Negotiating Techniques for Construction Procurement

Written by Teng Chooi Min Manice, DPSM

As a professional purchaser, negotiation skills will place one at an upper hand. Besides interacting closely with the suppliers for various deals, a purchaser has to negotiate effectively with potential suppliers to get the required goods at favourable pricing, within a given working budget.

Negotiation is a communication skill whereby the process involves two parties to compromise and come to an agreement, while avoiding possible argument and dispute. Therefore, a good negotiation is vital to the success of a business, especially in construction industries. On the other hand, purchasers with poor negotiation skills usually lack in confidence and are weak in getting better quotations which can potentially bring harm to the company interest.

Security Tips for Construction Sites
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Preparation for Negotiation

To negotiate successfully, well-planned preparation is very important. First, the purchaser needs a clear understanding of the suppliers’ background and will further gain advantage by having the knowledge for bargain power. For instance, the purchaser should do research for common materials or goods and services in the market. While requesting for quotations, the purchaser is able to compare offered prices and ensures that the vendor do not offer unreasonable price. With a strong grasp of the suppliers’ background, including financial capabilities, project references,stock availability and professional certificates such as ISO certificates, the purchaser can be more prepared and make the necessary planning to enter the stage of negotiation.

The diagram below shows the procedural flow of a purchaser developing negotiating envelopes. From setting a goal, achieving the most desired outcomes, and dispatch over the least acceptance agreement, and finally comes to the terms of looking at the best alternative and eventually accepts a final negotiated agreement.

Negotiation
Source: https://sipmm.edu.sg/key-techniques-successful-procurement-negotiation/

Problem Solving

When a problem arises during negotiation, the purchaser has to find ways to overcome them successfully. With a clear-mindedhead, strong understanding of the product or material, the purchaser learns and applies the key techniques of negotiation. Therefore, problem solving in negotiation can be one of the negotiation techniques.

Interest Intersection Method

As one of the common negotiation techniques being used in the construction sector, especially for negotiating a procurement contract, Interest Intersection Method (IIM) focus and protect both supplier’s and purchaser’s company interests at the same time. Most of the suppliers may not know all possible interests until the purchaser suggests in the request. The purchaser must understand and identify the involved interests, concerns and needs for all parties. Then, through clarification and sharing, both partiers acknowledge their needs before moving forward to closing the deal. Hence, IIM is one negotiating technique for both purchaser and supplier to reach common goals and make a successful deal.

Create Win-Win Situations

To create a win-win situation, both parties achieve a result which everyone is satisfied and happy. A real win-win situation arises when the agreement has mutual satisfaction. While it is difficult to ensure everyone being satisfied during the negotiation, the purchaser has to overcome the challenges faced. As such, creating win-win situation are highly valued for long term partnership.

effective negotiations
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Communication Skills – Active Listening

To better improve the negotiation skills, the communication skill is a major strength a professional purchaser should learn. Active listening helps the negotiator to achieve successful negotiations. Active listening is not merely responding or wording in agreement but also gathers information to understand suppliers’ background for more effective communication. When the other party sees that the receiver pays attention and plays an active role in communication, the negotiator presents to be sincere.

The following points will help the negotiators achieve active listening skills for communication:

  1. Asking Questions – Negotiators need clear understanding of message conveyed by the other party. By asking questions, it will show that you are interested about what the supplier offers and willing to explore further into mutual agreement. Restructuring the questions with “Can you please explain further….” means the purchaser pays attention and makes the effort to understand the other person’s point of view.
  2. Summarize – The best way to show a purchaser having the understanding of what a supplier mentioned by summarising what the supplier has said. It is a highly effective tool during negotiation to achieve success. When a purchaser responds with “Yes, I understand, your idea is…”, it will clearly let the supplier understands that you are willing and interested in the deal.
  3. Providing Feedback –Respond to the other party your willingness to explore and discuss further, showing you have agreed to the other person’s offer or saying and also shows that you do not refuse or reject their opinions.
  4. Acknowledgement – same as responding and feedback, the acknowledgement is the best way to justify the willingness to work together towards common problem solving.
Diagram
Diagram created by Teng Chooi Min, Manice (2020)

Best Alternative to Negotiated Agreement Techniques

Best Alternative to Negotiated Agreement (BATNA) proposes an alternative for negotiators to make the right decision. Before a negotiation starts, the purchaser should consider the possibility of a failed negotiation and both parties may not besatisfied with the terms. BATNA frames the different alternatives for either side of the parties to assess the desired price and the worst case. The diagram below demonstrates the best alternative to a negotiated agreement by each party.

Building Trust in Negotiation

To acquire a powerful negotiation skill, the purchaser should gain the trust of the other party. First, understanding the different lingos and technical terms used for purchasing is an advantage. This principle helps to know the significance and implications on different cultural backgrounds, and purchasers observe how the suppliers use their language to present the ideas. Next, the purchaser gains the trust through maintaining the company’s reputation. With a good reputation, suppliers could have faith in the company’s position. They see the evidence of past success through media or trade events and look for long term partnership. Lastly, the purchaser gains trust through explaining their demands from purchaser. Companies may have constraints in budgets or space make purchases in bulk. For a good deal to occur, mutual trust is essential so that the purchaser can deliver frequent repeated orders.

Conclusion

Negotiation happens all the time, especially for business transactions. A successful negotiator must always be well-prepared (having a plan), display active listening and acquire set of skills of negotiation knowledge to achieve the objectives. Besides, it also needs to build up trustworthy relationships in the negotiation between two parties.

For the above several techniques, in order to have powerful negotiation skills for a purchaser in the company, suggestion company shall provide training and developmental programmes to employees to improve and enhance their employee negotiating skills especially with contractors in construction industries.


References

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Chew JinSwee, DPSM. (2018). “Essential Strategies for a Successful Procurement Negotiation”. Retrieved from SIPMM: https://sipmm.edu.sg/essential-strategies-successful-procurement-negotiation/, accessed 21/06/2020.

Joanne Chia Jia Rong, DPSM. (2020). “Key Techniques for Successful Procurement Negotiation”. Retrieved from SIPMM: https://sipmm.edu.sg/key-techniques-successful-procurement-negotiation/, accessed 21/06/2020.

Marc, Wins. (2017). “7 Key skills for successful negotiation”. Retrieved from http://www.procurement-academy.com/7-key-skills-successful-negotiation/, accessed 21/06/2020.

Martina Marof, DPMM. (2018). “5 Critical Strategies for a Successful Procurement or Purchasing Negotiation”. Retrieved from SIPMM: https://sipmm.edu.sg/5-critical-strategies-successful-procurement-purchasing-negotiation, 21/06/2020.

Pon Staff (2020). “Negotiation Skills: Building Trust in Negotiations Strategies You Need to Know to Build Trust in Negotiations”. Retrieved fromhttp://www.pon.harvard.edu/daily/negotiation-skills-daily/trust-in-negotiations, 21/06/2020.

About the Author: Teng Chooi Min (Manice) has substantive years of experience in the professional field of procurement for the construction industry. She holds the Bachelor in Business Management degree from Sheffield Hallam University. The nature of her work involves procurement negotiations and supply management. Manice is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM), and she completed the Diploma in Procurement and Supply Management (DPSM) on June 2020 at SIPMM Institute.

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