Negotiating With Government Organisations

8/12/2019 Negotiating With Government Organisations

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Negotiating with Government

OrganizationsP.P.Sengupta



Importance of Public procurement

• Public Procurement largest Procurement in thecountry

• Government of India, State Governments, CentralPSUs, State PSUs, Municipal Corporations , PublicUtilities, Universities, Institutes .

• Total annual value of purchase currently = Rs.6,50,000 Crore (100 billion $) per annum ≈ 30%of India's Gross Domestic Product (GDP)

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Importance of Public Procurement

• Every working day, theGovernment awardscontracts worth an averageof Rs 1857 crores .

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Principles of Public Procurement

• To procure materials/services ofthe specified quality within thespecified time at the mostcompetitive prices in a fair, just

and transparent manner.



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How Public Buying Is Different

• Significant role in domestic economy• Transparency is of utmost importance• Non-discrimination• Equal opportunity to all• A buyer in a private sector treats sources, prices,

specifications as strategically important and so

confidential• For a public buyer it is just the opposite



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GFR: The Genesis of Public BuyingPrinciples in India

1. No publicprocurement law inIndia yet. Bill passedby cabinet in 2012.

2. Purchase andcontract governed bySale of Goods act1930 and IndianContracts act 1872

3. Principles derivedfrom GFR, 1963,amended as GFR2005 in July 2005

1. Transparency ofDecisions

2. Open and faircompetition

3. Non discrimination4. Value for money5. Clear set of rules6. Check and control built

within system7. Process subject to

audit



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Principles of Public Buying.(As Per GFR-2005)

• Efficiency, Economy, Transparency, Fairness &Equitability and Competition in Procurement.

• Clear and complete specifications in the tenders,free

of any ambiguity, deficiency• Correct Quantity Estimations.• Well publicised tendering and bidding procedures.•

Well recorded deliberations in decision making-• No arbitrariness .



The Buyer’s Perspective

A typical Government buyer



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Cannons Of Public Buying as per GFR

Five watch words1. Transparency

2. Fairness3. Value for money4. Quality

5. Time



Cannons Of Public Buying as per GFR• Specifications in terms of quality• Need based procurement• Fair, Reasonable & Transparent procedure• Reasonableness of Rate• Each stage of procurement should be

recorded



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CVC Guidelines: Negotiations

Circular No. 4/3/07, 3rd March, 2007As post tender negotiations could often be asource of corruption, it is directed that thereshould be no post-tender negotiations with L-1,except in certain exceptional situations. Suchexceptional situations would include, procurementof proprietary items, items with limited sources of

supply and items where there is suspicion of acartel formation. The justification and details ofsuch negotiations should be duly recorded anddocumented without any loss of time.



Negotiations can be done in veryspecial cases

• The selection of contractors by negotiation is anexception rather than rule and may be resorted to,when : –

• (a) Where all the tenders are considered to be

unreasonably high in price and it is felt that re-tendering would not secure better offer.• (b) Where the lowest tender is technically not

acceptable or is rejected because of unsatisfactorycredentials, inadequacy of capacity or unworkablerates and next higher offer to be considered inaccordance with the established procedure is found tobe unreasonably high.

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• (c) Where in the case of proprietary items ofstores, the price quoted is considered to beunreasonably high.

• The decision whether to invite fresh tendersor to negotiate should be taken by thecompetent authority after obtaining therecommendations of the Tender Committee

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• Thus negotiation, if inescapable, may be held onlywith the lowest tenderer.

• a) The lowest tenderer to be called in fornegotiations should be addressed as laid down ,sothat the rates originally quoted by them shallremain open for acceptance in the event of failureof negotiation .

• (b) In case, however, the selected tenderer prefersto send a revised bid instead of being present atthe negotiation, the offer should be taken intoaccount .

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Competition Act 2002

• The broad objectives of the Competition Act,as laid down in its preamble are:

• "to prevent practices having adverse effect oncompetition, to promote and sustaincompetition in markets, to protect the interestof the consumers and to ensure freedom oftrade carried on by other participants inmarkets in India"

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Competition Act 2002• Section 3(3)of the Competition Act, 2002 defines "bid- rigging“: • Any agreement, between enterprises or persons referred to in

Section 3(3) engaged in identical or similar production ortrading of goods or provision of services;

• Which has the effect of eliminating or reducing competition forbids or adversely affecting or manipulating the process forbidding.

• Presumption of “appreciable adverse effect onCompetition”(AAEC) if they fix prices, limit or controlproduction/supply, allocate customers/territories or relate tobid rigging

• All forms of agreements are covered, whether written, oral, ora “wink and a nod”

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Price Negotiations as per draft Publicprocurement law

Art 14. No price negotiations shall ordinarilytake place between the procuring entity andBidder with respect to a bid presented by theBidder other than as specifically authorisedunder the provisions of this Act or the Rules.Provided, where negotiations take place, reasons for

the necessity of negotiations shall be recorded bythe procuring entity in writing



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Single source procurement. 32. (1) (a) the subject matter of procurement is available only from a

particular prospective bidder, or a particular prospective bidder hasexclusive rights in respect of the subject matter of procurement,such that no reasonable alternative or substitute source exists, andthe use of any other procurement method would therefore not bepossible; or

(b) owing to a sudden unforeseen event there is an extremely urgentneed for the subject matter of procurement, and engaging in anyother method of procurement would be impractical; or

(c) the procuring entity, having procured goods, equipment,technology or services from a supplier, determines that additionalsupplies or services must be procured from that supplier forreasons of standardization or because of the need for compatibilitywith existing goods, equipment, technology or services;



The Seller’s perspective

B2B vs. B2C Market



Business Market vs Consumer Market

• A business market comprises all theorganizations ,that buy goods and services foruse in the production of other products andservices that are sold, rented, or supplied toothers.

• The business market is huge and involvesmany times more Crores of Rs of goods thando consumer markets.

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Business Market vs Consumer Market

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Characteristics of Business Buying



Negotiation perspective in BusinessBuying

• Four Ps of B2B Market• Product

• Price• Place

• Promotion

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Major Types of Business Buying• Straight rebuy is a routine purchase

decision such as a reorder without anymodification

• Modified rebuy is a purchase decisionthat requires some research where thebuyer wants to modify the productspecification, price, terms, or suppliers

• New task is a purchase decision thatrequires thorough research such as a newproduct

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Participants in the Business BuyingProcess

The decision making unit of a buyingorganization is called a buying centre . Itconsists of :-

• Initiators• Users• Influencers

• Buyers• Deciders• Gatekeepers

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Buying Centre roles• Users

•

Influencers

• Buyers

• people in the organization whoactually use the product orservice.

• Impacts the buying decision,usually by helping define thespecifications for what is bought.

• Have the formal authority andresponsibility to select thesupplier and negotiate the termsof the contract.

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Buying Centre roles• Users

•

Influencers

• Buyers

• people in the organization whoactually use the product orservice.

• Impacts the buying decision,usually by helping define thespecifications for what is bought.

• Have the formal authority andresponsibility to select thesupplier and negotiate the termsof the contract.

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Buying Centre roles

• Deciders

• Gatekeepers

• Have the formal or informalpower to select or approve thesupplier that receives the

contract.

• Control the flow of informationto other members of the buyingcenter.

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Procurement procedures in

Government



Procurement procedures in Government

• The open procedure• This is where all interested suppliers are asked to

return tenders by a set date. These are then

evaluated and the contract is awarded. It may be2 stage or 3 stage process• The restricted procedure• In this procedure the shortlisted suppliers are

invited to respond to an Invitation to Tender (RFP). The tenders are then evaluated and thecontract awarded.

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Procurement procedures inGovernment

• The competitive dialogue procedure• This procedure is used for more complex

procurements. After a selection process, thebuyer then negotiates with suppliers andinvites chosen companies to put in a bid.Suppliers put in their tenders and the contract

is awarded.

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Framework agreements

• If a public sector organisation knows they arelikely to need particular goods or services, butare unsure about exactly what they’ll need orwhen, they may decide to set up a group ofapproved suppliers that they can use whennecessary. This is called a ‘framework

agreement’. The prices for a period are fixedby a competitive bidding procedure.

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The tendering process

• Once you’ve found a contract you might want to bidfor, read it carefully to decide whether your businesscan do the work. If you’ve got any questions about thecontract, you can contact the organisation for moreinformation.

• Before you bid, you may have to send an ‘expression ofinterest’. This is an initial stage of the tendering processthat helps buyers to see who’s interested in bidding

and draw up a short-list of possible suppliers. You maybe asked for information about your finances andexperience, or references from previous clients.

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The tendering process

• If you’re put on the short -list, you’ll get an‘Invitation to tender’ or a contract noticeinviting you to bid for the contract.

• The contract notice and bid documents willexplain what you need to do to submit yourtender.

• Submit your tender with all the requiredinformation before the deadline.

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Forming a consortium

• A consortium is where a group of suppliersagree to work together to tender for contractsto deliver public services.

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Approved supplier lists and accreditation

• Many public-sector organisations hold lists ofpotential suppliers for certain types of work,usually for lower-value contracts below thevalue set in the procurement directives.

• If an organisation has such a list, it must stilladvertise any contract above the prescribed

value. The nature of these lists varies betweenorganisations.

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Approved supplier lists andaccreditation

• Many a times , an advertisement is publishedfor such empanelment from time to time.

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Preparation for Negotiation

• Do homework and understandthe challenges of government

organization prior to meeting

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Important do’s and do’nts

• Timing• When tendering for a public-sector contract,

you will be given deadlines for providinginformation and documents to the buyer.

• These deadlines are important and you shouldmake sure you meet all requests on time.

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Patience

• Be patient, as the procedure from the firstadvert to awarding the contract can takemonths.

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Practicalities

• Make sure you know, early on in theprocedure, what format you will have to useto fill in the buyer’s documents.

• You also need to know what timescales youare working.

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Scope of Negotiation in

Government PurchaseA premier



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Distributive and Integrative strategies innegotiation

• In distributive negotiation the parties think of the items beingnegotiated as fixed and each party tries to get the most for himself.Usually there is just one issue for negotiation and more for memeans less for you. Negotiators are negotiation over thedistribution of profit on the negotiation range. This is a "zero sum"negotiation.

• During integrative negotiation the parties are working together toincrease the amount of resources and to maximize mutual gain.Integrative negotiation requires two or more issues so that tradescan be made. Creating the additional resources is sometimesreferred to as "expanding the pie." Some would call this "Win-Win"

negotiating.• The theory here is that the parties have different interests whichcan be integrated (reconciled) to create joint gains. Joint gains arean improvement for all parties to a negotiation..



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Distributive Basics

• Distributive negotiation is appropriate in "divide thepie" situations, when there is a fixed amount ofresources and whatever one party gains, the otherparty loses

• Usually it's employed when the parties don't knoweach other and don't believe they will need todevelop a relationship with each other for use in thefuture.

• A distributive approach to negotiation is usually whatwe encounter when we make a routine purchase.



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Integrative Basics

• An integrative negotiation situation occurs when it'spossible to produce a greater outcome together thaneither could reach on his own.

• It's used when the parties have a relationship orwant to establish one, and when cooperationbenefits both parties.

• There are often multiple issues to address, and thenegotiations can be complex and ongoing. Most of ususe integrative negotiation between businesspartners.



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Fixed Pie

• In a distributive negotiation , in which theparticipants are trying to divide a "fixed pie," it ismore difficult to find mutually acceptable solutions

as both sides want to claim as much of the pie aspossible.• Distributive negotiations over a single issue tend to

be zero-sum -- there is a winner and a loser. There is

no overlap of interests between the parties;therefore, no mutually beneficial agreement ispossible.

http://www.beyondintractability.org/bi-essay/distributive-bargaining

http://www.beyondintractability.org/bi-essay/sum




http://www.beyondintractability.org/bi-essay/distributive-bargaining



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Enlarge the pie• On the other hand, integrative negotiations involve creating

value or "enlarging the pie." This is possible when partieshave shared interests or are dealing with multiple issues.

• In an integrative negotiation, the parties can combine their

interests to create joint value. To achieve integration,negotiators can deal with multiple issues at the same timeand make trades between them. This is so that I might getmore of something that I value while you get more ofsomething that you value. That way both parties can "win,"

even though neither gets all that they originally thought theywanted.

http://www.beyondintractability.org/bi-essay/interest-based-bargaining

http://www.beyondintractability.org/bi-essay/interest-based-bargaining



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Distributive Tactics

• In distributive bargaining, it's best to keepinformation to yourself while trying to getinformation out of the other party.

• Let them make the first offer, since this lets you knowwhat they're willing to give up. Do tell them aboutalternatives you have, such as competing offers forwhat you're selling, or interest in a product thatcompetes with the one they're selling if you're thebuyer. But be willing to make concessions in order toreach a realistic outcome.



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Integrative Tactics

• Determine your list of priorities, and make a guessabout the other party's priorities as well.

• Share information with each other, being honestabout your priorities; often something critical to one

side is a minor concession to the other, and viceversa.• Find and offer solutions that produce the most gain

for the other party as well as for yourself.•

Remember that you will be in other negotiationsituations with the other side in the future, and bewilling to compromise when needed to buildgoodwill for later.



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Position and interest• A Position is a demand or a preferred course of action. It is

specific. It involves doing, taking a stand on one’s belief. Aposition is “If you don’t do that, then I’ll to do this”.

• An Interest is the reason(s) for a position or an objective. Aninterest is what the parties seek to fulfill.

• Positions are stand negotiators take about an issue• Interests are the reasons to take that position.



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Position and interest• Interest-based negotiation is a method of negotiating that focuses on

meeting the underlying concerns, needs or interests of the partiesinvolved in the negotiation. The parties are encouraged to communicatewhat is important about an issue rather than arguing for a specific positionor solution. This type of negotiation allows the parties to understandwhere the other party is coming from and is cooperative.

• Position-based or positional negotiation is the traditional method ofbargaining. The parties each commit to a position early in the process andthink only of their own wants and needs. It is an adversarial method ofnegotiation and pits the parties against one another. There is little focuson future relationships.

H l h i ?



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How can you enlarge the pie ?Examples of what you may ask for .

• Long term procurement plans• Collaborative agreement• Awards, recognition, certification• Larger quantity• Relaxed delivery period• Waiver of LD• Waiver of security deposit/

Performance bond• Pilot testing facility• Partnerships in R&D projects• Quicker payments• Settling of long pending issues• Confirmation/ Splitting of LC• “Woolly -necked Stork “

• If he has high inventory or cash flowproblems- help

• Make one of you a member of aninternal panel/Study group

• Productivity Incentives/Bonus• Subscription to company’s

publications• Resolution of disputes• Withdrawal of court cases• Withdrawal of suspension, banning

order• Inclusion as registered supplier•

Courtesy , pleasantry , good will• Source code of legacy systems• Free boarding / lodging for

employees at site

H l h i ?



How can you enlarge the pie ?Examples of what you may give .

• Sharing of engineering design data,drawings, material specs

• Information about technologydirection, trends

• Information about alternatematerials, innovative technology

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Earlier delivery/Holiday delivery/later delivery• Trouble shooting, help lines• One person responsible for a/c• Access to knowledge portals,

subscribed database• Version updation support• White papers , knowledge docs• Support in holding seminars,

conferences• Privileged delegate status

• Info about sub contractors , sources ,prices

• Info about bought out items, sources,price

• Factory training of managers,operators

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Simulators for training• Spare parts support• Operators manual, part book

maintenance manuals• Long term agreements• Life time spares support• Acceptance testing methodology• Agreed benches for testing• Membership of expert panels,

premium clubs• Photo opportunities in events

Documents

Negotiating With Government Organisations