Differences in Negotiation for Public Procurement vs the Private Sector

@Jonathan O’Brien just wrote a great post on the differences in negotiation in the public sector and private sector for contracting and procurement, particularly in the European context. What do people think of the differences that he cites and the solutions he provides?

I think that piece Negotiation In Public Sector Procurement – Why Does It Matter? by @Peter Smith is also a good companion.

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John Bugnacki
Community Engagement Manager
Public Spend Forum
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0

Replies

  1. I didn’t have quite the reaction to the BATNA comments from @Joseph Sandor, and I admit that I probably don’t use the term “negotiate” every time I engage suppliers, as in “Let’s negotiate this relationship.”┬á But from the time of the first interaction, there are interests at stake and some options that will be perceived more favorably by suppliers (and me) than others. So it is a negotiation.

    I am a United States attorney and have experience in both the federal and state procurement arenas.  I agree that are differences in public and private negotiation, notably the concepts of equity and fairness that attend public procurement (and perhaps also affect private supplier relationships?).  I personally like the BATNA approach to planning because an inability to come to an agreement is one possible outcome.  The BATNA highlights the interests and options when moving towards either a close or a decision to abandon the negotiation. 

    But I also have puzzled at the implications of “expanding the pie,” and as @Peter Smith noted, how it gets sliced.┬á From a power perspective, there may be different contributions to the pie-expansion that warrant different sized slices.┬á Again, negotiation.┬á

    As I hinted a few weeks ago in Two Faces of Negotiation in Public Procurement, there is considerable evolution in the relevance of trust in negotiations that may require us to revisit the ideas of interests, standards for agreement, options, and BATNA.┬á And add relationship considerations in a different way.┬á For example, Agile development is more responsive to change but also introducing concepts like “indicative fixed price” that challenges traditional negotiation strategies.┬á And the Vested┬« collaborative relationship-approach born in the University of Tennessee also has raised questions like, “Why not disclose BATNAs?”┬á And “Why aren’t we being more open-book on cost?”┬á

    There is some solace in the fact that we are having these discussions about the guiding principles popularized by the Harvard Negotiation Project, while many in my legal profession are still discussing how to be more civil to one another.┬á And whether emotional flooding by being mean-and other so-called “dirty tricks”-is an acceptable (or effective) strategy in negotiations because it interjects errors by the “other side.

    Great conversation!  

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    Richard Pennington
    General Counsel
    NASPO ValuePoint
    Glendale, Colorado
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    ——————————————-
    Original Message:
    Sent: 08-09-2017 09:01
    From: Peter Smith
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    I’ve only just caught up with the diatribe about BATNA from @Joseph Sandor. I find it inexplicable … I assume the bullet points are intended to be ironic i.e. not good advice and I would agree. But I do wonder if you / he understands what BATNA means? It is not a negotiating tactic – it is about talking decisions and business actions to put yourself in the best position so that you do have an alternative if the supplier is not prepared to be reasonable. I cannot for the life of me see why anyone would not want to do that.

    The idea that my lovely strategic suppliers / partners are going to “share costs”, give me their best IP and ideas, collaborate etc. if they know that I have no alternative to buying from them is naive at best. I bought a raw material in my first procurement role that was ESSENTIAL for a food product we made. We only had one supplier that met the spec. I wanted to collaborate and share ideas; they just wanted to tell me what they were going to charge us for the coming year, which they did. And we paid it. Power does come into negotiation. And even if we work together to “increase the size of the cake”, which should always be the goal in all except the simplest negotiation, there is still the question about how we allocate the cake. If we agree actions that create another $1M of value, how do we split that? If your answer is “50:50” then that is as simplistic an approach as anything in the bullet point list!

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    Peter Smith
    Managing Director
    Public Spend Forum Europe
    ——————————

    Original Message:
    Sent: 06-01-2017 17:35
    From: Joseph Sandor
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    food for thought – some private sector exemplars like Simon Nagata (previously Toyota’s CPO now President) believes that negotiation is the tactic needed when one doesn’t understand cost.┬á He’ll quickly add, but one should never not understand cost.┬á Regardless, conventional wisdom teaches that negotiations begin with a BATNA.

    BATNA Definition – from Fisher and Ury meaning Best Alternative to a Negotiated Agreement. BATNA is the recommended alternative action should your proposed agreement with another party fail to materialize ΓÇô typically, because the buyer won’t go any higher and the seller won’t go any lower. If the results of your current negotiation offer a value that is less than your BATNA, there is no point in proceeding with the negotiations ΓÇô they have failed – use your best available alternative instead. Before negotiating, opponents should determine their own BATNAs and be prepared to “walk away” from the negotiations if their BATNA isn’t achieved.

    Sandor definition ΓÇô BATNA is just another term for price haggling best used when costs are unknown or too sketchy or relationships are underdeveloped. (I’ll have to ask my manager nonsense). I’m astonished that people still make money selling and teaching a concept so obvious. Some call it Power Negotiating ΓÇô make yourself some flash cards:

    • You don’t get what you deserve, you get what you negotiate (Karrass ‘Fortune without Luck’ ads in all airline magazines).
    • You’re always negotiating since everything you want is controlled by someone else.
    • Critical negotiating factors are power, info/prep, technique and time.
    • The other party is always the opponent you must beat (because they’re trying to beat you).
    • You’ll be taught how to sit, interpret body language, be good cop/bad cop, when to flinch, how to cast red herrings and manage the physical negotiating environment.
    • Remember: Never accept the 1st offer; Never reveal your budget and; Never share your deadline.
    • Exaggerate your minor concessions and demand large concessions in return.
    • Write the contract.
    • Suppliers exist to steal your profits

    An alternative to the above nonsense is strategic supply management. Negotiations don’t occur in the traditional sense ΓÇô instead, collaborators share costs, develop alternatives, mutually solve problems and create knowledge. If you feel compelled to use the word negotiation – (which I don’t recommend) – append the word negotiation with “fact-based”, “problem-solving”, “innovation generating” ΓÇô you get the picture.

    Ask questions like: What’s important to you that might not be important to me? How do we add costs to one another that can be reduced or eliminated? How can we lower my TCO while increasing your margins? What do others do that seem better than what we are doing? Again, you get the picture. Power Negotiating is akin to writing a letter demanding a price reduction ΓÇô simple to do but, sorry folks, it ain’t strategic or sustainable and will not confer absolute competitive advantage.

    ——————————
    Joseph Sandor
    Professor
    Michigan State University

    Original Message:
    Sent: 06-01-2017 12:55
    From: John Bugnacki
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    Jonathan O’Brien just wrote a great post on the differences in negotiation in the public sector and private sector for contracting and procurement, particularly in the European context. What do people think of the differences that he cites and the solutions he provides?

    I think that Peter Smith’s piece Negotiation In Public Sector Procurement – Why Does It Matter?┬áis also a good companion.

    ——————————
    John Bugnacki
    Community Engagement Manager
    Public Spend Forum
    ——————————

    0
  2. I’ve only just caught up with the diatribe about BATNA from @Joseph Sandor. I find it inexplicable … I assume the bullet points are intended to be ironic i.e. not good advice and I would agree. But I do wonder if you / he understands what BATNA means? It is not a negotiating tactic – it is about talking decisions and business actions to put yourself in the best position so that you do have an alternative if the supplier is not prepared to be reasonable. I cannot for the life of me see why anyone would not want to do that.

    The idea that my lovely strategic suppliers / partners are going to “share costs”, give me their best IP and ideas, collaborate etc. if they know that I have no alternative to buying from them is naive at best. I bought a raw material in my first procurement role that was ESSENTIAL for a food product we made. We only had one supplier that met the spec. I wanted to collaborate and share ideas; they just wanted to tell me what they were going to charge us for the coming year, which they did. And we paid it. Power does come into negotiation. And even if we work together to “increase the size of the cake”, which should always be the goal in all except the simplest negotiation, there is still the question about how we allocate the cake. If we agree actions that create another $1M of value, how do we split that? If your answer is “50:50” then that is as simplistic an approach as anything in the bullet point list!

    ——————————
    Peter Smith
    Managing Director
    Public Spend Forum Europe
    ——————————
    ——————————————-
    Original Message:
    Sent: 06-01-2017 17:35
    From: Joseph Sandor
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    food for thought – some private sector exemplars like Simon Nagata (previously Toyota’s CPO now President) believes that negotiation is the tactic needed when one doesn’t understand cost.┬á He’ll quickly add, but one should never not understand cost.┬á Regardless, conventional wisdom teaches that negotiations begin with a BATNA.

    BATNA Definition – from Fisher and Ury meaning Best Alternative to a Negotiated Agreement. BATNA is the recommended alternative action should your proposed agreement with another party fail to materialize ΓÇô typically, because the buyer won’t go any higher and the seller won’t go any lower. If the results of your current negotiation offer a value that is less than your BATNA, there is no point in proceeding with the negotiations ΓÇô they have failed – use your best available alternative instead. Before negotiating, opponents should determine their own BATNAs and be prepared to “walk away” from the negotiations if their BATNA isn’t achieved.

    Sandor definition ΓÇô BATNA is just another term for price haggling best used when costs are unknown or too sketchy or relationships are underdeveloped. (I’ll have to ask my manager nonsense). I’m astonished that people still make money selling and teaching a concept so obvious. Some call it Power Negotiating ΓÇô make yourself some flash cards:

    • You don’t get what you deserve, you get what you negotiate (Karrass ‘Fortune without Luck’ ads in all airline magazines).
    • You’re always negotiating since everything you want is controlled by someone else.
    • Critical negotiating factors are power, info/prep, technique and time.
    • The other party is always the opponent you must beat (because they’re trying to beat you).
    • You’ll be taught how to sit, interpret body language, be good cop/bad cop, when to flinch, how to cast red herrings and manage the physical negotiating environment.
    • Remember: Never accept the 1st offer; Never reveal your budget and; Never share your deadline.
    • Exaggerate your minor concessions and demand large concessions in return.
    • Write the contract.
    • Suppliers exist to steal your profits

    An alternative to the above nonsense is strategic supply management. Negotiations don’t occur in the traditional sense ΓÇô instead, collaborators share costs, develop alternatives, mutually solve problems and create knowledge. If you feel compelled to use the word negotiation – (which I don’t recommend) – append the word negotiation with “fact-based”, “problem-solving”, “innovation generating” ΓÇô you get the picture.

    Ask questions like: What’s important to you that might not be important to me? How do we add costs to one another that can be reduced or eliminated? How can we lower my TCO while increasing your margins? What do others do that seem better than what we are doing? Again, you get the picture. Power Negotiating is akin to writing a letter demanding a price reduction ΓÇô simple to do but, sorry folks, it ain’t strategic or sustainable and will not confer absolute competitive advantage.

    ——————————
    Joseph Sandor
    Professor
    Michigan State University
    ——————————

    Original Message:
    Sent: 06-01-2017 12:55
    From: John Bugnacki
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    Jonathan O’Brien just wrote a great post on the differences in negotiation in the public sector and private sector for contracting and procurement, particularly in the European context. What do people think of the differences that he cites and the solutions he provides?

    I think that Peter Smith’s piece Negotiation In Public Sector Procurement – Why Does It Matter?┬áis also a good companion.

    ——————————
    John Bugnacki
    Community Engagement Manager
    Public Spend Forum
    ——————————

    0
  3. @Joseph Sandor┬áI especially like you conclusion referencing “problem-solving” and “innovation generating”. While knowing your BATNA at the outset is important, often it’s about finding these win/win solutions (another Ury & Fry premise), your alluded to, ┬áthat avoids ‘leaving money on the table’. Such solutions can benefit one side without costing the other. In my 20+ years in supply chain I have found that rind the best solution for all parties is often the least costly, when a Total Cost of Ownership is analysis is performed.

    While negotiation processes in public sector do require a high adherence to transparency and equal treatment, these are ethical behaviours most professional supply chain association demand regardless of public or private sector. BAFO (Best & Final offer/ concert negotiations) are more challenging than a consecutive negotiation process, but principled negotiations are absolutely possible.

    ——————————
    Wendy Bonnie
    Winnipeg MB CANADA
    ——————————
    ——————————————-
    Original Message:
    Sent: 06-01-2017 17:35
    From: Joseph Sandor
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    food for thought – some private sector exemplars like Simon Nagata (previously Toyota’s CPO now President) believes that negotiation is the tactic needed when one doesn’t understand cost.┬á He’ll quickly add, but one should never not understand cost.┬á Regardless, conventional wisdom teaches that negotiations begin with a BATNA.┬á

    BATNA Definition – from Fisher and Ury meaning Best Alternative to a Negotiated Agreement. BATNA is the recommended alternative action should your proposed agreement with another party fail to materialize ΓÇô typically, because the buyer won’t go any higher and the seller won’t go any lower. If the results of your current negotiation offer a value that is less than your BATNA, there is no point in proceeding with the negotiations ΓÇô they have failed – use your best available alternative instead. Before negotiating, opponents should determine their own BATNAs and be prepared to “walk away” from the negotiations if their BATNA isn’t achieved.

    Sandor definition ΓÇô BATNA is just another term for price haggling best used when costs are unknown or too sketchy or relationships are underdeveloped. (I’ll have to ask my manager nonsense). I’m astonished that people still make money selling and teaching a concept so obvious. Some call it Power Negotiating ΓÇô make yourself some flash cards:

    • You don’t get what you deserve, you get what you negotiate (Karrass ‘Fortune without Luck’ ads in all airline magazines).
    • You’re always negotiating since everything you want is controlled by someone else.
    • Critical negotiating factors are power, info/prep, technique and time.
    • The other party is always the opponent you must beat (because they’re trying to beat you).
    • You’ll be taught how to sit, interpret body language, be good cop/bad cop, when to flinch, how to cast red herrings and manage the physical negotiating environment.
    • Remember: Never accept the 1st offer; Never reveal your budget and; Never share your deadline.
    • Exaggerate your minor concessions and demand large concessions in return.
    • Write the contract.
    • Suppliers exist to steal your profits

    An alternative to the above nonsense is strategic supply management. Negotiations don’t occur in the traditional sense ΓÇô instead, collaborators share costs, develop alternatives, mutually solve problems and create knowledge. If you feel compelled to use the word negotiation – (which I don’t recommend) – append the word negotiation with “fact-based”, “problem-solving”, “innovation generating” ΓÇô you get the picture.

    Ask questions like: What’s important to you that might not be important to me? How do we add costs to one another that can be reduced or eliminated? How can we lower my TCO while increasing your margins? What do others do that seem better than what we are doing? Again, you get the picture. Power Negotiating is akin to writing a letter demanding a price reduction ΓÇô simple to do but, sorry folks, it ain’t strategic or sustainable and will not confer absolute competitive advantage.

    ——————————
    Joseph Sandor
    Professor
    Michigan State University
    ——————————
    ——————————————-
    Original Message:
    Sent: 06-01-2017 12:55
    From: John Bugnacki
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    Jonathan O’Brien just wrote a great post on the differences in negotiation in the public sector and private sector for contracting and procurement, particularly in the European context. What do people think of the differences that he cites and the solutions he provides?┬á

    I think that Peter Smith’s piece Negotiation In Public Sector Procurement – Why Does It Matter?┬áis also a good companion.

    ——————————
    John Bugnacki
    Community Engagement Manager
    Public Spend Forum
    ——————————

    0
  4. Joe (@Joseph Sandor) – i think you make some great points here. ┬áNegotiation on price without a real focus on total cost management is a fruitless exercise as we are still not looking at strategic opportunities to take out waste across an entire value chain. Unfortunately i think we’re a long ways off until we get to a point where people really focus on total cost. ┬áit requires a massive culture shift in both public and private sectors.

    ——————————
    Raj Sharma
    Public Spend Forum
    Washington DC
    ——————————
    ——————————————-
    Original Message:
    Sent: 06-01-2017 17:35
    From: Joseph Sandor
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    food for thought – some private sector exemplars like Simon Nagata (previously Toyota’s CPO now President) believes that negotiation is the tactic needed when one doesn’t understand cost.┬á He’ll quickly add, but one should never not understand cost.┬á Regardless, conventional wisdom teaches that negotiations begin with a BATNA.┬á

    BATNA Definition – from Fisher and Ury meaning Best Alternative to a Negotiated Agreement. BATNA is the recommended alternative action should your proposed agreement with another party fail to materialize ΓÇô typically, because the buyer won’t go any higher and the seller won’t go any lower. If the results of your current negotiation offer a value that is less than your BATNA, there is no point in proceeding with the negotiations ΓÇô they have failed – use your best available alternative instead. Before negotiating, opponents should determine their own BATNAs and be prepared to “walk away” from the negotiations if their BATNA isn’t achieved.

    Sandor definition ΓÇô BATNA is just another term for price haggling best used when costs are unknown or too sketchy or relationships are underdeveloped. (I’ll have to ask my manager nonsense). I’m astonished that people still make money selling and teaching a concept so obvious. Some call it Power Negotiating ΓÇô make yourself some flash cards:

    • You don’t get what you deserve, you get what you negotiate (Karrass ‘Fortune without Luck’ ads in all airline magazines).
    • You’re always negotiating since everything you want is controlled by someone else.
    • Critical negotiating factors are power, info/prep, technique and time.
    • The other party is always the opponent you must beat (because they’re trying to beat you).
    • You’ll be taught how to sit, interpret body language, be good cop/bad cop, when to flinch, how to cast red herrings and manage the physical negotiating environment.
    • Remember: Never accept the 1st offer; Never reveal your budget and; Never share your deadline.
    • Exaggerate your minor concessions and demand large concessions in return.
    • Write the contract.
    • Suppliers exist to steal your profits

    An alternative to the above nonsense is strategic supply management. Negotiations don’t occur in the traditional sense ΓÇô instead, collaborators share costs, develop alternatives, mutually solve problems and create knowledge. If you feel compelled to use the word negotiation – (which I don’t recommend) – append the word negotiation with “fact-based”, “problem-solving”, “innovation generating” ΓÇô you get the picture.

    Ask questions like: What’s important to you that might not be important to me? How do we add costs to one another that can be reduced or eliminated? How can we lower my TCO while increasing your margins? What do others do that seem better than what we are doing? Again, you get the picture. Power Negotiating is akin to writing a letter demanding a price reduction ΓÇô simple to do but, sorry folks, it ain’t strategic or sustainable and will not confer absolute competitive advantage.

    ——————————
    Joseph Sandor
    Professor
    Michigan State University
    ——————————
    ——————————————-
    Original Message:
    Sent: 06-01-2017 12:55
    From: John Bugnacki
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    Jonathan O’Brien just wrote a great post on the differences in negotiation in the public sector and private sector for contracting and procurement, particularly in the European context. What do people think of the differences that he cites and the solutions he provides?┬á

    I think that Peter Smith’s piece Negotiation In Public Sector Procurement – Why Does It Matter?┬áis also a good companion.

    ——————————
    John Bugnacki
    Community Engagement Manager
    Public Spend Forum
    ——————————

    0
  5. food for thought – some private sector exemplars like Simon Nagata (previously Toyota’s CPO now President) believes that negotiation is the tactic needed when one doesn’t understand cost.┬á He’ll quickly add, but one should never not understand cost.┬á Regardless, conventional wisdom teaches that negotiations begin with a BATNA.┬á

    BATNA Definition – from Fisher and Ury meaning Best Alternative to a Negotiated Agreement. BATNA is the recommended alternative action should your proposed agreement with another party fail to materialize ΓÇô typically, because the buyer won’t go any higher and the seller won’t go any lower. If the results of your current negotiation offer a value that is less than your BATNA, there is no point in proceeding with the negotiations ΓÇô they have failed – use your best available alternative instead. Before negotiating, opponents should determine their own BATNAs and be prepared to “walk away” from the negotiations if their BATNA isn’t achieved.

    Sandor definition ΓÇô BATNA is just another term for price haggling best used when costs are unknown or too sketchy or relationships are underdeveloped. (I’ll have to ask my manager nonsense). I’m astonished that people still make money selling and teaching a concept so obvious. Some call it Power Negotiating ΓÇô make yourself some flash cards:

    • You don’t get what you deserve, you get what you negotiate (Karrass ‘Fortune without Luck’ ads in all airline magazines).
    • You’re always negotiating since everything you want is controlled by someone else.
    • Critical negotiating factors are power, info/prep, technique and time.
    • The other party is always the opponent you must beat (because they’re trying to beat you).
    • You’ll be taught how to sit, interpret body language, be good cop/bad cop, when to flinch, how to cast red herrings and manage the physical negotiating environment.
    • Remember: Never accept the 1st offer; Never reveal your budget and; Never share your deadline.
    • Exaggerate your minor concessions and demand large concessions in return.
    • Write the contract.
    • Suppliers exist to steal your profits

    An alternative to the above nonsense is strategic supply management. Negotiations don’t occur in the traditional sense ΓÇô instead, collaborators share costs, develop alternatives, mutually solve problems and create knowledge. If you feel compelled to use the word negotiation – (which I don’t recommend) – append the word negotiation with “fact-based”, “problem-solving”, “innovation generating” ΓÇô you get the picture.

    Ask questions like: What’s important to you that might not be important to me? How do we add costs to one another that can be reduced or eliminated? How can we lower my TCO while increasing your margins? What do others do that seem better than what we are doing? Again, you get the picture. Power Negotiating is akin to writing a letter demanding a price reduction ΓÇô simple to do but, sorry folks, it ain’t strategic or sustainable and will not confer absolute competitive advantage.

    ——————————
    Joseph Sandor
    Professor
    Michigan State University
    ——————————
    ——————————————-
    Original Message:
    Sent: 06-01-2017 12:55
    From: John Bugnacki
    Subject: Differences in Negotiation for Public Procurement vs the Private Sector

    Jonathan O’Brien just wrote a great post on the differences in negotiation in the public sector and private sector for contracting and procurement, particularly in the European context. What do people think of the differences that he cites and the solutions he provides?┬á

    I think that Peter Smith’s piece Negotiation In Public Sector Procurement – Why Does It Matter?┬áis also a good companion.

    ——————————
    John Bugnacki
    Community Engagement Manager
    Public Spend Forum
    ——————————

    0
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