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Supplying Principles and Practices > USPS Supplying Practices Process Step 2: Evaluate Sources > Negotiate with Suppliers
Negotiate with Suppliers
Discussions and negotiations are not the same. Discussions are
communications between the Purchase/SCM Team and offerors. Generally,
negotiations are held with one or more suppliers after the Purchase/SCM
Team has determined through either discussions or the Proposal Evaluation
Team's recommendations, that the Supplier's (or Suppliers') proposal has the
best chance of providing the Postal Service the best value. The goal of
negotiations is to come to final agreement on contract terms and conditions,
including contract type and price.
When negotiating, the Purchase/SCM Team must remember that the Client's
needs, the purchase plan, and best value are the forces that drive all actions.
The negotiation process will also be impacted by the establishment of
detailed objectives regarding the aspects of contract performance, including:
• Technical implications
• Materials
• Logistics network
• Inventory management
• Warranties
• Payment terms
• Data and intellectual property rights
• Investment recovery and disposal
• Price
The Contracting Officer leads negotiation planning and is responsible for the
conduct of the negotiations, and will begin by attempting to resolve any points
of conflict that remain after discussions. However, depending on the issues to
be negotiated and the experience of the Purchase/SCMTeam members,
different team members may take the lead on negotiating specific issues in
accordance with the negotiation plan. Before opening negotiations, the
Contracting Officer and the Purchase/SCM Team must clearly categorize
negotiation objectives that are either must points (terms and conditions
essential to desired contract performance that the Postal Service must
obtain), or give points (terms and conditions that are not central to the Postal
Service obtaining best value). Must points and give points are determined by
Client requirements, but the Contracting Officer will leverage past
experiences and knowledge when negotiating these points. In order to avoid
deadlock, the Contracting Officer will have to properly balance what is given
and what is taken, especially as final agreement becomes more imminent,
while focusing on obtaining the must points.
For example, negotiations are held with a Supplier that has a proven record
of on-time delivery (a shared interest and a must point for the Postal Service),
but is also proposing a price higher than the target price generated by the
Pricing Analyst (a point of conflict but also a give point). In a compromise, the
Postal Service would give the Supplier a higher price than the one
recommended by the Pricing Analyst, but one lower than that offered in the
original proposal, thereby obtaining the on-time delivery level determined
essential to contract performance and improved price terms.
In the rare instance when a proposal has no points of conflict, pricing is at or
below market price, and the proposal obviously offers the best value, neither
discussions nor negotiations are necessary. However, Purchase/SCM Teams
should always remember (1) that holding discussions for reasons of
clarification is always prudent and (2) that negotiations normally should be
held in order to improve the value received by the Postal Service. In cases
where neither discussions nor negotiations are necessary, the Purchase/SCM
Team begins the activities associated with the Ensure Supplier Diversity
Objectives are Considered topic of the Perform Pre-Award Activities task of
Process Step 2: Evaluate Sources.
It is important to note that negotiations are a complex process based on
preparation, leveraging power, personal dynamics and compromises that
vary from contract to contract. Negotiations are seldom predictable and are
never a guaranteed success. Therefore, negotiations must always be rooted
in facts generated during discussions, as well as market research and price
analysis, and Postal Service objectives in order to maintain and avoid
damaging historical working relationships with suppliers. Ultimately, the level
of mutual dependency (the Postal Service need for a supply and the
Supplier's need for clientele) is the greatest source of motivation for the two
parties.
Almost all successful negotiations are the result of preparation. Before
entering a negotiation, the Contracting Officer and Purchase/SCM Team
should:
• Have comprehensive knowledge of the marketplace (generated
by market research)
• Have comprehensive knowledge of the Supplier
• Have thorough knowledge of the goods or services to be supplied
• Have thorough knowledge of the price of goods or services to be
supplied (generated through price analysis)
• Understand the Postal Service's leveraging power
• Understand the Supplier's leveraging power
• Analyze involved costs (generated in the Conduct Should-Cost
Analysis topic of the Collect Ideas and Build Fact Base task of
Process Step 2: Evaluate Sources)
• Understand the Supplier's capabilities (generated in the Conduct
Supplier Capability (Technical and Financial) Analysis topic of the
Evaluate Proposals task of Process Step 2: Evaluate Sources)
• Understand the Total Cost of Ownership
The next step is to establish the Postal Service's negotiation strategy
incorporating this information. A negotiation strategy is formally planned and
requires the generation of all Postal Service objectives, any remaining points
of conflict, their importance in determining best value, and the strategies that
will be used to address them.
In developing its negotiation strategy, the Postal Service should identify what
is the Best Alternative to a Negotiated Agreement (BATNA). The BATNA is
the next best alternative, or "walk away" alternative, should negotiations fail
with the selected supplier. It is a key component of any negotiation strategy.
Identifying the BATNA (e.g., an alternate supplier, manufacturing in-house,
canceling the solicitation) will help determine the Postal Service's leveraging
power depending on the desirability of its BATNA.
During negotiations, the Contracting Officer must leverage the negotiation
strategy, which defines the importance of each issue and ensures that
interactions with the Supplier are confined to these issues. Each issue should
be treated individually, usually in order of ease of resolution.
Depending on the complexity of the product or service to be purchased the
Contracting Officer will involve the Client, Legal Counsel and other members
of the Purchase/SCM Team in the negotiations with the Supplier. The
negotiations strategy will identify which team members will take the lead role
in negotiating different aspects of the proposal. Outside expertise can be
used during negotiations, but Contracting Officers must take steps to ensure
that the potentiality for organizational conflicts of interest is minimized.
Once negotiations have concluded, the Contracting Officer is responsible for
documenting their substance and the extent to which they were successful.
The degree of success will depend on whether the negotiations fulfilled the
intent of the negotiation strategy. Documentation must be in writing and
included in the contract file.
A quadrant approach classifies all Postal Service purchases into four
categories, depending on their impact on the Postal Service core
competencies (noncore versus core) and complexities (standard versus
custom). Negotiations can be prioritized based on the type of purchase, as
well as its overall impact on the Postal Service.
Figure 2.16
Four Quadrants
Goods and services in Quadrant I do not provide direct value, and are
therefore considered to be a lower priority for negotiations. Because these
goods are more customized, and there may be a limited supplier base,
negotiations can be beneficial in the achievement of best value, especially in
a monopoly situation. When a contract to supply these goods or services is
negotiated, the Contracting Officer may conduct them with some support
from the Purchase/SCM Team and Legal Counsel.
These products and services create direct value, and are therefore of high
importance in negotiations. Negotiations pertaining to these products and
services require a team comprised of the Contracting Officer, supported by
the Purchase/SCM Team and Legal Counsel.
Products and services that fall into Quadrant III do not provide direct value,
and are therefore a lower priority for negotiations. When a contract to supply
these goods or services is negotiated, the Contracting Officer may conduct
them with some support from the Purchase/SCM Team and Legal Counsel.
These products and services create direct value, and are therefore of high
importance. Negotiations pertaining to these products and services require a
team comprised of the Contracting Officer, supported by the Purchase/SCM
Team, and Legal Counsel.
Conduct Market Research and Benchmarking Analysis topic, Decide on
Make vs. Buy task, Process Step 1: Identify Needs
Conduct Should-Cost Analysis topic, Collect Ideas and Build Fact Base task,
Process Step 2: Evaluate Sources
Perform Proposal Evaluation Strategy topic, Perform Solicitation-Related
Activities task, Process Step 2: Evaluate Sources
Conduct Supplier Capability (Technical and Financial) Analysis topic,
Evaluate Proposals task, Process Step 2: Evaluate Sources
Hold Discussions topic, Evaluate Proposals task, Process Step 2: Evaluate
Sources
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