Procurement training tender negotiation & getting the deal

Procurement training: Tender negotiation & getting the deal

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Getting the deal

Specifications - art of science?

Preparing a specification is both an art and a science. It has to contain the hard facts about what is required but written in such a way that it conveys an accurate message from the writer to the reader. A lot of specifications do not do this and many commercial disputes centre around the differences between what the purchaser thought had been ordered and what the supplier thought was to be supplied.

There are four different basic specification types and each has its advantages depending on the context. Selecting which specification type to use depends on a sound and systematic identification of the context.

Identification is the beginning and not the end of the process. When drafting the specification it is important to have a format which ensures that the specification is complete, in other words that it says everything which it needs to say. The process also needs to take account of how it should be said (it's not what you say but the way that you say it) and there are twelve important tips for ensuring that a drafter gets both of these aspects correct.

Inviting tenders:

For a long time, this was the kernel of all procurement work. In the public sector and in much of the private sector, it still is although there is now a greater emphasis in many sectors on the use of e-Auctions and on negotiation.

However, traditional tendering, negotiation and e-Auctions all share some things in common, namely

  • The law which applies to the letting of contracts is the same for all of them and all three processes have to take account of this in much the same way
  • A sound contracting strategy is essential for all three
  • A contract plan is the management tool which controls any contracting letting.
  • The information needed to prepare an invitation to tender is much the same as the information needed for a straight negotiation or an e-Auction process.

    For many complex procurement projects, such as a major piece of capital equipment, a construction of a building, there is probably no substitute for a major tendering exercise.

It is essential that all members of a project team understand the principles of inviting tenders. It is not simply drafting a specification, attaching a set of terms and conditions and requesting tenders to be submitted by a some stipulated date.

Receiving and analysing tenders:

In general, the public sector has always had more formal procedures than the private sector for the receipt and analysis of tenders. The reason for this is the need for accountability when spending public sector funds and the need to comply with legislative requirements to avoid fraud.

Private sector approaches to receiving and analysing tenders have often been more informal. However, the law about corruption and fraud also applies to the private sector and the fiduciary duties of directors with respect to the expenditure of corporate funds are strict.

Good processes for receiving and analysing tenders help reduce the risk of corruption and fraud, make accountability easier by providing clear audit trails and assist in the search for value for money by imposing rigorous standards in the analysis of tenders as a pre-requisite to the award of any contract.

Processes for the receipt of tenders should include timeliness, registration, opening, recording and late tender procedures. Processes for tender analysis should include the selection and use of contract award criteria, the management of qualifications to tender documents made by tenderers, the use of weightings when analysing tenders, dealing with abnormally low tenders and negotiation.

Consideration of the processes both for receipt of tenders and for tender analysis are important for electronic tendering such as e-auctions as well as more traditional tendering methods. The difficulties arising from a bidding process are not eliminated by the use of electronic means. In fact, if they are not considered and implemented before the electronic process, the outcomes of any e-tendering exercise are likely to be less than satisfactory.

Negotiation:

Many people see negotiation as a form of adversarial contest in which one side wins and the other side either loses or does not win as much. The reason for this is limited point of view is that all organisations are in business to 'win' and no business can expect to consistently 'lose' and stay in business.

If the two parties to a contract need to work with one another over the longer term, then win-lose negotiations are likely to fail both organisations because losing causes resentment and this usually means that the 'loser' tries to avoid losses in the future. This can lead to retaliatory action to re-coup previous losses which could have the future effect of disadvantaging the original 'winner'.

There are a number of manipulative techniques which are supposed to help 'winning'. However, they are only effective if the other party is unaware of them and, in general, they are only employable once in negotiations with any given organisation. Such techniques are not the stuff of long term, professional, commercial relationships for which a much more positive approach is needed based on 'win-win'.

The fundamental of any 'win-win' negotiation is that both parties feel that they have got a good deal. This is not the same as a triumphalist feeling which a party might experience if successful at 'win-lose'. 'Win-win' is the basis for both parties feeling that they can confidently deal with the other in the future in the reasonable expectation of achieving mutual benefit.

Longer term relationships are desirable. They are less costly and more profitable for both parties to manage because the very high costs of finding new suppliers or new customers are avoided and so are the costs of the learning curve associated with dealing with a new commercial partner.

Win-win is not an easy option even if essential because both parties need to continue to deal with each other successfully over the longer term.

Ultimately, most negotiations come down to one party having the money and not wanting to part with much of it and the other party wanting as much of the money as possible and at the lowest cost to itself. Despite the antagonistic nature of this situation, there is a possible basis for a win-win deal if both parties concentrate on saving money by spending it effectively.

There are positive negotiation techniques which assist in developing this approach. It is preferable for both parties to understand them and use them. However, it is also effective if the techniques are understood and employed by one party which accepts that part of its role as a negotiator is to change through example and persuasion the attitudes and approach of the other party.

Positive negotiation techniques are also employable in negotiations between parties have no need for a long term relationship.

Their advantage is that they can avoid or at least reduce the impact of win-lose and they can speed the negotiation process, bring about a conclusion of greater satisfaction to both parties and keep time consuming and therefore costly negative action and re-action to a minimum.

Buying on the telephone - not without risk!

A huge amount of procurement of goods and services is done over the telephone, sometimes but not always with a confirmatory order or letter which arrives long after the telephone call and is of doubtful legal significance. Some organisations are very relaxed about this because they feel each individual procurement is of low spend value and consequently the risk of commercial procurement failure is low. However spend and risk are not directly proportional and it is quite possible to take on a lot of risk with a low spend procurement. Other organisations spend enormous amounts over the telephone and actually do not know either how much they spend this way and what degree of risk they are taking.

It is very doubtful whether it is either possible or desirable to stop all procurement over the telephone. In crisis situations, telephone purchasing might be essential and for a lot of other procurement it can be desirable. But it is important to know when it should be done and how to do it. There are six key steps to take before buying over the telephone and each of these has a number of sub-steps. None of them are difficult to apply and they do not slow down the process. What they do is to systematise the way in which procurement over the telephone is done and help to identify and take out risk.

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~ Stephen Cannon ~

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