Healthcare IT Contract Negotiation Guide

Structure, Process and Tools

A PMI Webinar
July 2009

Ken Nowlan
Chief Information Officer
BC Transmission Corporation
© Corium Consulting Services Ltd. 2009 1

Purpose
To give you an overview of processes, disciplines and
tools with which you will be able to plan and manage
the negotiation of a healthcare IT agreement


Scope
Consider a negotiation as a project
The PMI Project Management Processes
Initiation
Planning
Execution
Monitoring and Controlling
Completion

The “hard” skills


What You’ll Learn
The structure of a typical healthcare IT contract and how
to use that structure to determine the structure of the
teams responsible for negotiating your agreement
The logistics of the negotiations environment
How to identify and document the key issues to negotiate
The lifecycle and process for managing negotiating issues
How to understand and document your range of
reasonable and acceptable negotiation outcomes
How to develop a negotiating plan that will tell you what
you will have to negotiate and when


What You Will Learn
(continued)
How to ensure that the appropriate skills and knowledge are at the
negotiating tables at the right time
How to ensure that you and the other members of the negotiating
teams are ready for each negotiation session and understand what
you’ve agreed to
How to track outstanding issues and final agreements on individual
issues
How to ensure that your legal counsel, responsible for drafting the
agreement, gets what you agreed to
How to ensure that the agreement is signed, and that all loose ends
are tidied up
A toolkit is available to assist you in negotiations planning and
management


Structure Your Project (Negotiation)


Understand The Outcome
The Contract Structure
“The Agreement”

The Master (Services) Agreement

Services Schedules

Non-Services Schedules

Appendices


The Master Services Agreement
Purpose Contents (continued)
To describe the overarching terms and Overview of the process for
conditions of the agreement charges, invoicing, payments
Unlikely to change during the term of Privacy and security overview
the agreement Audit and reporting
Examples of Contents Process for making changes to the
Objectives, key strategic understanding, agreement
scope Default and termination
Start date, term, extension, renewal, Indemnification and limit of
termination liability
Definitions Dispute resolution mechanism
Overview of the products and services Force majeure
Overview of warranties, service levels Subcontracts and subcontractor
and SLAs matters
Intellectual property matters

Services Schedules
To describe the terms and Responsibilities relating to the
conditions, and respective installation, operation, updating
responsibilities of the parties, for and replacement/retirement of
each of the individual services datacenter equipment
covered within the scope of the Responsibilities related to the
agreement specification, development,
May be adjusted slightly during the maintenance and support of
term of the agreement software
Examples of Contents Licensing terms for packaged
Responsibilities related to moves, software
adds, changes, deletes of desktop Responsibilities relating to the
equipment operation of a client service desk
Responsibilities related to Responsibilities relating to
installation, configuration, updating architecture, design and/or
and retirement of software functional specification
development

Non‐Service Schedules
To describe in detail, aspects of the Key Positions
agreement which are related to, but Form of Change Requests
not explicitly services Termination Fees
May change periodically throughout Governance
the term
Form of Certificate of Insurance
Examples of Contents
Detailed Privacy Obligations
Detailed Charges
Reporting
Organizational Structure
Brand Permissions
Application and Operating Software
Form of Employee Non‐
Lists
Disclosure Agreements
Service level metrics and values
Form of the Invoice
Standards to Follow
Facility Locations


Appendices
To provide miscellaneous List of hardware and
information relevant to the configurations transferred to
agreement outsourcer
Unlikely to change or be updated List of initial software
during the term of the parameters or configurations
agreement
Typically not negotiated
Examples of Contents
List of statutory holidays
List of initial software licences
Change order forms


Negotiations Governance
Key Roles
Sponsor
Steering Committee (Internal)
Steering Committee (Joint)
Chief Negotiator
Master Negotiating Team
Schedules Negotiating Teams
Legal Counsel
Scribe(s)
Logistics and Administrative Support

Steering Committees
Internal Joint
Purpose – to guide the Purpose – to guide the
chief negotiator and the relationship being built
negotiation teams through the negotiations
Meetings – Weekly, or as Meetings – Bi‐weekly, or
necessary as necessary
Membership – Sponsor, Membership – Vendor
key stakeholders, chief Executives, Sponsor, Chief
negotiator Negotiators (ex‐officio)
Chair ‐ Sponsor Chair ‐ Alternating


Key Roles
Sponsor Legal Counsel
Will “own” the outcome Provides legal advice to sponsor and
Provide resources into the negotiations all internal negotiating teams
Will sign the agreement Documents (“papers”) the agreement
May administer the agreement Logistics Coordinator
Chief Negotiator Makes arrangements for all facilities
Responsible for making the “final” necessary to conduct negotiations
agreement on all terms and conditions Scribe(s)
on behalf of the Sponsor Documents key aspects of the
“Project Director” negotiations and the agreed terms
Backup Chief Negotiator Schedule Coordinator
Temporarily fills the role of Chief “Project Scheduler/Controller for the
Negotiator negotiation of the Schedules
Due Diligence Team Lead
Coordinates the activities of all due
diligence activities

Governance – Master Team

Purpose
To negotiate the terms of the master agreement
To negotiate terms and conditions escalated from the Schedule or
Due Diligence teams

Governance – Schedules Teams

Purpose
To document and negotiate the terms of one or more schedules


Governance – Due Diligence Teams

Purpose
To conduct pre‐negotiations due diligence to validate negotiating
assumptions
To conduct in‐negotiations research to provide information to
negotiating teams

Getting Ready to Negotiate


Orientation
Familiarization with negotiations process
Establishment of negotiating approach, schedule
development teams and negotiations support teams
Development of timeline
Establishment of data repository for negotiating
documents
Booking of negotiating, schedule development and break
out meeting rooms
Acquisition of audio‐visual equipment
Determining detail negotiations schedule
Internal and joint kick‐off meetings
Develop list of approvers of the terms and conditions

Training
Interest‐based negotiations principles and techniques
Internal and proponent negotiation teams
Internal and proponent schedule development teams
Internal and proponent due diligence teams
Internal and proponent steering committees
Preferably as joint session or sessions
Document repository
Structure and use of document repository for all teams
Scribe
Completion and maintenance of the negotiations log
and schedule

Negotiations Logistics
Negotiating Days Communication
<days of week> With Internal & Joint Steering
<time> Committees
Negotiation and Breakout Rooms Regular schedule
1 common + 2 breakout With Due Diligence teams
7x24 hour access Via document repository
Due Diligence & Schedule Technical Support
Development Rooms Power for multiple notebooks, LCD
1 common + 2 breakout projectors, electronic whiteboards, etc.
Coffee & meals Network access: multiple in each room
Provided, shared cost Dedicated negotiations teleconference
Working lunch (and dinner?) bridges (minimum 5)
Documentation Conference phone in each room
Log, Schedule, Decision Log Audio Visual
Updating cycle: daily
Electronic whiteboard in negotiations
Ownership: Scribe rooms
Repository with security e.g.
SharePoint White boards in breakout rooms
Remote access: i.e. web LCD projector & screen in negotiations
rooms
Flip charts in negotiations room

Due Diligence
Validate assumptions made during procurement
process
Validate assumptions made during PTR development
Gather information necessary to complete the
development of PTRs
Raise additional issues to be negotiated
Delivers a due diligence report detailing findings


Initial Negotiation Issues
Gather Issues
Gather and document potential issues in PTR document
Steering Committee – high priority, high profile issues
Solutions Workshops – outstanding issues
Proposal/Final Presentation – non‐compliance or incomplete
answers
Negotiations Team – issues identified by team members
Due Diligence – issues uncovered during due diligence
Etc.
Develop Interests
In PTR document, list interests for each issue


Developing PTRs
Develop PTRs (Preferred, Tolerable, Required)
In PTR document, for each issue develop scope of alternatives
Preferred – your best outcome
Tolerable – an outcome that you can live with
Required – an outcome that is the minimum acceptable, but still acceptable
Any less and the deal is not worth making
Also called BATNA: Best Alternative To Negotiated Agreement
Determine key issues, trade‐off issues, etc.
PTR document stored in confidential section of document repository,
preferably also password protected (changed regularly)
Gain approval from approvers list for individual items
Gain overall approval from Internal Steering Committee and
Sponsor


Example of PTR Document
# Issue Explanation Preferred Tolerable Required
1 Term The length of the 4 years: no 2‐4 years; Minimum 2 years;
contract, whether renewal; go to RFP negotiable 1 year maximum 4 years;
extension/renewal is extension, then go go to RFP after 4
possible to RFP years
2 Governance – How are contractual 3 levels (to 3 or 4 levels (to Minimum 2 levels
Escalation issues escalated and President level), President level), plus binding
resolved then binding then binding arbitration
arbitration arbitration;
mediation
acceptable
3 Termination – At what cost is Up to 6 months of Up to 3 months of Termination
Transition transition assistance transition transition assistance
Assistance provided on assistance at no assistance at no cost provided at no cost
Cost termination of the cost, in all unless we terminate if we terminate for
agreement termination early for cause
scenarios convenience

Note: Highly Confidential – Internal Use Only

Negotiating Strategy
Your approach for achieving the best overall outcome
Prepares the Internal Steering Committee and negotiating
teams for various scenarios
Potential Contents
Sequencing of the introduction of issues
E.g. Resolve issue A before starting negotiation of issue B
Trade‐offs between issues
E.g. Willing to achieve “required” on issue C if we achieve
“preferred” on issue D
Identification of potential bottlenecks, escalations and approach
for resolution
How to deal with potential approaches of the proponent

Example of Negotiating Strategy
# Name Description Strategy Rationale
1 Technical Remove hardware technical • Indicate that hardware technical • As long as software technical
Currency currency requirement present currency clause can be removed currency is met, then in order to
in current contract • Require concessions in other areas maintain service levels hardware
(e.g. pricing) technical currency is not an issue
2 Proponent Because of the ownership • Introduce to Proponent only if • Adds additional credibility to threat
Ownership change of Proponent, pricing discussions are seriously of moving and adds immediacy
Change Proponent may be in breach bogged down • Note: may need to get legal opinion
of the existing contract • Indicate that we are prepared to
provision and we can declare breach and thereby
terminate current agreement increasing its financial obligation
at (or before) termination (expiry)
date
3 RFI Generate RFI for preparation • Publish RFI for help in producing • Need high level transition plan that
of RFP to change outsourcers outsourcing RFP – to bolster indicates that process must begin
credible threat that moving to new now in order to get to expiry in an
outsourcer is possible orderly manner
• Should be issued just after • If negotiations for extension fall
Proponent informed that RFI will through, we need contingency plan
be issued (i.e. at same time that
you indicate that you will begin
negotiations)
• Beginning this process is good
management


Exchange Issues and Interests
Exchange list of issues and interests
Extract your issues from PTR document & transfer to negotiations log
Add proponent’s issues and interests to negotiations log
Rationalize issues
Meet jointly to clarify issues and interests
Determine and eliminate duplicate issues
Finalize initial list of issues and interests
Produce initial “negotiations log”
Give each issue a unique number
Expect to have 80‐100 initial issues, growing to 150‐200 through the
negotiations
Finalize negotiations schedule
Estimate negotiations time for each issue
Establish negotiating days
Establish initial negotiating date for each issue by loading issues into days

Example of Initial Issues Log
# Ref. Date Issue Us Them Actions Agreement
1 Current 10MAY07 Periodic Review of • Accommodate technical • Possibility to extend if appropriate
contract Agreement and changes, especially those • Maintain financial measures, but
clause # Relationship that reduce our costs could modify model
4.11 • Value for $ • Create additional value: do more
• No windfall profits together
• Accommodate changes to • Fix what doesn’t work
the business program • Reassessment process to be cost
• Review process that is efficient
efficient and does not • Ability to accommodate change
necessarily require • Expand without competitive process
procurement cycle • Change service delivery model to
• Market competitive rates accommodate technology or process
and services improvements
• People: opportunities, • Maintain the original intent of
satisfaction, job security Proponent being prime contractor in
• Low public profile an outsourced arrangement
• Honor union agreements • Ability to take advantage of
synergies as the business plan is
executed
2 10MAY07 Term • Long enough so that • Long enough to recover startup
procurement costs aren’t costs
overwhelming

3 10MAY07 Governance - • Enough levels to eliminate • Rapid resolution
Escalation emotion from the issue • Parties should be encouraged to
• Definitive end negotiate resolution

Permanent, Reference to Date issue first
Respective “interests”
Common Issue # background info entered into log


Negotiating Scheduling
Why?
Ensure you have the correct resources at the table at
the appropriate time
Ensure you the required information available at the
appropriate time
Tools
Custom Excel spreadsheet with day loading (toolkit)
MS Project


Estimate & Schedule Issues
For each issue
Estimate the total length of time it will require (e.g. #
hours) to reach agreement
Be conservative
Schedule the issue into a specific negotiating day


Completed issues highlighted in green

Item # Doc Ref Date/Agenda Item Date Next Date Last Date Discussed Open % Initial Actual Remaining Notes/Status
Originally Scheduled Discussed Items Complete Est. (hours) Est.
Scheduled (hours) (hours)
54 None Term and Term 31-Aug-07 31-Aug-07 31-Aug-07 Y N 100% 2 1.5 0 Closed, with one open
extension issue: ability to wind
down of services
during expiry; to be
discussed with other
items e.g. termination
6 Proponent Issues Change order process 31-Aug-07 31-Aug-07 31-Aug-07 Y N 100% 2 2.5 0 Closed
& Interests list,
item #3
24 None New Features 31-Aug-07 31-Aug-07 31-Aug-07 Y N 100% 3 0.5 0 Closed
40 None Composition of 1-Sep-07 1-Sep-07 1-Sep-07 Y N 100% 1 0 0 Closed
Proponent Team
8 None Process to demonstrate 2-Sep-07 7-Sep-07 7-Sep-07 Y N 100% 3 5 0 Closed; outstanding
end-customer and action to construct
stakeholder value initial Balanced
Scorecard; survey
frequency; example
SET/MET

Issue # (from log) Initial scheduled date, date last
Original estimate, actual time and
discussed or closed, date next
estimate remaining to completion
discussion is scheduled


Under loaded days

Overloaded days
Daily Capacity


The Negotiating Cycle


Negotiating Cycle
Prepare for Negotiations
Assemble and review background and supporting data and
information
Pre‐brief
Internal team meets prior to each negotiating session to review issues,
interests, PTRs and proposals for each scheduled issue
Can be immediately before negotiating session or late afternoon on
day before negotiating session
Negotiate
Exchange “proposals” on issues
May be exchanged prior to each session to enable each party to review
proposals and prepare for negotiations
According to pre‐determined meeting schedule
Document discussion
Document actions items and agreements

Negotiating Cycle (continued)
Debrief
Internal team meets immediately following negotiating session to
review outcomes, review action items from negotiating session,
develop internal action items, finalize proposals for upcoming
issues
Also debriefing of Internal Steering Committee on major issues
Research and action items
Action items from negotiating session assigned and acted on by
negotiating team, due diligence team, or schedule development
team


Weekly Negotiations Scheduling
Alternative A – 3 Days/Week

Alternative A – 3 Days/Week
70% ‐ 100% time commitment
Good chance of meeting negotiating deadline
May pressure compromises due to limited availability

Weekly Negotiating Schedule
Alternative B – 2 Days/Week

Alternative B – 2 Days/Week
60% ‐ 70% time commitment
Reduced chance of making negotiating deadline
Increased negotiating compromises due to limited time
commitment

Weekly Negotiating Schedule
Alternative C – 3 Consecutive Days

Alternative C – 3 Consecutive Days
100% time commitment
Very good chance of making negotiating deadline
Long hours could tire team

Conducting the Negotiations


Negotiation Agenda
Typical Negotiating Agenda
Review/adjust agenda for the day
Identify negotiations log adjustments
Review action items due for the day
Negotiate the scheduled issues
Document in the negotiations log
Reschedule incomplete issues for day
Review the schedule for next negotiating day
Posting of negotiations log and schedule
Posted daily at end of negotiating day to shared section
of document repository

Item Doc Ref Date Issue & Clarification Interests - Company Interests - Proponent Options Actions, Owners, Dates Agreemen

## Relevant Date Short Name for Issue • Company interest #1 • Proponent interest #1 • Initially identified option • •
document #1 1 • Company interest #2 • Proponent interest #2 #1
name, section, • Question #1 • Company interest #3 • Proponent interest #3 • Initially identified option
page • Question #2 #2
Relevant • Question #3 Daily key discussion points
document #3 • Sub-issue #1
name, section, • Sub-issue #2
page
Date • Additional question #4 • Company discussion point • Proponent discussion point • Additional option #3 • Action item #1 • Agreement point
2 • Additional question #5 #1 #1 description (example of • Agreement point
• Additional sub-issue #3 • Company discussion point • Proponent discussion point action still outstanding) – • Tentative agreem
• Additional sub-issue #4 #2 #2 Date Assigned – #3 requiring follow
• Company discussion point • Proponent discussion point Responsible • Agreement point
#3 #3 o Update #1-1 • Tentative agreem
• Company discussion point • Proponent discussion point description – #5, requiring follo
#4 #4 Date of update
Dates on which • Proponent discussion point o Update #1-2
#4 description –
the issue was date of update
negotiated Open action items highlighted in yellow • Action item #2
description (example of
action completed) – Date
Agreements highlighted in green Assigned – Responsible
o Update #2-1
Tentative agreements highlighted in red description –
Date of update
o Update #2-2
Closed action items not highlighted and noted as description –
COMPLETE date of update
o Update #2-3
description –
Completed issues noted as CLOSED Date of update
- COMPLETE
Date • • • • • • Final agreement o
3 #3
• Final agreement o
#5
• CLOSED


Regular Reporting
Report regularly to the internal and to the Joint
Steering Committees
Status of key issues
Status of key agreements
Status of key disagreements
Status against desired outcomes (internal only)
Status of relationships
Issues which (may) require Steering Committee
involvement
Status against negotiating plan


Example of Color‐coded PTR
Document – Positive Outcomes
mediation
acceptable


Document – Neutral Outcomes
mediation
acceptable


Document – Poor Outcomes
mediation
acceptable


Note increasing total issues

Total # of issues

# Issues not started

# Issues in progress

# Issues completed


Note increasing time requirement
and decreasing time availability

# hours available in scheduled negotiating sessions

# hours required to complete incomplete issues

# hours spent completing issues


Due Diligence Support for Negotiations
Clarify due diligence report as required by
negotiations
Respond to additional due diligence information
requests from negotiations teams
Perform action items raised in negotiations
Response will be time critical
Responses should be documented in document
repository


Legal Boilerplate
Develop Master Services Agreement (MSA) structure
Complete initial table of contents, including schedules
Including standard language from your previous
agreements for issues not to be negotiated
Develop Services and non‐Services schedule structure
Standard structure for all Services schedules
Standard structure for all non‐Services schedules
Complete preliminary standard table of contents
Stored in shared section of document repository


Master Development
Flesh‐Out The Master (Services) Agreement
From business agreement documented in the negotiations log
Clarified with negotiations teams
Iterative process – several versions throughout negotiating period
Ongoing language review by legal counsels
Points of disagreement between legal counsels raised as new
negotiating issues
All common drafts stored in shared section of document repository
All internal drafts stored in confidential section of document
repository


Services Schedule Development
Develop Services Schedules
Schedules which describe the scope of the Services or functionality of
software
Completed by schedule development team
Constant liaison with negotiations team to verify consistency with
business agreement
Requires ongoing legal or quasi‐legal review of structure and wording
prior to finalization to ensure consistency and compliance with the
overall business agreement
Meetings schedule similar to master negotiating teams
Daily routine similar to master negotiating teams
Negotiations log similar to master negotiating team
Prolonged disagreement by schedule development teams should cause
issue to be raised to master negotiating table
All document drafts stored in shared section of document repository

Non‐Services Schedule Development
Develop Non‐Services schedules
Schedules of lists, background information, one‐time activities, etc.
supporting the description of but not directly describing the Services
Completed by schedule development team
Infrequent liaison with negotiations team necessary
Unlikely to require ongoing or detailed legal review of wording prior
to finalization
Can usually be assigned to one party or the other with a final review
by the other party
Prolonged disagreement by schedule development teams unlikely
but if it happens should cause issue to be raised to master
negotiating table
All drafts maintained in document repository


Final Legal Review
Review MSA and Schedules for consistency
Definitions, cross‐references, consistency with business
agreement, compliance with policy, compliance with
legislation, etc.
Proponent final legal review with senior legal counsel
Final legal review may generate additional “last
minute” issues to negotiate


Wrapping Up and Cleaning Up


Approvals
Internal approvals
Business agreement (from negotiations log)
Draft agreement language
Master Services Agreement (MSA)
Services Schedules
Non‐services Schedules
As per approvers list
Next: Steering Committee
Finally: Sponsor
Proponent approvals
Will parallel internal approvals


Sign
Private signing
Your signing authority (i.e. Sponsor) and proponent’s
signing authority
Legal counsels
Lead negotiators
Public signing
Also attended by negotiating, schedule development
and due diligence teams
If desired, attended by the media
Possibly attended by the public


Post‐Closing
List of activities/deliverables, committed to in the
contract, to be completed soon after the contract is signed
These are deliverables and should be tracked
Examples
Confirmation of letters of offer to your employees
Assignment of your subcontractor contracts to supplier
Delivery of certificates of insurance
Change of employee pension plans
Reimbursement of pre‐paid expenses (e.g. employee vacation, pre‐
paid leases, etc.)
Acquisition of new vendor facilities
Etc.


HR and LR Activities
Note – only required if staff transfers are involved
Voluntary departure programs and/or early
retirement incentive plans
May be coincident with period for conditional offers of
employment
May be co‐terminus with period for conditional offers
of employment
Staff Transfer Activities
Offers and acceptances
Labor Relations Negotiations
Pension Plan Changes

Celebration
Jointly celebrate the signing
Hold a scheduled event in the late afternoon or evening
Invite all team members
Exchange meaningful tokens of the agreement between
the parties
Give a memento to the key participants


Everything You Will Need


Negotiations Toolkit
What Is It?
Microsoft Office document templates, samples, and
guides to assist you to plan and manage an outsourcing
negotiation
Developed, refined and proven over dozens of small
and large IT contract negotiations in several industries


Toolkit Contents
Negotiations Process Overview Standard/Initial Issues List
Presentation Issues PTR/BATNA Template
Interest‐Based Negotiations (IBN) Negotiating Strategy Template
Overview Training Negotiations Log Template
Negotiations Kick‐Off (Internal) Negotiations Schedule Template
Presentation
Negotiations Proposal Template
Diagrams for Kick‐off Presentations
Steering Committee Status Report
Negotiations Kick‐Off (Joint) Template
Presentation
Sample Closing and Post‐Closing
Negotiations Roles and Agenda
Responsibilities Descriptions
Key Lessons Learned
Negotiations Logistics Checklist
And more…
Contract Structure and Table of
Contents


The One Page Webstore
http://www.onepagewebstore.com/onepagewebstore/Negotiations/o
nepagewebstore.asp

Or Google it: “One Page Webstore Negotiations Toolkit”


What You’ve Learned


Recap
Manage a negotiations like you would a project
Establish a project team and governance structure early
Know your issues, your range of acceptable outcomes, and
your negotiating strategy
Establish a schedule for each issue to ensure resources and
information are available when needed
Have the appropriate facilities and tools available
Prepare for each negotiating session and debrief afterwards
Document key discussions, points of disagreement, points
of agreement and action items
Don’t forget the clean‐up and follow‐up
Celebrate your success

Please feel free to contact me
Ken Nowlan
Corium Consulting Services Ltd.
Phone: 604‐614‐7000
Email: ken.nowlan@coriumconsulting.com
Website: www.coriumconsulting.com
Toolkit:
http://www.onepagewebstore.com/onepagewebstore/Negotiations/on
epagewebstore.asp


Healthcare IT Contract Negotiation Guide

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