Eskom Procurement Book 2015

NEGOTIATION

• The price had to be free of escalation and Company A required retention of at least 10%. • Assuming requirements were met, Company A was prepared to make an upfront payment, as cash flow was not the problem on this project. However, this was limited to a maximum of 20% of the total contract price.

A7.1.3.1 Strategy

Under the above circumstances, it would have been understandable if Company A had attempted to force concession on all its requirements, particularly in light of the intelligence on Supplier X’s financial state. A win-lose approach would probably have delivered a low price and all the other desired warranties and retentions. The win-lose approach would, however, have jeopardised the relationship to the extent that Supplier X would probably not have devoted its best resources to the project, and would possibly even have under-quoted but loaded sundry costs during project delivery. Furthermore, the win-lose would have guaranteed that Supplier X would never be so compliant on future projects when its order book was fuller. Company A chose a win-win strategy for the negotiation. The full wisdom of this was, however, only revealed during the negotiation itself, as Supplier X gradually disclosed (in the spirit of co-operation) numerous hidden facts around its standpoint. The Supplier X team consisted of the managing director, the marketing director and the technical director. The supplier needed the business: its order book was thin and the company was experiencing severe cash flow problems. The supplier was aware that CompanyAhad experienced problems on the R200 million project. Supplier X, having completed similar projects for Company A in the past, was expecting hard-line negotiations and a win-lose strategy from Company A. The major issues for the supplier were: • The supplier had added a 15% handling commission to sub-contractors’ quotes for much of the detailing and finishing work on the project. • The delivery period was flexible between four to six months but this was dependent upon favourable payment terms to alleviate cash flow issues. • Price escalation was dependent on payment and final retention terms in the agreement. It was suspected Company A would require a 5% retention, but would prefer 10%. • Ideally, it wanted an upfront payment of at least 25% of the total contract price. Payment for all materials no later than seven days after delivery on site was essential. • It understood the value of the named construction manager to the buyer and

A7.1.4 SUPPLIER X’s INITIAL STANDPOINT

170 CHAPTER 7