Tip Sheet 1 – The Negotiating Team

Tip Sheet 1 – The Negotiating Team

© 2009 Richard Pryor & Associates

Intended Audience – This tip sheet is for the assistance of people involved in the procurement or the supply of ICT products and services.

When should I form my negotiation team?

A negotiation team should be identified at the earliest possible time to ensure that processes are well-planned and executed.

In the case of the customer, the team should be formed (or relevant people at least consulted) before any formal approach to prospective suppliers is made. The level of involvement of different team members will vary at different stages.

In the case of the supplier, it should have one or more “gate keepers” who review business opportunities and sort them into those warranting a response and those where the invitation to submit a proposal should be declined. The team should be identified as soon as a decision is made to respond and the supplier’s bid leader should then determine the extent to which each team member needs to be involved as the process progresses.

Why assemble a team so early?

Although it can often be difficult to get sufficient attention from potential team members at the commencement of a project, the initial steps in the procurement or supply process can have the most significant effect on the negotiated outcome.

For example, a customer must ensure that its RFP sufficiently specifies its functional requirements unless it is prepared to pay for a substantial scoping exercise by the preferred supplier. An inadequate specification of requirements could seriously prejudice the effective evaluation of proposals. A supplier receiving a deficient RFP should have sufficient personnel available to ensure that any errors, omissions or ambiguities in the RFP are identified. These deficiencies would need to be raised with the customer a sufficient time prior to the RFP closing date to enable the customer to respond and the supplier to adjust its proposal to take into account the response. A supplier that is able to show this level of diligence will make a positive impression and gain a head start on other suppliers even before any proposal is submitted.

I am undertaking a major procurement. Who should be on my negotiating team?

The customer team required for a major procurement will typically include some or all of the following members, each of whom may have a different level of involvement in the procurement process:

  • Senior management sponsor – Preferably this person will be at CEO or board level. Such a person will not have time to attend and participate in all processes but if a project will depend on senior management approval, then early involvement and regular updating of this representative will ensure that potential obstacles to approval are flushed out early (e.g. a project may never be approved because of budget constraints, higher priorities or because the sale of relevant business divisions is under consideration). This person will ideally become a champion of the project and support the board level or senior management approvals required for the project.
  •  Procurement Manager – Often the CIO or IT Manager of the customer. As the prime mover for the project, this person will need to serve as the hub of the team. This person will be the decision maker and will determine the extent of involvement of each other team member. The commitment required and the impact the project will have on the time available to undertake regular “business-as-usual” tasks should not be under-estimated. The Procurement Manager should consider their own strengths and weaknesses. A Procurement Manager who has been involved with the same organisation for a long time may know the business very well but may not have been involved in a major procurement for quite a long time and may have only been involved in a very limited number of major procurements. A relatively new Procurement Manager from outside the organisation may have had more recent experience with a major procurement but may not have sufficient knowledge of the customer organisation and may face greater challenges in winning business and user support for any change.
  • Negotiation session chairperson – This may be the Procurement Manager. However, it is often an advantage to have an experienced chairperson fill this role. The external ICT consultant or legal adviser may be suited to fill this role. The chairperson’s role is usually to preside over the negotiation sessions, ensure agenda items are addressed, manage time spent on each topic and keep parties on topic. The chairperson may suggest breaks or adjournments when appropriate.
  • ICT technical support – These representatives (possibly in conjunction with external experts) will provide the skills necessary to identify and document technical requirements, to evaluate proposed solutions and to undertake reference checking by communicating with their peers at other customer sites. The likely impact of the project on current work-loads should be assessed and in some cases additional temporary staff or re-allocation of responsibilities may be required.
  • External ICT consultants – It is often desirable to include one or more consultants who have had experience with similar procurements to provide information and advice to the Procurement Manager and to supplement for any lack of internal technical resources.
  • Key business unit representatives – These representatives will ensure that the acquisition will meet functional and other business requirements and they will provide input in relation to potential changes in the business which may need to be accommodated. Determining who to involve (and who not to involve) can be a very delicate exercise. Too many representatives in this area can result in the waste of much time dealing with issues which are minor from a project perspective but which are considered significant (rightly or wrongly) by a particular business representative. If too few business representatives are involved, then the project may succeed in theory but fail because the business unit users reject it.
  • Project Manager – It is desirable to involve the person who will be responsible for the delivery of the project in the development, negotiation and agreement of the processes and contract mechanisms which will apply during the project.
  • Negotiation Administrative Support – This person is often the administrative assistant of the Procurement Manager. They provide administrative support to the team and help manage the potentially large amounts of material received from prospective suppliers. Once negotiations start, they assist with the preparation and circulation of agendas and minutes.
  • Finance representative – This person may be required to assist with analysis of pricing options and to ensure that transaction structure is suitable from a tax and balance sheet perspective.
  • External accountant – This person may be required to assist with specific tax issues.
  • Internal and external legal advisers – Internal legal advisers typically do not have much experience with respect to ICT procurements but they are very conversant with corporate policies and can specify the preferred approach to boilerplate provisions in the agreement. An external legal adviser should be selected who has extensive experience with respect to ICT procurements. Ideally the external lawyer will be given a sound understanding of the proposed scope of the project to ensure that scope requirements are clearly specified in the final agreement. One or both of these legal advisers should be involved in the preparation of the documentation used to approach the market (Request for proposal, tender etc). Consideration should be given to incorporating a form of contract or at least a listing of key contractual requirements in the RFP or tender documents. This will allow evaluation of how difficult it may be to conclude a contract with the otherwise preferred supplier.
  • Risk adviser – This person may be involved in the analysis of risks, assessment of the adequacy of the supplier’s insurance and the review of the customer’s own insurance cover.
  • Probity officer – A person involved to ensure that proper probity principles are applied to the procurement process.

Who does the Supplier usually have on its team for a major supply contract?

The team required by the supplier to address a tender or RFP will typically include some or all of the following members, each of whom may have a different level of involvement in the procurement process:

  • Senior management (relationship) – The supplier will typically involve several of its most senior personnel at key points of the process. Typically, senior management play no role in dealing with detail although they may sometimes participate to make final concessions if there is a deadlock in contract negotiations.
  • Senior management (bid approvals) – The supplier will often require bids to be reviewed at senior management level with particular attention to project risk, strategic significance of the customer or area of work and profit margin. The customer will not normally have any exposure to this process or these people.
  • Bid Manager – The person with overall responsibility for the supplier’s bid response and dealings with the customer. This person may be a member of the sales team but typically will have sufficient project management skills to manage the required inputs from various other team members.
  • Sales and relationship managers – One or more of these people may have an existing relationship with the customer. One of these people may be the Bid Manager. These people are most likely to have face to face dealings with the customer.
  • Solution experts – These are the people that will evaluate the extent to which the supplier can comply with the requirements of the customer and the additional services/products which will be required to bridge any gaps.
  • Finance and accounting – These people will determine pricing of the proposal based on costs, margin and appropriate contingencies. They will assist with re-pricing as required during contract negotiations;
  • Contract/legal – This person will initially be involved in reviewing any contractual or other legal requirements of the RFP or tender and will prepare any required compliance table or other contract response. Often this person will be a trained internal resource (with no legal qualifications) but an internal lawyer or an external lawyer with knowledge of the supplier’s policies on contractual provisions and other legal issues may be used. If selected as preferred supplier, a more senior internal legal resource or external legal resource may become involved in contract negotiations.
  • Insurance – this person may be involved to assess compliance with any insurance requirements identified by the customer. For unusual projects, they may also be involved in assessing the adequacy of the supplier’s insurance cover irrespective of customer requirements.

What if my project budget won’t allow such an extensive team?

For lower budget or lower risk projects, a full team of the type described is not essential. The entire project could be undertaken by a single person (e.g. the Procurement Manager on the customer side) with appropriate consultation with some of the identified categories of team member when required.

It is recommended that key resources should be consulted at the very beginning of the project. As a bare minimum, business, technical and legal input should be sought before the issue of any tender or request for proposal, during the evaluation of responses and in the negotiation of the formal agreement. The proposed project manager should be involved in the review of the proposed project plan and contract processes before contract execution.

How do I avoid management by committee?

They say a camel is a horse designed by a committee. This is too complimentary of some committees and a bit harsh on the ship of the desert.

The project team should not form a committee. A clear leader is essential and decisions should not be made by the team as a whole or by a majority of team members. The contributions of various team members should be treated as nothing more than that. One person (typically the Procurement Manager of the customer and the supplier’s Bid Manager) should have overall control of the process for the supplier or customer and should make the necessary decisions after appropriate consultation with members of the team.

It is not unusual for a major customer procurement to be subject to oversight by a Steering Committee. This is quite acceptable although it is preferable that the Steering Committee focuses on high level issues.

How do I ensure clear communication between team members?

Technobabble and legal jargon make poor bed fellows.

Although it may be considered tedious by some involved, time should be spent at the outset of the project and during the evaluation to confirm that the various members of the team have an adequate understanding of matters outside their own area of expertise.

The legal adviser will need a reasonably detailed understanding of the project in order to adequately identify project risks and issues and to make soundly based recommendations on preferred and alternative approaches to those risks and issues.

One of the most common sources of project disputes is poor scope definition. A legal adviser cannot effectively assist with the precise definition of scope unless he has a very good understanding of the technical side of the project.

The customer’s Procurement Manager and the supplier’s Bid Manager will need a clear explanation of issues and options from the legal and financial advisers to enable soundly based decisions to be made.

It is human nature to resist doing anything that might display “ignorance”. A culture should be established from the outset that encourages team members to seek further clarification whenever anything is not clear. This should be reinforced regularly by the team leader.

For highly technical projects, it may be desirable to provide team members with a glossary of the many acronyms and technical terms which may be used during the process.

How do I control communication between my team and the other party?

Rules of engagement should be established at the outset which stipulate that all communications between the parties must be channeled through a nominated representative of each party.

At times, it may be appropriate for communication to take place directly between specialist team members. However, any departure from the standard communication protocol should be forbidden unless both the nominated representatives have approved the alternative channel of communication.

© 2009 Richard Pryor & Associates – The content of this tip sheet is subject to copyright and may not be translated, adapted, reproduced, broadcast or transmitted in whole or part without the express written permission of the author.

Important disclaimer – This tip sheet provides general comment. It does not constitute advice on any matter. No reader should act on the basis of any content without obtaining and considering professional advice upon their own circumstances. Richard Pryor & Associates and its officers and agents hereby disclaim any liability to any person with respect to the consequences of anything done or omitted to be done in reliance upon any of the content.

For further advice on ICT procurement and supply negotiations, contact Richard Pryor – richard@pryor.com.au