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NEGOTIATION
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CHAPTER 7
• 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.
A7.1.4 SUPPLIER X’s INITIAL 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