Eskom Procurement Book 2015

NEGOTIATION

had planned to use his involvement as a bargaining point. • Due to the nature of the quotation involving sub-contractors, the supplier could not profitably negotiate its total price down by more than R150 000 and could not drop its steel price below R4 400 per tonne. • The supplier had quoted for detailing at R70 per tonne, which was R50 per tonne lower than its normal fee. It therefore needed to insist that Company A supply high-detail general arrangement drawings. The actual negotiation was surprisingly easy and convivial. But this was only achievable through a sensible win-win approach, clearly communicated at the outset by Company A, which stated that the project hinged on quality, on-time completion, with preparedness on its part to sacrifice low price for working with the right supplier. Supplier X responded that it was willing to look at all elements of the total deal in order to secure a mutually satisfactory outcome. Careful preparation had set its variables around the 15% handling fee, the steel price and the total project cost, and it was prepared to offer accelerated completion and the named construction manager as incentives to set the tone. Company A’s opening gambit was in stating that X’s total quote was about 9% over budget. No mention was made of competitive bids. This was a clear tactic involving LIMs, and was spotted by X, who asked for clarification on the discrepancies. CompanyA revealed that the crux of the matter lay in the fact that it had budgeted on the basis of minimal use of subcontractors and was prepared to designate in-house resources to certain areas of detailing the resources to be supplied by A but managed by the chosen supplier. This prompted a relieved rethinking of the project by X, and details of available resources were discussed and agreed over the course of approximately 45 minutes. The net result was that the supplier was able to reduce R78 000 off its quoted detailing costs, leaving a total price discrepancy of around R105 000 between Company A, Supplier X and the ‘musts.’ At this point, X cleverly offered the named construction manager and a completion date of four months, thereby heightening the feeling of co-operation and willingness to come to the party. Company A noted both items with gratitude, but continued to state that its most favoured position would be a total project cost of a maximum of R2.5 million. Supplier X immediately countered that R2.5 million would probably not be achievable, but ‘let’s see how close we can get.’ The parties proceeded to explore payment terms as an option for offering further discounts. Company A stated that it usually offered 12%, but was prepared to move if this would affect the total price. Supplier X offered to reduce the total price to R2.59 million if 20% were to be paid up front. Company A sharply asked whether the sliding scale of upfront payment versus discount was limitless, prompting the immediate

A7.1.5 THE NEGOTIATION

171 CHAPTER 7