Ask The Expert - NEGOTIATION

Here HPA has provided the theoretical principles of negotiation to support and strengthen the skills procurement teams hold and also explore some of the approaches to negotiation of agreements made with external parties, how to prepare for them and what techniques are available to ensure successful outcomes.

Ask the Expert - Negotiation Q&A

Q 1 – Does every procurement contract require negotiation?

A – Yes and No. It may not be necessary to engage in negotiation for low value or routine purchase items. It may be necessary to do a cost-benefit analysis of it. However, since negotiation is about relationship building and management tactical negotiation may be necessary at a lower level, usually by functional or cross-functional teams from both parties to address short-range issues or conflicts. Strategic negotiation is done less frequently and usually at higher level and by senior management teams from both parties.

Q 2- Why has negotiation become critical during the Covid 19 Pandemic?

A – The unprecedented situation caused by the Covid 19 pandemic has seen many businesses close down, others are struggling and the situation has drastically altered the contractual landscape. It is critical that business partners review their business relationships through candid discussions and negotiations. Consider a scenario where you placed your orders with a business that relied on China as its sole source and that business is threatened with closure. Would you take them to court? The magnitude of disruption to businesses has never been seen in history. Restrictions across borders has been rife slowing down international business. Organizations have laid off workers and others drastically scaled down. The “old normal” is not clear in the horizon. At the beginning of the pandemic many businesses turned to relevant clauses in their contracts to determine whether force majeure provisions were applicable but while it was fairly easy to argue their cases it became continually evident that C19 was certainly an event outside the control of both parties and indeed, the whole world. No one could have foreseen the effects of the pandemic which effectively hindered or prevented parties from complying with their contractual obligations. Besides, many governments around the world were forced to change certain business laws some of which included those promoting local sourcing and manufacturing or reduced exports of critical supplies such as PPEs to increase availability of the critical supplies to their own citizens.

However, as organizations and businesses continue to gradually reel from the effects of the pandemic through observance of health protocols and opening of borders for international trade parties need to continually monitor the situation and evaluate the thresholds that justify evoking the force majeure clause. They will need to consider whether the contracts contain exhaustive or non-exhaustive list of events that could amount to force majeure. This will make negotiations necessary and critical for business continuity. The new challenge is from the second wave of the virus which looks more severe and resulting in more lockdowns.

Q 3 - What if at the end of the negotiation there is no agreement?

A – In negotiations there are three possible outcomes:

• Win-lose: one party gets what they want at the expense of the other party
• Lose-lose: neither party gets what they really want
• Win-win: both parties get as close as possible to what they really want

Apart from the three outcomes a negotiation can result in a stalemate, conflict or even a dispute. When such a situation ensues you have some options which may include:

1. BATNA- the use of Best Alternative to a Negotiated Agreement. This helps the negotiator to establish a fall-back position and hence understand when to walk away if necessary.
2. Litigation- this is action against adjudication in court
3. Adjudication –where a judge reviews facts and makes a legally binding decision
4. Arbitration- where an independent party decides the outcome
5. Mediation – impartial party aims to help in negotiation outcome

Q 4 - With increasing digitalisation of procurement what is the future of face to face negotiation?

A – There have been reports that with digitalisation face to face negotiation is likely not to happen but this is not entirely correct. What has happened and continues to happen is a change in the way we communicate, learn and conduct commercial business. We need to guard against losing some of our inter-personal and communication skills as we communicate using data, including mobile phones and e-mail, rather than the many types of communication we previously used in face to face to meetings.

More complex relationships and negotiations desperately need a more personal touch - people want to buy from people and trust is paramount. The 5th industrial revolutionists agree that we cannot do without the human factor in the digital revolution. What technology is doing is to create more visibility in the supply chains such that both parties are able to see what is happening in each other’s supply chains. Information is readily available at the click of a button. Suppliers and buyers have become market data experts.

The use of QR codes allows parties to trace and track and even watch “supply chain movies” on factory activities in the other party’s organizations making consumers make more responsible decisions. This has exerted more pressure on businesses fuelled by the “speed to market” to meet rapidly changing consumer demand due to more market knowledge. Availability of information about a party to negotiation is key to a favourable negotiation outcome.

Blockchain technology though not the magic wand enhances supply chain visibility while predictive analytics allow the parties to verify factors such as Total Cost of Ownership variations and geopolitical risks, thus availing some of the critical data to the negotiating parties. This has reduced the theatrics and game playing that have characterised face to face negotiations.

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