TRAINING IN PROJECT PROCUREMENT

MANAGEMENT
ORGANISED BY MDI IN COLLABORATION WITH
NAWEC

PRESENTER
KEBBA A.M. SALLAH
DIRECTOR, GPPI
 Defining Negotiation

A process by which two or more parties, with

differing views initially, attempt to reach an

agreement by the selective use of different

methods of persuasion.

2
Negotiation is all about persuasion through
words.
Words are your weapons.
Like any weapon, effectiveness of negotiation
words can vary with reference to what is been
negotiated.
Lets explore three simple “bad words” that can
render your negotiation efforts ineffective.
Bad word #1: Imagine saying this to a Supplier:
“Can you reduce your price or are your margins
too thin to go any lower?” By including the word
“or” and the phrase that follows, you’ve made it
easy for your supplier to resist your attempt at
negotiating a better deal for your organisation.
Do not give suppliers an excuse for not being
able to improve their offers. If they are going to
offer excuses, it is their job to come up with
them!
Bad word #2: “Can” “can you lower your price?”
“Can you improve your terms?” etc. Using the
word ”can” implies that the supplier knows
everything important, such as cost structure,
and you know nothing. It gives the supplier all
the power to simply say “no”.
Because you have implied that the supplier
knows more than you, and you must created
the belief in the supplier that you have no
ammunition to challenge the supplier’s
response.
Bad Word #3: “Best” – “Your price is too high, please
quote your best price” Do you know what’s wrong
with using the word “best” in this sentence?
When it comes to discussing price, the word
“lowest” is better than the word “best”.
The best price in the mind of the supplier may not
likely be the “best” price in your mind, right?
If a supplier says “we gave you our best price” that
may be true because the best price for them is the
highest price.
“Negotiation is a process whereby two or more
parties, with differing views initially, attempt to
reach an agreement on a common objective by
the selective use of different methods of
persuasion”.
Methods of Persuasion

•Logic

•Bargain

•Emotion

•Threat

•Compromise
8
Negotiation is the accumulation of many skills and
tools to be used by the experienced public buyer to
increase the effectiveness of Government
procurement. Set of tools include;
a) Knowing your own organisation’s procurement
strategies and objectives
b) Understanding your customer’s requirements
c) Finding the facts about the products, the
market, the industry, the trends, and the
individuals on the supplier’s (or donors) staff
with which you will be working.
d) Understanding the business rules your
supplier or donor use.
e) Developing the ability to explore options of
satisfying the procurement agreement
(contract)
 External Interface
Supplier Management

Purchasing’sRole

Internal Interface
Satisfying Customers

11
As a buyer, you probably have to “negotiate”
with end users on issues such as:
1) Quality requirements
2) Whether certain specifications are going to
help or hinder competitive souring
3) Whether a request lead time for delivery is
realistic or not
4) Which factors to take into account when
evaluating bids.
You probably also have to negotiate with staff
form other departments, e.g. Finance, on issues
relating to the coordination of your work.
However, the most important parties that you
have to negotiate with, as a buyer will be your
suppliers.
Remember negotiating with suppliers is not
always necessary or desirable.
However, it is particularly pertinent in the
following cases:
a) For high value products or services
b) When long-term guarantees of supply are
required
c) When the procurement is complex, and there
are many factors to be considered in
addition to price (e.g. specification, delivery
and service)
d) When only one or few suppliers exist (e.g.
patented products and other proprietary
items)
e) Where no reference point (e.g. past
experience or outside information) exist for the
contract, and the price completion and
technical requirements can only be determined
as the result of a clarification process.
f) When there is not enough time to go through
the normal solicitation procedure.
There are only two stages in the procurement
process that you will find your self negotiating:
1) Pre-contract stage: Which includes all
negotiation that take place before an
agreement is reached.
Such as: Price
Achievement of the lowest possible
cost of ownership
2) Post-contract stage:
Negotiations should not stop after the contract
is signed. Often follow-up negotiations are
required to solve problems, expedite delivery
and ensure that the contract is performed as
agreed.
 Planning for a Negotiation
 Analysing the supply market situation.

 Identifying the cost structure relevant to the goods or services being

purchased.

 Carrying out a SWOT analysis (i.e., a comparative analysis of strengths,

weaknesses, opportunities and threats).

 Determining which variables are likely to be traded in the negotiation.

 Understanding the supplier organisation (including how it views its business

relationship with your own organisation).

 Understanding the people who will be involved in the negotiation.

 Identifying the interests of the parties at the negotiation, and distinguishing

these from their possible negotiating positions.

18
 Direct Negotiations

Circumstances:

• Very Low Value Purchases

(when Formal procedures would be Inappropriate)

• When the Purchaser has a Very Close ‘Partnership’

Relationship with a Supplier

• When No Competition is Possible Because the

Supplier has Exclusive Rights to Supply or has
a Monopoly Position

• When the Purchaser Wants to Prevent Competition

because of the Secrecy Involved in the Purchase

19
 Post Tender Negotiation

"Negotiation after receipt of formal tenders

and before the letting of contracts with the supplier
submitting the lowest acceptable tender with a view
to obtaining an improvement in price, delivery or
content, in circumstances which do not put other
tenderers at a disadvantage or affect adversely their
confidence or trust in the competitive tendering
system."

20
Negotiation

1
Preparing

2
3 Meeting
Follow-up
A) Preparing: It can be argued that getting
prepared is one of the most important stages in
a negotiation.
B) Meeting: Should be characterised by making
proposals, analysing options and bargaining.
Concluding the agreement and making clear to
all parties their key roles and responsibilities.
C) Follow-up: Involves taking measures to
ensure that the agreement is implemented as
stipulated.
Elements of the Preparation Phase

Knowing the
Procurement
Context

Setting your
negotiation
objectives
and Getting and
development understanding
your strategy the facts
A) Identifying the needs to be satisfied
B) Determining the procurement and supply
strategy
C) Deciding on appropriate supplier
relationships
 Analysing the supply market conditions
 Analysing the supplier’s price and its cost
structure of goods and services
 Understanding the supplier organisation
 Understanding the people who will be
representing the supplier at the negotiation
 Getting a clear picture of the balance of
power amongst the parties
 Carrying out SWOT analysis of both parties
Price and cost will be central elements of
virtually every comprehensive business analysis
and, therefore, central elements of negotiation.
Therefore it is important to have all requisite
and up-to-date facts on these matters.
The Supplier uses the cost of the various
production inputs as a basis for setting the
price of the product or services.
Cost-based pricing often applies in the case of
procuring equipment and industrial goods.
Excessive demand-based pricing can occur
when:
 There is little competition in the marketplace.
 The seller believes that the buyer needs the
item badly, or values it highly.
 The supplier considers that the buyer does
know the actual market conditions and cost
structure.
 The supplier knows the amount of money
that the buyer has already budgeted for the
procurement.
However, suppliers sometimes base the price
of the product or service not on cost, but on
what they think the procuring organisation can
afford and is willing to pay, depending on its
supply options.

This called demand-based pricing, and can

result in buyers receiving price offers that are
far above actual cost.
In addition to watching out for prices that are too
high, the buyer has to guard against offers at
prices that appear to be too low. This may be
because:
 The supplier wishes to win the first business at
any cost, and then “hook” the buyer into
dependency for future supplies (e.g. spare parts)
 The supplier is facing financial difficulties and
desperately needs to make sales.
 The products or services are of substandard
quality, obsolete or otherwise of doubtful nature
 The Cost Equation

Total cost
Purchase Cost of Cost of Cost of
of = Price +Acquisition + Operation + Disposal
Ownership

31
 Supplier’s Price Make-Up

Supplier’s Supplier’s Supplier’s

Supplier’s
Price = Material + Labour + Overhead + profit
Cost Cost Allocation

32
 Negotiation Variables

Quality
 Specifications and applicable standards:
 Design and dimensions
 Properties (e.g., sensory, aesthetic)
 Performance
 Safety/security considerations
 Environmental considerations
 Economic considerations (e.g., operating costs)
 Consumer/user information (e.g., labelling, manuals)
 Packaging and packing
 Acceptable tolerances
 Degree of flexibility in the event of changes in specifications
 Test criteria/methods and inspection procedures
 Rejection criteria and procedures
 Warranty/guarantee/defects liability

33
 Negotiation Variables

Supply
 Lead Times
 Delivery schedules
 Consignment sizes
 Penalties in the event of delays
 Cancellation options

Price
 Purchase order price
 Discounts (cash, quantity and trade)
 Price variation for future deliveries
 Exchange risk terms (in the event of exchange rate fluctuations)

34
 Negotiation Variables

Support
 Technical assistance
 Product research and development
 Maintenance and provisioning of spare parts
 Training
 Transfer of technology
 After sales service
 Distribution and sales promotion

Other Commercial Terms

 Transportation arrangements (carrier requirements, etc.)
 Payment terms and conditions
 Supplier credit

35
 Understanding the People Involved
Warm

Strengths Weaknesses How to Deal with Them

-Friendly and accessible -Too accommodating -Build trust
-Good listener -Loses sight of essentials -Use their name frequently
-Shows concern & -Finds it difficult to deal -Use strong logic and
empathy with conflict demonstrate
-Looks for mutual gain -Discloses information too understanding
-Patient readily -Emphasise their personal
-Relates well to people -May focus too much on gain in the negotiation
-Trusting the personal issues -Summarise frequently &
-Values personal -Finds difficulty in dealing keep discussion focused
relationships with people who do not -Emphasise long term
value personal relationship
relationships -Listen

36
 Understanding the People Involved
Tough

Strengths Weaknesses How to Deal with Them

-Natural leader -Adopts rigid positions -Do not give a concession
-Desire to achieve -Can be inflexible without obtaining
-Persistent -Does not build on the something in return
-Assumes leading role in ideas of others -Be warm and firm
meetings -A selective listener -Recess to relieve
-Decisive & keeps things -Impulsive & can be pressure
moving impatient -Use organisational power,
-Deals well with pressure -Insensitive to personal if applicable
-Assertive relationships -Use powerful arguments

37
 Understanding the People Involved
Logical

Strengths Weaknesses How to Deal with Them

-Grasps details -Tends to focus on issues -Get their list of
-Precise & not the people involved requirements from the
-Methodical -Gets too absorbed in the negotiation at the start
-Plans well details -Listen & evaluate the
-Always well prepared -Cannot readily change facts carefully
styles of persuasion -Recess to analyse the
-May not see the global issues
picture -Back up arguments with
-Reaches deadlock more facts and figures
easily -Respect their expertise
-Use emotion as a counter
persuasion

38
 Understanding the People Involved
Dealer
Strengths
-Builds relationships
-Effective communicator
-Listens to the other party
-Inter-relates issues easily
-Creative
-Sees opportunities
-Makes quick decisions
Weaknesses How to Deal with Them
-Tends to neglect detail -Try to understand their
-May shift position quickly underlying interests
-May be superficial in -Summarise & test their
personal relationships understanding frequently
-Agreements made can be -Trade concessions
difficult to implement -Do not move too easily
-Tends to neglect long -Separate facts from
term goals assumptions
39
 Developing the Negotiation Strategy

Supplier organisation
• Interests & positions
• Strengths & weaknesses

Their team
• Interests & positions
• Strengths & weaknesses

Market Negotiation Negotiation

situation strategy objectives

Our team
• Interests & positions
• Strengths & weaknesses

Our organisation
• Interests & positions
• Strengths & weaknesses
40
 Setting the Negotiation Strategy

Win-Lose Win-Win
Emphasises: Competition Collaboration
Based on: Adversarialism/ Mutual Interest and
Confrontation Common Goals
Presumes: Inflexibility Flexibility
Leads to: Conflicts Joint problem solving
Results in: One side ‘beating’ the Both parties achieving an
other agreement which achieves
their objectives
Appropriate for: One offs Long term contracts
Adversarial suppliers Repetitive deals

41
 Stages of the Meeting

Open

Test

Propose

Bargain

Agreement

42
 The Negotiation Meeting:
The Testing Phase

In the testing phase, here’s a list of do’s and don’ts

Do’s Don’ts
 Ask effective questions  Interrupt, blame, use sarcasm
 Check assumptions made in the  Talk too much
preparation  Be embarrassed by long pauses
 Show concern for their needs and  Make any firm proposals
interests  Confuse conflicts of interests with
 Listen attentively antagonism between people
 Identify common ground

43
Types of Questions
•Open

•Closed

•Probing

•Multiple

•Leading

•Reflective

•Hypothetical
44
 Active Listening

•Stop Talking
•Concentrate on What is Being Said
•Don’t Answer Back
•Don’t Interrupt
•Try to Understand Others
•Do Not Jump to Premature Conclusions

45
Once an agreement has been reached, you
need to ensure that whatever has been agreed
in the negotiation will be implemented.

The conclusion of a negotiation is therefore

not an end in itself, but the beginning of a
business relationship with your supplier.
Formalising the agreement involves series of
actions that should take into account issues
such as the following:
1. Build in targets for monitoring key stages of
the agreement.
2. Have the agreement checked by legal
advisers if appropriate.
3. Be organised on your side to get all the
necessary signatures/approvals with
minimum delay.
4. Take any additional action so that the
agreement can begin to be implemented.
At the stage of formalising the agreement, the
do not:
 Add anything that was not part of the original
agreement.
 Use confusing or unclear terminology or
language that could be subject to
misinterpretations.
 Allow too much time to lapse between the
end of the negotiation and the drafting of the
agreement document.
Characteristics of a Successful Negotiator
Successful negotiators will tend to:

 spend quality time planning and preparing for the negotiation.

 consider a wider range of variables that can be traded in the negotiation.

 give more time to areas of common ground between the parties involved.

 distinguish between positions and interests.

 have clearly defined objectives.

 use open ended questions (questions which cannot be simply answered by

a ‘yes’ or ‘no’).

 confirm their understanding and summarise progress.

 use comments which consider longer term aspects of the relationship

between the parties involved.

 can deal with pressure.

 observe all that is happening around them.

49