Purchasing and Negotiation Training

Editor’s note: Steve writes, speaks, and consults on customer service..

Very simply, a manager’s role is to help prepare their service reps to be successful. So successful, in fact, that their continual improvement makes them a likely candidate to become the manager, thereby replacing their boss. Only a courageous manager, with a keen eye on his future will have enough guts to put himself out of a job. You may ask, “Why a manager would put his job in jeopardy?” The answer is simple, so he can move up the corporate ladder, stretch his skills and learn something new.

Steve’s HVAC Instructor Guide

In working with customer service managers countywide, a most common trend is the lack of management knowledge, specifically personnel management. Managers must step up their effort and to lead by example. In a customer service environment, the lead-by-example approach will have the most dramatic impact on a service reps experience.When a manager sets behavioral expectation standards for service reps and then displays behavior congruent to those same expectations, the service rep has no choice but to follow suit. Otherwise, the service rep will soon be warned by the manager, who understands the importance of taking corrective action. However, when a manager’s behavior is incongruent to his own expectations then service reps become confused and gravitate towards behavior that is easier for them, rather than what is best for their employer.Another vital aspect of establishing expectations occurs when a manager explains how behaviors affect the company as a whole. An employee’s enthusiasm and commitment to doing their job well, comes from knowing that their performance has a positive effect on the company’s success. With an understanding of the big picture, an employee sees how their work connects with the work of others. This broad perspective helps avoid the narrow view that reiterates, “These few tasks are my job and that’s all I need to know.”

Employees can’t collaborate and link their efforts to larger company goals if they can’t see past a single task or set of responsibilities

"Shorten your sales cycle & increase your win rate through competitive excellence"

Editors note: Stu Schlackman is a regular guest contributor to this blog.

It’s Monday morning and you consider whether to devote an hour for cold calling or visit the dentist for a root canal? For many, the perceived level of pain is the same. The majority of sales professionals avoid cold calling. They are convinced that it doesn’t work and they expect rejection on just about every call, and who wants that? Many articles, books and blogs are out there today telling you that cold calling does not work, period! They’ll tell you you’re better off investing your time in networking, mining your installed base for referrals, or developing a lead generation program. 

Do any of these approaches work? 

Of course they do.  But most sales managers are reporting that in this recession, lead generation programs are not working as they did in the past.  Networking and working the installed base for referrals, although also effective, doesn’t fill the void. 

In this day and age as we hopefully come out of the recession we need to have the best possible tools in our hands to meet the demands of better sales performance. Cold calling with a proven technique does make the difference. As Marc Harty, CEO from Maintopic Media quoted the other day, “If your ship hasn’t come in yet, swim out to it”.  That’s what cold calling is all about – if all else fails, there is no other choice.  But the best news of all is that the same techniques that work on a cold call, also work on a referral or marketing generated call, so the skills will be transferable when the economy improves.

Barry Caponi, President of the Caponi Performance Group, has developed a comprehensive program for cold calling that truly works.  Barry says that it’s imperative that both efficiency (reaching out to as many targets as possible in the shortest amount of time) and effectiveness (converting more conversations into appointments) be addressed simultaneously.  Today, most companies attempt to solve the efficiency challenge with technology (CRM) that was not designed to impact the front end of the selling process.  They also attempt to address the effectiveness challenge with the same techniques (selling skills) they use in second half of the selling process (handling objections, etc.).  And when neither has worked, they returned to the mantra uttered by sales management everywhere, “Make more dials!” Reality is that more dials does lead to more appointments, but no one has the time, or the desire to solve the challenge in that fashion. 

Coldcalling101

  ColdCalling101 focuses on a comprehensive combination of Art (skills), Science (tools) and Best Practices (processes) for the pursuit of each group of targets.  Just a few short points for you to consider that Coldcalling101 addresses:

• What is the purpose of the call? It’s to get an appointment-period, not to sell.
• Understand that when you call someone, they are playing by a different set of rules than you think they are:

1. They don’t believe they are in the market for what you are selling so they don’t think they need to talk with you.
2. You are interrupting them so they don’t want to talk with you.

• Hence, they will initially do anything, including lie to you to get you off the phone.
• You must ask a specialized type of question (Bridge Questions) designed to get them past their knee jerk response and into an open conversation in order to regain control of the conversation and still secure an appointment.

"Shorten your sales cycle & increase your win rate through competitive excellence"

Editor’s note: Stu Schlackman is a regular guest contributor to the blog.

In a negotiation, a party has a choice to enter or exit at any time; bargain or walk away, but ‘who has the advantage, the power to direct the outcome? If you beleive that the other side has all the cards, you will fare poorly. However, you can shift power in your direction with research and discovery of key information.

A Personal Example

In May of 1991 we bought a house in Garland, Texas. As an Orange personality style, buying and selling is an emotional competition.  I needed information to help us leverage our seemingly disadvantaged position. The house was ideal for us and in our 1st choice neighborhood so we did not to walk away. However, it was listed at $219,900 which was more than we wished to pay. We planned to start the negotiation with the most elementary of tactics “the price is too high”. We needed information to shift power and price to our side. The best way is to ask targeted questions. Specifically, we need information about (1) time, (2) economic considerations, and (3) sense of urgency.

Time

First we asked about time.  The house had been on the market for nine months. Digging deeper, we discovered the original price nine months earlier: to our surprise in was $259,900. The sellers had already dropped the price by $40,000 and the house was still unsold.

Economy

Just as now, in 1991 the economy was in a recession with supply far in excess of over demand so it was a “buyer’s market.” Conversely, with a recession, mortgage rates were dropping; would this bring in competitors for the purchase of this house who had an urgency to buy while the rates were low.  Other interested buyers would trigger my Orange competitive drive and increase our sense of urgency to close. Fortunately for us, there seemed to be no other bids on the house. 

Sense of Urgency

Lastly, we needed to determine the seller’s sense of urgency to unload this house. Asking the right questions to uncover the sense of urgency requires some thought.  Our last “casual” question to the selling agent: “why is the house not occupied?  Why isn’t there any furniture?” We found out that the owners had already moved leaving the house unoccupied for nine months. We further discovered that the owners were a retired couple who owned the house mortgage free.

Bingo! Knowing that they had equity tied up in a house in a down market and they were missing great equity buying opportunities, we asked ourselves ‘what was cash worth to them?’ We decided to offer $180,000, a price the seller’s agent said was much too low. But our questions paid off, shifting the balance of power to our side. We came to an agreement at $187,000 and the house was ours.

Information is critical when shifting power to your side. Every industry and business has other ‘trade specific points’ to consider. Learn these and use them to your advantage. The most important thing is to do your homework! The more information you have on the customer the more leverage you have to set the negotiation terms; knowledge really is power. Knowledge of personality styles will also impact the negotiation:

• Oranges will always negotiate since they treat life as a game. They will not give up easily.
• Golds focus on every detail, item by item. They will have the financial advantages figured out.
• Greens, with their thirst for research and drive to ask the tough questions, will find out more information.  Will it be key?
• Blues will build a relationship that will be very convincing. They naturally seek a win-win outcome.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

No where is commercial warning of “caveat emptor” (let the buyer beware) sounded louder than in foreign trade.  In this series of two articles, we will concentrate on the purchase and sale of goods from overseas suppliers.  This story presents general knowledge.  In the second part, we will examine doing business in specific countries. 

Virtually all goods can be sourced off shore.  Some products are expensive and time sensitive and shipped air freight.  Others are so cheap and bulky that they fill the entire holds of ocean vessels.

The many publicized recalls due has forced the purchasing community to reexamine the cost of foreign sourcing.  Despite a cheap price, how much does it cost a food importer when then public learns of poison additives?  What is the cost to the toy retailer left without inventory at the holiday season because of lead paint or choking hazards?

Nevertheless, the trend toward procuring low priced goods from off shore sources is likely to continue.  To be a serious player in foreign trade you must be fully conversant with the relevant provisions of international law.  The Convention for the International Sale of Goods (CISG) governs much of world trade in goods although not every country with which the US trades is signatory to it.  The CISG is a rough international equivalent, with important distinct differences, to the Uniform Commercial Code (UCC). 

Among the principles enacted within the UCC are the four requirements of a contract:

1. Offer and Acceptance
2. Exchange of consideration
3. Competent parties
4. Legal subject matter

Under the CISG, requirement 3, competent parties, and 4, legal subject matter, are not necessary for a valid international contract.  The reasoning is that the legality of goods varies by country as does the definition of “competent parties”.  Another important distinction is the CISG’s elimination on the need to reduce the contract to writing. 

Foreign trade is clearly not a decision to be made without extensive preparation.  Visit the prospective countries and suppliers at least twice before you proceed.  The cultural and business differences are significant and must be respected and accounted for in terms of cost.  You also must learn about freight forwarding, duty, customs brokerage, ship nomination, letters of credit, and the like. 

To evaluate off shore sourcing, identify as many of the hidden costs as possible.  The costs will come in four elements, Quality, Service, Delivery, and Price.  As price has driven the manufacturing of goods to cheaper countries the need to examine the cost impact of the other three cost factors has grown.  Let’s examine the impact of each in the off shore sourcing decision to determine if buying goods overseas will provide the lowest Total Cost of Ownership (TCO).  .

The biggest challenge for manufacturing is probably the workforce, which translates to Quality.  The workforce in much of the third world (not so much in the western world, Japan or Korea) lacks the culture and tradition of traditional manufacturing. 

To eliminate some risk, consider obtaining raw materials and furnishing them to your off shore toll manufacturer.  This may add cost up front, but minimize risks and exorbitant costs down stream.  Establishing on site quality control to ensure that standards are met before any product is shipped is another cautious step and it adds some upstream cost that may avoid disasters downstream.

If Quality is under control, expect Delivery to be the next most expensive cost element.  Supply chain processes, particularly logistics, are not well developed overseas.  The predictable result is that timeliness and companion measures of cycle time and inventory turns can be expected to suffer

Service in general, may be the least expensive element.  For many foreign sources, service, maintenance, and similar functions are performed on site in the US, Canada, or other western countries.

As the world’s economic leader, Americans tend to have a US-centric world view.  The flip side of our economic prosperity is that the underdeveloped economies, which hold promise of low price, need to be managed if the venture is to yield the lowest TCO.  The allure of cheap price goods often comes with many hidden costs. 

To put global trade in perspective requires an appreciation for the enormous demographic imbalances between the US and some of its favorite over seas suppliers. 

• There are less than ten cities in the US with a population of over 1,000,000
• China has over two hundred
• China and India account for 37% of the world’s population of 6.67 billion
• The US, with only 303 million constitutes less than 5%. 

According to the World Bank, the annual Gross Domestic Product (GDP or total national output of goods and services) of the world is over 60  trillion US dollars, about 1/4 of which is attributable to the US, the single largest power.  The US economy is approximately equal to that of the next five largest national economies combined, Japan, China, Germany, France and the UK.

This table was prepared with input from web sites of the World Bank and Wikipedia

China and India, the world’s third and twelfth largest economies, account for only 7.5% of world GDP combined.  Taking the math to per capita dimensions, 303 million Americans produce over 14 trillion economy dollars or about $46,200 per person.  The combined population of 2.51 billion Chinese and Indians produce $5.6 trillion economy dollars, or $2,231 per person!

The vastness of the available overseas workforce and its very cheap labor has had a significant influence on world manufacturing production.  For the past quarter century, manufacturing increasingly has migrated toward low cost labor countries, first to Mexico and then the developing world, principally Asia.

Professional purchasing management is the one stop solution to controlling the high cost of business travel and an under utilized resource.

Many companies are still using accounting departments to manage travel costs.  This is managing costs after the fact.  Finance professionals tend to accept  price discounts offered by the providers and maybe some on line booking advice, but these suggestions are PRICE, not COST driven.

Purchasing pros are masters of sourcing, negotiation, and COST reduction.  Suggestions from about on line booking, leverage from multiple client consolidation, and other price centered discounts do nothing to reduce the underlying costs, the root of high cost business travel.

How is Price different from Cost?

The Price paid to the supplier covers all its costs plus a mark.  In competitive environments, the mark up is limited by the competition.  So if we are to reduce the Price, we have two choices:

1. Drive down the supplier’s price
2. Wring costs from the system.  Since Price is a function of Cost in most cases, this second option bears closer scrutiny.

The three main categories of suppliers

There are three major cost categories for travel, Hotel, Air, and Ground, affectionately called HAG. It is far better and cost effective to negotiate directly with the HAG groups or in concert with your chosen supplier partners than to accept perfunctory price discounts. 

Professional purchasing negotiations conducted with HAG, either directly or in concert with your agency will yield far greater savings than can be achieved by beating on Price alone.  Pro buyers understand negotiation for better than a finance pro and are far more expert in cost and price structures.

Hotels

In general, hotel chains use the Yield/Revenue Management pricing model developed by the airline industry.  This is the reason retail buyers pay more for the same room when the hotel is almost full than when occupancy rates are low.

Hotel suppliers offer the unsophisticated buyer a discount off the rack rate.  Purchasing pros negotiate deals that are based upon the cost up, not the price down.  The savings harvested can be stunning. 

Air

Air fare pricing systems are a mystery.  An airline’s fare to the same designation and for the same date can change 40 times within one day and vary by 100%.  The arcane system used by most of the major airlines is the Yield/Revenue Management model.  Others may use Pricing Optimization.  These systems force the walk up business traveler to pay up to ten times the super saver leisure travel fare. 

Airlines are primarily interested in putting butts in the seats, raising seat occupancy ratios, and maximizing revenue miles.   They will sell blocks of seats to “consolidators” at huge discounts just to raise the occupancy ratio.  Buying pros know how airlines price their services and they know how the airlines calculate their costs.  A buying pro can reduce the cost of airfare travel by multiples more than an unskilled negotiator beating on the Price alone.   We routinely eliminate the penalties for walk up fares, last minute changes, and help the airline to meet its requirements at the same time.

Ground

The rental car industry observes many of the same practices as do their Hotel and Air counterparts.  A skilled purchasing professional again ignores the “Price down” discount and negotiates on the costs.  Not only will you obtain better rates, but you will eliminate drop charges, and most grievously, the outrageous add-on insurance paid by the retail buyer will be negotiated into the deal.

For more published advice from experts, see

Special Travel Report: How to source travel for 2010

Purchasing insight figures big in winning strategy

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

 Since the dawn of commerce, sales pros have contemplated how to capture the buyer’s order.  A recurring solution arrives in the inspirational vision of a lower price.  As evangelical advocates of the Total Cost of Ownership (TCO) principle we can help our suppliers by stating directly and soothingly; “It ain’t the price; it’s the cost, stupid.”

Expressed in simplest form, the “best value” is the lowest TCO.  The TCO equals sum of the four elements of cost: Quality, Service, Delivery, and Price (QSDP).  Price is only an initial cost element.  The other three have a far greater impact on the TCO.  According to Purchasing magazine’s annual survey, Price consistently comes in last in importance of these four cost elements, struggling to reach 15%.

To illustrate TCO for suppliers, consider the choice of two products, one priced at $1,000 and another at $1,500.  The Quality of the products is such that the $1,000 product has a useful life of one year while the $1,500 product will last for two years.  In TCO terms, the $1,000 product has higher TCO of $1,000 per year than the $1,500 product at $750 per year.  Lowest price does not automatically equate to best value!

Suppliers fall into two TCO categories – the believers and the uninitiated.  Believers practice TCO while the uninitiated sell low Price.  Develop a two pronged strategy to cultivate more and better low cost suppliers in both categories.

• TCO believers: stress lowest TCO, cost reductions and the corresponding potential for larger orders
• Uninitiated: engage in supplier development by educating and training the under informed supplier in the TCO concept. 

TCO suppliers reject inferior Quality which can generate production problems and customer complaints.  Poor Delivery results in missed orders, storage charges, and safety stock expenses.  Unreliable Service costs more for slow response time, dated technology, or inadequate support.  In buying from these TCO savvy suppliers, make them prove and periodically re-evaluate how their wares consistently yield the lowest TCO, especially in the cost elements most important to us. 

The TCO supplier prioritizes the importance of QSDP as seen through the customer’s prism.  For instance, Quality is the most important cost for medical products while Service dominates the software buy, and Delivery controls commodity steel.  This chart has a few examples of the subcategories under QSDP. 

 Identify how you objectively calculate TCO and ask the supplier to demonstrate how they can reduce costs.  Here is a simplified chart for showing how to calculate the TCO.  Suppliers are ranked against each other using 1 for lowest and 3 for highest cost.  All QSDP elements assumed to have equal weighting. 

 This ‘dollars and numbers’ evaluation logically leads us to remove the high cost Iffy from consideration and negotiate with Jiffy and Miffy about their cost drivers.  In collaborative negotiations, supplier and customer focus on reducing the high cost elements to shrink the TCO, not argue over the price.

Discuss preferential treatment with the TCO suppliers.  Purging high cost suppliers saves money.  We thus have an economic motive to increase our spend with a low cost supplier.  What’s in it for them?  Fixed burdens are divided over a larger base, variable expenses for customer attraction and retention, advertising, marketing, etc are minimized, all translating directly to reduced costs.  Demand that these savings be passed along in the form of lower price. 

For the uninitiated supplier prong, first make a go/no-go buying decision.  Does this price-fixated supplier have significant potential?  If so, we may invest in a supplier development program to educate and train them in TCO.  After a successful development period, this supplier may qualify for moving up to the preferred status.

Our suppliers’ philosophy must be a commitment to solving our problems with their lowest TCO products and services.  To be the best value supplier, they must provide lowest TCO.  To make TCO simple: “It ain’t the price; it’s the cost, stupid!”

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

 Editor’s note: This is Part II of a two part story on procuring construction services.  Part I provides an overview, Part II deals in contracting matters.

The gold rush 

When a public project is advertised for bid, virtually any GC, absent a pre-qualification system which is still rare in the public sector, can bid.  Since liens are prohibited in the public domain, the successful bidder must post payment and performance bonds to assure the public that all contractual requirements will be met by the GC and that all payment obligations will be discharged.  A contractor must be credit worthy to obtain such bonds and the limits of such credit indicate the contractor’s resources and abilities.

In the private sector, the rules are few and a function of the wills, ethics, and sophistication of the contracting parties.  An owner may prudently require its successful GC to produce performance and payment bonds and often, the GC will require the same of its subs.  Except in rare cases of state law requiring subs to publicly bid government work, buyers for owners must be aware of a practice called bid shopping.

This is the practice by which a contractor who is awarded a project will “shop the job” amongst sub bidders to drive the prices down, there by gaining a greater profit.  Theoretically owner loses because those “buyouts” could have been achieved by the owner but instead are pocketed by the GC.  A good argument can be made that the extra margin added to bid prices to cover the bid shopping pressure artificially drives up the costs of construction.  The adage, “a word to the wise” applies here.    

Girls got guns out west, so all y'all watch your manners

Rounding up the strays

Buyers of construction services must decide on an approach.  You can run the foot race to the low number and lug all the baggage that comes with it or you can choose to apply the principles of Total Cost of Ownership.  Why not qualify and evaluate your construction GCs and subs as you would any other supplier?  The cost of failure is too high, no matter how low the price. 

Suppose that a private or public owner needs construction services.  Traditionally, that owner would hire an architect (sometimes engineers) and seek bids from general contractors (GCs) who then collect bids from sub contractors (subs) and their sub-contractors (sub-subs) for the many individual trades.  The GCs would then offer the Owner a lump sum bid. 

Today’s options for delivery of construction services extend beyond the traditional and include Construction Management (CM), at risk or for fee, Design/Build, and a variety of forms of contract may be deployed.  Brief details on these terms are found in the Glossary. 

Whether you choose Design/Build, or hire a CM or a GC, be advised that these prime contractors (first tier in the chain) actually perform very little of the on site construction work.  By most estimates, more than 90% of the work will be performed by subs and their sub-subs.  The prime contractor may ride herd, but the workhorses work are the subs.  In terms of Total Cost of Ownership, the quality, service, and delivery will be largely in the hands of the subs.

Buyers must be alert to the potential pitfalls resulting from payment problems like mechanics liens for improvements to real property for which payment is not made.  In Part II, we’ll talk more about available precautions like surety bonds. 

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 Glossary II

Bid shopping       the practice by which a GC will shop amongst sub bidders to drive the prices down, there by gaining a greater profit

Buy out      the additional profit obtained from bid shopping

Cost Plus    a contract best suited to unclear scopes such as unknown subsurface or emergency conditions

Lump Sum                    a contract best suited to precise scopes as presented in detailed drawings and specifications.  This form of contract is common in building construction. 

Mechanics Liens           a form of payment protection for parties (mechanics) that improve real property with construction goods and services.  The lien process varies by state and can force a buyer to pay twice for the same work if payments to lower tier sellers are not made by upper tier buyers who have received payment for this work. 

Not to Exceed or Guaranteed Maximum Price (NTE, GMP)          a contract intended to assure the buyer/customer that that a generally specified scope will not exceed a certain guaranteed maximum price

Performance bonds       an instrument of financial guarantee provided by a surety (insurance company or bank) that performance standards specified in the contract shall be observed by the contractor or the surety will do so

Surety bonds       an instrument of financial guarantee provided by a surety (insurance company or bank) that payments accruing due to liabilities under the contract shall be retired by the contractor or the surety will do so

Unit Price a contract best suited to imprecise quantities and expressed by a price per unit, such as $/SF.  This form of contract is common in “horizontal” (not building) construction.

Harry Hough, PhD, founder of the American Purchasing Society

Editors note: Dr. Hough is a regular guest contributor to this blog.

There are both Good and Bad times to negotiate.  Let’s identify many of these so that we don’t fall into easy traps.

 GOOD TIMES TO NEGOTIATE

• Whenever you make a purchase for a new item
• When the potential rewards in the long run are higher than accepting the original offer
• When you have been giving or expect to give an ever increasing amount of business to a supplier, but are still getting the same low volume price
• When new untried suppliers are trying to obtain business and are giving you rather attractive bids and your existing supplier is performing very well
• When you are in no hurry to place an order but know you will need the material or service in the future
• When it is a buyers market and it has been over a year since you discussed your on-going purchases with an existing supplier
• When the news media reports that prices for the products you purchase are going down but you have received no reduction from your supplier
• When you are well informed by knowing the product, knowing the company you are going to deal with, and knowing the state of the marketplace
• When the supplier is in a hurry to make an agreement with someone quickly
• When the supplier announces a general increase or a supplier tells you he must increase prices

BAD TIMES TO NEGOTIATE

• When you need the product or service immediately
• When you are in a hurry or have a limited amount of time to spend
• When it is a sellers market and it has been over a year since you discussed your on-going purchases with an existing supplier
• When the news media reports that prices are going up but you have received no hint of any increase from your supplier
• When you do not have all the facts
• When you don’t know the product you are buying
• When you don’t know anything about the company you with which you are dealing
• When you don’t know conditions in the marketplace
• When you are tired, under undue stress, or emotionally upset
• When you don’t know the limitations of authority of the people with whom you are dealing
• When you don’t know your own authority to make concessions
• When the supplier knows your business is failing or that your company is near bankruptcy

 Editor’s note: This is Part I of a two part story on procuring construction services. It provides an overview, Part II deals in contracting matters.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

If you have ventured into construction procurement, you know that the Wild West and construction contracting share a common bond, the lack of rules. There are a few laws, mostly in public markets, but no universally observed rules. For vets and tenderfoots alike, here are some goodies to pack in your saddle bags for the rough ride through unknown territory.

 The contractor’s profile

The construction industry’s typical contractor is highly entrepreneurial, privately owned, and family managed business. Only a handful are publicly traded and they are not the darlings of Wall Street. Construction firms are also not very large in terms of sales. According to ENR , a leading industry publication, only four of the many thousands of companies nation wide have annual sales exceeding ten billion. Compare this to the Fortune 500 list of which over half have sales exceeding one billion.

Construction firms tend to be thinly capitalized and highly leveraged. To compensate for such financial straits, the industry engages in a variety of risk transfer vehicles like indemnity and the “pay when paid” clause. This onerous provision contractually protects a buyer from paying the seller if the buyer was not paid! This transfer drives credit and other risks to the lower tier (sub-contractors and suppliers), and often less sophisticated parties who cannot sustain and are largely unaware of such risks.  Suppose that a private or public owner needs construction services. Traditionally, that owner would hire an architect (sometimes engineers) and seek bids from general contractors (GCs) who then collect bids from sub contractors (subs) and their sub-contractors (sub-subs) for the many individual trades. The GCs would then offer the Owner a lump sum bid.

The lay of the land 

Suppose that a private or public owner needs construction services.  Traditionally, that owner would hire an architect (sometimes engineers) and seek bids from general contractors (GCs) who then collect bids from sub contractors (subs) and their sub-contractors (sub-subs) for the many individual trades.  The GCs would then offer the Owner a lump sum bid. 

Click here for Bob's book and CDs

Today’s options for delivery of construction services extend beyond the traditional and include Construction Management (CM), at risk or for fee, Design/Build, and a variety of forms of contract may be deployed.  Brief details on these terms are found in the Glossary. 

Whether you choose Design/Build, or hire a CM or a GC, be advised that these prime contractors (first tier in the chain) actually perform very little of the on site construction work.  By most estimates, more than 90% of the work will be performed by subs and their sub-subs.  The prime contractor may ride herd, but the workhorses work are the subs.  In terms of Total Cost of Ownership, the quality, service, and delivery will be largely in the hands of the subs.

Buyers must be alert to the potential pitfalls resulting from payment problems like mechanics liens for improvements to real property for which payment is not made.  In Part II, we’ll talk more about available precautions like surety bonds.

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Glossary I

Architect    a licensed professional in general design; specialties in landscape or certain market sectors are common. Architectural firms can combine with engineering firms to form A/Es

Bid (Tender in Canada)           a price offered to a customer buy a general or sub contract scope of work

Construction Manager (CM) at risk                   a delivery method by which a GC absorbs some risk in return for greater management input; rather similar to traditional general contracting 

Construction Manager (CM) for fee          a delivery method by which a GC (usually) advises Owner on methods, materials contractor selection, and related matters for a fee but does not perform actual building work or suffer any risk  

Design/Build       a delivery method whereby the lead party is usually the GC that has teamed with an Architect and Engineer to capitalize on the talents of each to produce a better result for the Owner

Engineer    a licensed design professional (P.E. for professional engineer) , often a consultant to the Architect, who provides specific services such as structural, transportation, mechanical, electrical, and other specialties. Architectural firms can combine with engineering firms to form A/Es

General Contractor (GC)         Sometimes Prime Contractor, the party who contracts directly with the Owner and is first in the payment chain

Sub Contractor    a specialty or trade (masonry, carpentry, roofing, elevator, electrical, mechanical, and many more) contractor who works for the GC

Sub-sub-Contractor      a specialty or trade (insulation, controls, sheet metal, etc) contractor who works for a Sub-contractor

Owner        the ultimate construction consumer, in most instances

Private market    contracts let by no government parties and not subject to public bidding statues and regulations

Public market     contracts let by governmental units and subject to a variety of statues like public advertising and bidding, bonding requirements and other regulations

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

The American Purchasing Society  offers more than two dozen online courses for busy purchasing pros ranging from Body Language to Purchasing Ethics, Foreign Trade, Business Law, Negotiation, and so many more. The APS also provides CPP prep courses and most importantly, and individual response from a real live person to your questions.

Customized in house training

Customized purchasing and negotiating training provided to in house corporate groups and trade/industry associations has been and will continue to be the gold standard for training. While scarce in the market now, this bulwark will return, in some industries sooner than in others. Indeed, in some countries less affected by the global slump such as private industries India and China are actively pursuing this option. There is also a steady demand in requests from foreign customers seeking training in negotiating with American sellers to buy high quality US made goods. Driven by the low US dollar, this source of training is not likely to go away any time soon.

Popular services sought in narrow or specific focuses include Purchasing Policies and Procedures, Cost and Price Analysis, and Sarbanes-Oxley compliance, to cite a few. Clients should start with smaller training providers to solve these problems. These individuals offer greater talent and know how. Most are veterans of the profession who have also acquired the requisite adult education and training skills necessary to effectively hold the interest of and deliver value to fellow pros. Larger mega houses usually have little for talent other than academics or juniors whose hands on and ability is limited.

Do a web search, or better yet contact folks and organizations you know and trust for bona fide recommendations of these smaller training organizations. One such proven source for trainers and consultants is the APS. Call Rich Hough at 630.859.0250 or email him at rhough@propurch.com