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       Discount or markup structures for goods and services not specifically unit‐priced in the agreement (such as noncore items for office supplies, or a tariff discount with AT&T or FedEx)

       Taxes and surcharges, including how they are applied

Many other types of pricing information could be included in a contract or agreement, depending on the category. For example, a contract for print services might include tiered levels of pricing depending on the number of items printed in one order. We cover some of the other pricing information you can expect to see for specific categories in Chapter 7, “Get It in Writing: The Contracting Phase.”

      As you can see, it is important to understand all aspects of pricing, beyond just the unit price. When the time comes to evaluate proposals from alternate suppliers, this information is critical for developing an apples‐to‐apples comparison.

      Liability and Other Specific Terms

      Most contracts also have clauses dealing with liability, insurance, indemnification, confidentiality, and other factors. Some of these terms are fairly generic. Others include information critical to the definition of the relationship between your organization and your supplier. Unfortunately, many end users hand this information over to their lawyers without fully understanding the business terms inherent within them.

      A full evaluation of the types of clauses that could (or should) exist in a commercial agreement for products or services is beyond the scope and intent of this book. Many books and online resources are available that can help provide additional insight into contract law and the legal obligations of commercial relationships. However, it is important to note that when reading through these clauses you should understand not just what they are saying, but why they exist in the agreement. Is there mutual liability and confidentiality? Should there be? Is the supplier insured, and is this insurance adequate if the product fails? All terms need to be understood before they are executed in an agreement.

      Service Level Requirements, Specifications, and Scope of Work

      Some service‐level requirements and specifications will be detailed in the contract or pricing agreement and others may not. Regardless of where the information resides (within the terms of agreement or outside), this is the last piece of information to gather as part of the data collection process.

       Service Levels and Scope of Work

      Customers and suppliers often negotiate minimum service levels into agreements, particularly when agreements pertain to services (as opposed to products).

      Many defined service levels are generic and are included in an agreement regardless of the product or service being provided. Examples include an agreement to provide sales or usage reporting on a regular basis, quarterly account reviews, or a dedicated sales representative.

      Other service levels are more specific to the product or service provided and are often referred to as the scope of work. Examples include a minimum amount of cleaning per week for a janitorial agreement or the maximum number of service calls accepted for a hardware maintenance agreement. Understanding the scope‐of‐work details is important when introducing your requirements to alternate vendors and for validating an apples‐to‐apples comparison of proposals.

For example, if you are about to engage in a sourcing effort for janitorial services, your real requirement is keeping your building clean. However, this requirement is fairly subjective, and most lawyers will not allow that type of guarantee into an agreement. On the other hand, outlining a schedule for the frequency of the cleaning (three days a week) and listing the types of cleaning services (dusting, vacuuming, bathrooms, windows, etc.) can give some assurances that the building will be satisfactorily cleaned. If, later on, you find that the building is not properly cleaned, you can refer back to the scope of work and verify that the supplier is performing the list of services specified in the contract.

       Specifications

      Specifications, which define specific criteria regarding attributes, quality, or performance, are typically included in a purchasing agreement for products. Specifications are often defined in raw materials agreements but can be overlooked when dealing with indirect spend categories. However, understanding specifications for indirect spend categories can be just as important. Let's use office supplies as an example. In your organization, you might have some employees who use standard blue, ballpoint pens and others who require felt‐tipped pens. Some pens may have a special type of grip. And the executive or Sales team might have specially made pens with a logo or other features. In this scenario, asking a supplier to price out pens results in receiving a very diverse set of quotes.

      In areas like office supplies, you might find it nearly impossible to get a good idea of specifications for every potential purchase. You probably buy many different types of pens, staplers, and paper clips, among other items. How can you be expected to sit down with everyone within your organization who purchases office supplies to understand what it is they purchase? That process is time consuming at best and, in many cases, just unfeasible.

      Rather than interviewing each end user about the specifications of hundreds of different products, you can collect this information from the current supplier by requesting the manufacturer name and part number to be provided in a line‐item usage report. If the goods are purchased through a distribution model (in which the manufacturer sells the goods to the distributor and the distributor sells the goods to you), the manufacturer part number provides competing suppliers with a good indication of the exact product being purchased and ensures an apples‐to‐apples comparison.

      While requesting the manufacturer part number works well in a distributor model (or a model in which the products purchased are standardized), it will not help if the product you are purchasing is customized (or semi‐customized) for your organization.

      Examples of customized products might include corrugated boxes or printed marketing materials. In these cases, asking for the manufacturer part number will not give you the information you need to understand what is being purchased, nor will it provide alternate suppliers with a clear understanding of your requirements. If you are not already familiar with the products being purchased, you can take several steps to quickly get up to speed on important specifications.

First, during the supplier interview, ask suppliers to detail the factors that affect the cost of the product—specifically those related to the construction of the product. For a corrugated box, ask them to provide specifications, such as box dimensions, box strength, color, and other relevant factors.

      Second, take a look at similar products being purchased online. What do suppliers indicate as important specifications when selling their products? In some cases, suppliers might even put a quote form on their website. What information are they asking for in order to provide quotes?

      Lastly, ask the supplier for a specifications sheet, which can give you a precise list of all the important specifications tied to a particular product. A word of caution—if you are purchasing a product that is proprietary to your current supplier (this is the only supplier in the market who sells it), the supplier may ask you to sign a nondisclosure agreement before providing you with specifications. In this case, you are obligated not to share the specifications with others outside your organization, including competing suppliers.

THE FINAL ANALYSIS: BUILDING A BASELINE

      By now, you have collected a wealth of information—line‐item pricing reports, contracts and pricing agreements, and scope‐of‐work/specification documents. You have interviewed end users and suppliers to better understand some of the more subjective aspects of the relationship. It is now time to build your baseline document.

      The baseline document is a summary of everything you have learned during

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