Negotation and Contract Management

Chapter 1
Introduction
Negotiation has been defined in a variety of ways: A negotiation is an interactive

communication process that may take place whenever we want something from someone
else or another person wants something from us.1 Negotiation is the process of
communicating back and forth for the purpose of reaching a joint agreement about
differing needs or ideas.2 Negotiation is a decision-making process by which two or
more people agree how to allocate scarce resources.3 Negotiating is the end game
of the sales process.
A simple negotiation planning tool, called Triangle Talk, can help the negotiator
begin the initial preparation for an upcoming negotiation. This planning process,
consists of the following three steps: (1) know exactly what
you want; (2) find out what they want and make them feel heard; and (3) propose action
in such a way that they can accept it.8
Step 1 in Triangle Talk is determining and formalizing the negotiators specific

goals and objectives for the upcoming negotiation. Being specific with ones expectations
and writing them down helps the negotiator to remain focused on his or her predetermined
priorities during the negotiation.
Step 2 involves trying to discern what the negotiators counterpart is likely to need
or want from the negotiation. Ask specifically, What does
the other party need or want? Delve into the other partys likely positions and try to estimate
what the underlying interests are behind the positions.
Step 3 involves the consideration and analysis of the negotiators own needs and
wants and the needs and wants of the other party. This way, proposals and counterproposals
can be offered that take both sets of needs and wants into account and are
framed in such a way as to make it easy for the other party to say Yes. It is important
to remain flexible, fair, and reasonable so that the parties can work out an
agreement in which they are both better off.
Difference between Bargaining and Negotiation:

Bargaining: often describes the
competitive, win-lose situation
Fixed price
Negotiation: refers to win-win situations
Creating more value jointly than by ourselves
Characteristics of a Negotiation Situation

There are two or more parties
There is a conflict of needs and desires
Parties they think they can get a betterdeal (than by simply accepting what the other side
offers them)
Parties expect a give and take process.
Parties search for agreement rather than:
a. Fight openly -Capitulate (give in)
b. Break off contact permanently (quit)
c. Take their dispute to a third party (court)
Successful negotiation involves:
a. Management of tangibles (e.g., the price or the terms of agreement)
b. Resolution of intangibles (the underlying psychological motivations)such as
winning, losing, saving face
Interdependence
In negotiation, parties need each other to achieve their preferred outcomes or objectives. This
mutual dependency is called interdependence. Interdependent goals are an important aspect of
negotiation
Win-lose: I win, you lose
Win-win: Opportunities for both parties to gain.
Interdependent parties are characterized by interlocking goals. Having interdependent goals

does not mean that everyone wants or needs exactly the same thing. A mix of convergent and
conflicting goals characterizes many interdependent relationships.
Interdependence and the situation shape processes and outcomes
Zero-sum or distributive one winner

Non-zero-sum or integrative mutual gains situation
Evaluating interdependence depends heavily on the alternatives to working together
The desirability to work together is better for outcomes
Best available alternative: BATNA (acronym for Best Alternative to a Negotiated Agreement).
Mutual adjustment and Concession Making
When one party agrees to make a change in his/her position, a concession has been made
Concessions restrict the range of options. When a concession is made, the bargaining range is
further constrained.
There are two dilemmas in Mutual adjustment.
Dilemma of honesty- Concern about how much of the truth to tell the other party
Dilemma of trust- Concern about how much negotiators should believe what the other
party tells them
Value Creation
Opportunities to win or share
Resources Claiming value: result of zero-sum or distributive situations where the object is to
gain largest piece of resource
Creating value: result of non-zero-sum or integrative situation where object is to have both
parties do well.
Most actual negotiations are a combination of claiming and creating value processes
More of one approach than the other and Versatile in their use of both major strategic
Approaches.
Negotiator perceptions of situations tend to be biased toward seeing problems as more

distributive/ competitive than they really are.
Negotiators value differences include:
Differences in interest
Differences in judgments about the future (perceptions)
Differences in risk tolerance
Differences in time preferences.
Chapter 2
Negotiation Frame work
The best way to approach a buyer-supplier negotiation is by presenting it as an interactive, give-

and-take process involving five major phases:
1. Identify or anticipate a purchase requirement

2. Determine if negotiation is required
3. Plan for the negotiation
4. Conduct the negotiation
5. Execute the agreement
Identify or Anticipate a Purchase Requirement
The purchasing cycle begins with identifying (or anticipating) a material need or requirement for
a component, raw material, subassembly, service, piece of equipment, or finished product.
Often, supply management can identify new requirements during new-product development in
collaboration with its various internal customers within the buying organization, such as
marketing, operations, design, and research and development.
Determine If Negotiation Is Required

Not all purchase requirements will require buyers and sellers to conduct a thorough and detailed
negotiation. For many items, the competitive bidding process will satisfy a buyers purchase
requirements, as may be the case for items that are low value, are widely available
commodities, or have pre-existing standards.
The following areas or issues may require supply management to negotiate with
its suppliers:
Identification of and agreement on a suppliers allowable costs
Delivery schedules and lead time requirements
Expected product and service quality levels
Performance metrics and how information is to be gathered and shared
Technological support and assistance
Contract volumes
Special packaging and shipping requirements
Liability for loss and damage
Plan for the Negotiation

Negotiation planning involves a series of steps that prepare the parties for a forthcoming negotiation.
Many buyer-supplier negotiations are relatively straightforward and may require only basic preparation
and planning. Other negotiations may be highly complex and require months of thorough and detailed
preparation. Regardless,supply managers who take the time necessary to plan and prepare for a
negotiation will usually experience better outcomes than those negotiators who do not adequately plan
and prepare. Planning is so crucial to achieving desired negotiation outcomes that a later section
addresses this topic in greater detail.
Planning Should be:
1. Define the issues
2. Assemble the issues and define the bargaining mix. The bargaining mix is the combined list
of issues
3. Define your interests why you want and what you want
4. Know your limits and alternatives
5. Set your objectives (targets) and opening bids (where to start).Target is the outcome
realistically expected and Opening is the best that can be achieved
6. Assess constituents and the social context of the negotiation.
Conduct the Negotiation

Negotiations with a supplier should occur only when a buyer feels confident about the level of
planning and preparation put forth. However, planning is not an openended process; buyers
must usually meet deadlines that satisfy the needs of internal customers within the buyers
organization.
Negotiation proceeds through distinct phases or stages:
Beginning phase (planning, initiation)
Middle phase (negotiation, problem solving)
Ending phase (resolution)
Ideal Negotiation Process

1. Preparation
What are the goals?
How will I work with the other party?
2. Relationship building
a) Understanding differences and similarities
b) Building commitment toward a mutually beneficial set of outcomes
3. Information gathering
Learn what you need to know about the issues
4. Information using
Assemble your case/argument
5. Bidding, Trading: The Dance.
Each party states their opening offer and Each party engages in give and take
6. Closing the deal
Build commitment, step-by-step.
7. Implementing the agreement (who, what, when)
Execute the Agreement
Reaching agreement is not the end of the negotiation process by any means.Rather, an
agreement merely represents the beginning of the contracts performance for the item, service,
or activity covered by the agreement. An important part of executing and following through on a
negotiated agreement is loading the agreement into a corporate contract system so others
throughout the organization have visibility of the agreement.
During the life of an agreement, a buyer must let a supplier know if the supplier is not meeting
its contractual requirements. Conversely, it is the suppliers responsibility to let the buyer know if
the buyer is not meeting its responsibilities within the negotiated agreement. Both parties should
work to build upon the success of a negotiation. Carrying out the agreement as agreed upon
should reaffirm the commitment of the parties to work together in the future.

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Chapter 1

Negotiation has been defined in a variety of ways: A negotiation is an interactive

Step 1 in Triangle Talk is determining and formalizing the negotiators specific

Difference between Bargaining and Negotiation:

Characteristics of a Negotiation Situation

Win-lose: I win, you lose

Win-win: Opportunities for both parties to gain.

Interdependent parties are characterized by interlocking goals. Having interdependent goals

Interdependence and the situation shape processes and outcomes

Zero-sum or distributive one winner

Evaluating interdependence depends heavily on the alternatives to working together

The desirability to work together is better for outcomes

Mutual adjustment and Concession Making

There are two dilemmas in Mutual adjustment.

Opportunities to win or share

Negotiator perceptions of situations tend to be biased toward seeing problems as more

Negotiators value differences include:

Negotiation Frame work

The best way to approach a buyer-supplier negotiation is by presenting it as an interactive, give-

1. Identify or anticipate a purchase requirement

Identify or Anticipate a Purchase Requirement

Determine If Negotiation Is Required

Plan for the Negotiation

4. Know your limits and alternatives

6. Assess constituents and the social context of the negotiation.

Conduct the Negotiation

Ideal Negotiation Process

Execute the Agreement

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