “You know…we can certainly do this firm fixed price, but it is going to cost you a lot more.”
At this my eyebrows shot up to meet my hairline.
He continued, “Time and materials is certainly going to cost you less because when we bid a firm fixed price, we have to price out our contingencies.”
He said this is a very smooth, convincing manner.
Pretty words, certainly. Music to The Client’s ears as they struggle with budget. But the words are lies.
Yes, on initial bid, a firm fixed price contract will cost a bit more than time and materials because the supplier is assuming the risk in this scenario. However, look at the contract a year later. Some twenty years of procurement says that time and materials is always the more expensive option. Always.
Why, because with time and materials there is no incentive for the consultant agency to be efficient with their time. You are paying whether you get what you want or not.
I’ll say it again. Time and materials is always the more expensive option. This has been proven to me time and again. I can show far too many examples.
After the meeting I huddled up with my client team, eager to get in front of this.
“You didn’t believe what they said about firm fixed price versus time and materials, did you?” I said by way of opening the conversation.
“Pfft! No. What a load of…” they replied.
Whew. This brought relief to my little Procurement Hero soul. This is a good crew of clients and I can see they have been well trained.
But that attempted bit of whitewashing, blatant lying, of manipulation of this small team is going to stick with us. We’ll remember.
And as you know, there is more than one brand name consulting company out there in the market.
We get to vote with our money, and there is no need to give any more money to a company full of rotten apples.
Image found here.
So GSA (United States General Services Administration) pricing is the best pricing out there, right?
Well, not quite.
When a salesperson tells you they can’t possibly got below GSA pricing they are telling the truth, right?
Hmm, no, not quite.
Pricing provided to U.S. government agencies is usually recognized as good pricing, but there are exceptions to every rule.
Today I reviewed a procurement file created by a brand new, fresh out of the package Procurement Hero. He is doing an IT hardware purchase and in his justification documents, he showed me that on this purchase of three electronic gizmos we are getting a 52% discount off of GSA pricing.
Yes, my eyes widened quite a bit on that. Just over half off of GSA?
What has become of the advantages of GSA pricing? One upon a time, GSA could be expected to be the best price you could get anywhere, bar none, and if you weren’t a government institution you couldn’t get near it.
Not anymore. GSA has become something that’s great to have when the pricing is good. When pricing isn’t good GSA is great comparison at best and easy to ignore at worst.
There is one little nuance that makes the conversation interesting. It’s called “Most Favored Pricing.”
Almost no supplier wants to sign up to this but some do. Historically the GSA has been rabid about working most favored pricing into any and all of their schedules but I see a relaxing of these rules.
From the GSA’s own FAQ:
How do I know I am getting the best price?
GSA’s goal is to be the best value supplier of choice.
GSA Schedule contracts are negotiated with the intent of achieving the contractors’ “most favored customer” pricing/discounts under similar conditions. In order to ensure that they receive the best value at the lowest overall cost when using GSA Schedule contracts, agencies are encouraged and empowered to seek price reductions at any time before placing an order.
So what does this mean for Procurement Heroes both inside and outside of the government environment?
1) Always poke around online to see if a supplier you are working with has GSA pricing.
2) If they do and it is lower than your current pricing, push on the supplier to get close to or at GSA for your procurements (or make them justify why not).
3) Push your salesperson to go under GSA. If they say “it is impossible to go below GSA” push them on it. Call their bluff and say “that used to be true but not anymore.”
By the way, if you are one of my readers from outside the US, don’t be afraid to do the same online research and look at GSA pricing to see where you fare.
Knowledge is power at the negotiation table. Use everything you have in your arsenal to get best value for The Company.
Image found here>
Today I read a sentence that made the very blood in my Procurement Hero veins run ice cold.
Here is that sentence:
The reality is that cold calling is alive and well.
Or so says Dan McDade in his June 7th article on the Sales & Marketing Management web site.
This makes me shudder because in the well over twenty years of being a procurement professional, I have fielded thousands and maybe hundreds of thousands of cold calls. And I hate them all.
In fact, I just got one just today. I didn’t recognize the number so I let it roll to voicemail. On my voicemail a woman’s voice droned as though reading from a script, “Hi, this is Jenny, I’m calling from Widget, Inc and we’d like to be your supplier of (fill in the blank with some IT related item). Please call me back at blah-blah number so we can discuss doing business together!”
Um. No. You see, for every piece of IT gear there are a thousand Jennies out there trying to take my money. Hey, Jenny or Bobby or Ishmael or whomever sales weasel got stuck pulling cold call duty, leave me alone. Badgering doesn’t make me want to give you money or even include you on the bid list.
Calling me over and over and over and then calling the main line and finding someone else’s number and having them bring a note over to me really frosts my flakes.
From the linked article an expert of questionable expertise (saying so doesn’t make it so) says that “…planning a series of 10 to 12 touches over time is necessary…”
You harangue me twelve times and I can guarantee I’ll forget the name of your company and fast.
Cold calling me with your pitch does nothing to cheer me up during my day. Calling to say you have something that differentiates your company from the rest might get you a listen, but unlikely. Calling if you have a particular niche might accidentally get a listen if the roulette wheel has landed in your favor. But mostly the desperation that cold calling engenders just isn’t a good look.
So to Sales People everywhere I’m begging you…don’t. Just don’t. If I have a need for your service, I’ll find you. If you are any good, you won’t be hard to find.
As the old saying goes, “don’t call us, we’ll call you.” But really, after getting too many “touches” the end result is:
Keeping calling me and I definitely won’t be calling you.
Image found here.