By Paul Emanuelli

This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

When using negotiated Requests for Proposals (RFP) to award a contract, public institutions must leverage the principles of strategic execution to ensure that they obtain the best commercial deal possible in a procedurally correct manner. RFP negotiators can leverage the principles of strategic execution by developing and implementing the following seven-step strategy for their RFP negotiations:

  1. Understand Your RFP Objectives
  2. Know Your Process and Contract Parameters
  3. Establish the Role of the Lead Negotiator
  4. Define Roles in Your Team’s Inner and Outer Circles
  5. Control the Terms of Engagement
  6. Frame the Issues and Execute Encirclement
  7. Leverage Time and Space to Close the Deal

1. Understand Your RFP Objectives
Purchasing institutions should use the negotiated RFP process to: (i) identify a top-ranked proponent through a one-step or two-step evaluation process; and (ii) finalize a contract award with speed and precision with the top-ranked proponent.

The winning conditions for the contract award negotiations are established in the initial design and drafting for the negotiated RFP document and in the proper execution of the evaluation process that leads to the final proponent rankings. The proper execution of those stages are pre-conditions to successfully negotiating a contract award under a negotiated RFP.

2. Know Your Process and Contract Parameters
In addition to the procedural “flanks” defined in your negotiated RFP process rules (such as the evaluation criteria and pre-defined negotiating period), your negotiated RFP should also contain substantive flanks, which are defined by the scope of the contract opportunity as established in your RFP. There is no substitute for advanced preparation: set your contract requirements and process constraints in advance of your contract award negotiations.

Purchasing institutions should carefully define the scope of the contract opportunity and avoid overly prescriptive approaches that limit their downstream mobility in contract award negotiations. Finding this right balance is an art leveraged through a better understanding of the following four contract design principles:

  • Contract Anatomy
  • Contract Architecture
  • Contract Assembly
  • Contract Award

The proper leveraging of these principles can also serve as the foundation for effective contract management.

(a) Contract Anatomy
Purchasing professionals need to understand the anatomy of their contracts at an organic level. They need to understand the DNA of the deal. They need to dissect the terms and conditions and understand how the various components should work as part of a living agreement between the contracting parties. The basic organs of any properly designed procurement contract include performance terms and payment provisions. The performance terms should clearly define the requirements, performance standards, warranties, and delivery schedules. The payment provisions should establish payment structures and schedules, and clearly connect those components to the performance terms. This basic DNA of contractual anatomy serves as the foundation onto which more specialized terms can then be added to adapt the procurement contract to the specific industry and particular transaction. These specialized terms can include, among other things, change control provisions, confidentiality clauses, insurance and indemnity terms, limitation of liability clauses, dispute resolution and termination protocols, and document retention and audit provisions. Understanding basic and advanced contract anatomy helps to avoid complicating contracts with the dead weight of unnecessary provisions.

(b) Contract Architecture
The components of a contract can be housed in different architectures. Some contract structures are designed for speed, others are slow and cumbersome to navigate. The most evolved architectures synthesize speed and precision with multi-module formats that allow purchasers to lock down standard terms while permitting the rapid incorporation of more complex components as required. Organizations need to direct their purchasing into appropriate format streams. Proper contract design removes friction from the process by allowing purchasers to direct standard transactions into rapid-use standard term formats, while also identifying situations that call for more complex legal agreement architectures or the adoption of supplier-driven standard terms as a starting point for negotiations.

(c) Contract Assembly
Contract assembly is the third critical cornerstone of contract design. It takes skill, judgment, and experience to properly assess the specific situation and incorporate the necessary elements of contract anatomy into the appropriate contractual architecture. Some situations are more self-evident than others. While a one-time delivery of a standard commodity can often be handled through simplified purchase order terms, a 15-year outsourcing deal will typically require a formal legal agreement with a complex set of tailored schedules and appendices. These conceptual extremes may be easy to identify, but it’s the unclear middle ground that often leaves purchasers stranded in a desert of contractual uncertainty. It’s in this legal grey zone that proper contract design can identify how much to occupy the field with contract terms in advance in the negotiated RFP and how much to leave open to final contract award negotiations based on the top-ranked proponent’s solution and proposed contract terms.

(d) Contract Award
Contract award is the fourth and final pillar of contract design. There’s no use having a perfectly assembled contract that no one will sign. Since it takes two to contract, purchasing organizations should incorporate commercially reasonable terms into their contract design process. Building a sustainable contractual relationship, particularly with strategically significant suppliers, often requires the precision of a scalpel, rather than the blunt force of a “standard form” hammer. While an adversarial “winner-takes-all” approach may be suited for certain courtroom situations, getting mired in a “battle of the forms” with your suppliers and their lawyers will only lead to purchasing gridlock. To avoid unnecessary legal entanglements, the right starting point is to establish a proper contract design process that allows purchasing professionals to quickly adapt to the circumstances, identify real deal-breakers, and distinguish fundamental terms from the nuisance clauses that tend to unnecessarily bog down the contracting process.

Given the current economic conditions, purchasing professionals are under increasing pressure to find efficiencies and create competitive advantages for their organizations. Those purchasing institutions that properly adapt to today’s purchasing challenges by integrating contract design concepts into procurement planning and execution will be better positioned to survive and flourish in our increasingly complex marketplace.

3. Establish the Role of the Lead Negotiator
Contract negotiations are a team sport that requires careful co-ordination and leadership. A leaderless negotiating team is a side waiting to be divided and conquered. Identify your leader early and organize around that person so that your team can control the terms of engagement once you initiate your contract award negotiations. There is no room for error in controlling your timeframe for negotiations. Your lead negotiator should leverage business process design practices and project management disciplines and apply them to the negotiation process to leverage the principles of containment, encirclement, and strategic implementation so you can execute with speed and precision.

Once your organization has finished its negotiated RFP evaluation process and identified the top-ranked proponent, it needs to be ready to head into the final selection and award phase of the process. To close the deal, your organization should develop a closing strategy that addresses the three pillars of negotiated RFP closing:

  1. Team: organizing the negotiating team;
  2. Terms: confirming the negotiation forum and issues; and
  3. Tactics: assigning, prioritizing, and sequencing issues.

In an article published in Harvard Business School Working Knowledge entitled “Breakthrough Negotiations: Don’t Leave It On the Table”, Harvard professor Michael Watkins explains seven secrets that empower master negotiators:

  1. They shape the structure of their situations.
  2. They learn before and during negotiation sessions.
  3. They master process design, focusing on details such as meeting times and seating logistics.
  4. They foster agreement and employ necessary force.
  5. They anticipate and manage conflict.
  6. They build momentum towards agreement, while controlling the pace and flow of discussions.
  7. They lead from the middle, facilitating internal decision-making and external communication.

Entering contract award negotiations in a negotiated RFP process without a lead negotiator to manage the team members leaves them exposed to significant risk of failure or suboptimal results during the negotiation process. Roles should be defined well in advance of the initiation of formal negotiations to allow the negotiation team to accomplish strategic execution. This is not a process that can be properly co-ordinated by committee – someone needs to lead this process.

4. Define Roles in Your Team’s Inner and Outer Circles
As part of your negotiation planning, the lead negotiator should determine the size and composition of the team that “takes the field” to directly engage the selected proponent. The lead negotiator should also organize the members of the support team, including the necessary subject matter experts, who should remain “behind the curtain” to assist the bargaining team and be ready to make tactical appearances at the bargaining table, or at specially controlled side tables, when called on.

In an interview for Harvard Business School Working Knowledge, Harvard professors James Sebenius and David Lax speak about their new book entitled 3-D Negotiations: Powerful Tools to Change the Game in Your Most Important Deals. The article states that “tactics, deal design and set-up are three crucial components of the most effective negotiations.” Sebenius and Lax warn that flaws “in our third dimension, the set-up of negotiations, can take many forms: wrong parties, wrong issues, wrong walkaways, wrong sequence, wrong basic process choices.” The article notes the need to employ the careful planning of set-up plays in advance of negotiations. The role of the lead negotiator is to ensure that these planning considerations are being properly addressed.

The role of the lead negotiator is to also balance the competing interests, negotiating styles, and personalities on the negotiation team. In an article from the University of Colorado’s Beyond Intractability website entitled “Competitive and Cooperative Approaches to Conflict”, Brad Spangler notes that the two most basic orientations that people bring to a negotiation are co-operative and competitive. He states that a “cooperative approach aligns with the process of interest-based or integrative bargaining, which leads parties to seek win-win solutions. Disputants that work cooperatively to negotiate a solution are more likely to develop a relationship of trust and come up with mutually beneficial options for settlement. The mutual gains approach is considered a constructive resolution process.” Conversely, he also notes that “competitive approaches align with the process of distributive bargaining, which result in win-lose outcomes. A competitive approach to conflict tends to increase animosity and distrust between parties and is generally considered destructive.” Spangler refers to the “negotiator’s dilemma” of choosing between these two styles, but acknowledges that negotiations tend to involve a blend of the two approaches since “negotiating an acceptable agreement always includes common and conflicting goals. Therefore both cooperation and competition are necessary to some extent in order to reach resolution.”

Spangler also refers to the studies in the field of social psychology by Morton Deutsch, who observed that the personality types of the negotiators may influence the styles that are brought to the bargaining table. Deutsch noted that assertiveness and co-operativeness are the two key dimensions of personality that impact negotiating styles. He also identified five major conflict management styles that represent different blends of these two personality dimensions:

  1. a competitive style, which is high on assertiveness and low on co-operativeness;
  2. an accommodating style, which is low on assertiveness and high on co-operativeness;
  3. an avoiding style, which is low on both assertiveness and co-operativeness;
  4. a collaborating style, which is high on both assertiveness and co-operativeness; and
  5. a compromising style which is moderate on both assertiveness and co-operativeness.

The negotiation team should be aware of the different negotiation styles, and the individuals on their teams who are most closely aligned with each style, when preparing for the negotiation discussion points and assigning negotiating roles.

Your organization should identify the individuals, drawn from the negotiated RFP project team and from other relevant parts of the organization, that need to be part of the negotiated RFP negotiation support team. These individuals, including the ultimate decision-makers, should play a “behind the curtain” role in supporting the individuals that are selected to serve as representatives on the negotiating team.

5. Control the Terms of Engagement
During the contract award negotiations, the terms of the deal should only get better, not worse, for the purchasing institution. The top-ranked proponent should be reminded that its ranking is based on its final evaluated offer when you start the negotiating process. If the top-ranked proponent backtracks on its final evaluated offer, you should be ready to execute a re-evaluation or disqualification and proceed to the next-ranked proponent. To control the terms of engagement, your team should:

a.     define the logistical details of the negotiation (such as meeting times, locations, and deadlines);
b.     require the selected proponent to provide a complete list of discussion points well before any direct negotiations are initiated so that your team has adequate time to prepare;
c.     know your “Plan B” (referred to in standard negotiating theory as the BATNA or Best Alternative to a Negotiated Agreement), which should include the option of proceeding to the next-ranked proponent or terminating the process; and
d.     know your bottom-line walk-away points from a monetary, performance requirement, and timing perspective.

In “A Better Way to Negotiate: Backward”, professor James Sebenius recommends the use of backward mapping to properly sequence a negotiation. As he states, “when you map a negotiation backward, you envision your preferred outcome and think in reverse about how to get there.” Sebenius identifies five basic steps for this process:

  1. Draw a map of all potentially involved parties.
  2. Estimate the difficulty of getting an agreement with each party and the value of their buy-in.
  3. Identify key relationships amongst the parties.
  4. Focus on the most difficult-to-persuade player.
  5. Assess the final stage perspective of each player.

Process mapping is straight forward if you take this from the perspective of knowing the DNA of the deal and understanding the end-game that you are trying to achieve. By visualizing the outcome and identifying the missing pieces you still require to take you from where you are to where you need to be, you can then break down the items required to close the deal and identify them as discussion points for the negotiations.

Once your team is properly prepared with its negotiating mandate and strategy, the lead negotiator should define the terms of engagement by issuing a selection letter to the top-ranked proponent. That selection letter should:

  • reiterate the protocols of the negotiated RFP, including the timeframe for negotiations, and confirm that any award is subject to the satisfactory conclusion and ratification of a negotiated agreement;
  • confirm the scheduling and logistics for direct communications during the negotiating process to protect against “flanking plays” or “end-runs” around the negotiating team by the proponent; and
  • request a complete list of discussion points from the proponent prior to the initiation of direct discussions to enable the internal identification, assignment, prioritization, and sequencing of negotiation issues.

6. Frame the Issues and Execute Encirclement
There should be no surprises at the bargaining table. After receiving the complete list of discussion points from the selected proponent in advance of any direct negotiation, your negotiating team should then carefully plan how it will address and sequence those issues during contract negotiations. The first objective of direct negotiations should be the execution of encirclement by confirming the terms of engagement and confirming that you have received the complete list of discussion points. This will allow you to limit any last-minute surprises and allow you to start making trade-offs with a view to removing any outstanding issues and closing the deal.

In an article entitled “Creating and Claiming Value”, Brad Spangler notes that “creating and claiming value are two of the most fundamental aspects of negotiation strategy that exist in tension with one another.” While creating value (or “expanding the pie”) calls for the collaborative efforts associated with integrative or interest-based bargaining, once that value is created, the parties still need to divide up the pie. Dividing up the created value tends to bring out the more competitive elements of “distributive bargaining”, with each side trying to gain at the expense of the other. Reconciling these contrasting tendencies can be a delicate balancing act that needs to be carefully managed by contract award negotiators in negotiated RFPs.

Prior to the commencement of direct negotiations, your project team should assemble to finalize your tactical planning for outstanding issues. This includes reviewing the proponent’s list of discussion points, as well as any outstanding internal issues that you want addressed in the negotiations prior to the deal closing. Internal and proponent-specific issues should be consolidated and assigned to the appropriate individuals on your project team. Those final issues should also be prioritized and sequenced to serve as the meeting agenda for direct discussions.

In an article entitled “Four Strategies for Making Concessions”, Deepak Malhotra notes that concessions are necessary in negotiations, but they often go unappreciated and unreciprocated. He recommends the following four strategies for making concessions:

  1. Label your concessions to create a moral obligation to reciprocate.
  2. Demand and define reciprocity and articulate your expectation for reciprocity.
  3. Make concessions that are contingent on receiving a concession.
  4. Make concessions in installments, since people tend to prefer good news in increments.

Given the importance of ensuring that the deal only improves and does not get worse for the purchasing institution during contract award negotiations, your negotiation team should carefully manage concessions and stand firm on the concept that you obtain reciprocal value for any variation from the selected proponent’s final evaluated submission.

7. Leverage Time and Space to Close the Deal
As part of controlling the terms of engagement, your negotiating team should control time and space, being careful to engage in containment by guarding its flanks against any potential end-runs, while holding the line to defend against dividing tactics. With a solid containment strategy in place, your team should then counter by seeking further contractual improvements prior to closing the deal. In addition to controlling space with a containment strategy, your negotiating team should also control time by applying deadline pressures to the negotiation to block any attempts to raise new issues or use delay tactics.

Leveraging encirclement principles will keep your project moving forward by narrowing and resolving the issues to a meeting of the minds. If necessary, at the midway point of the pre-defined negotiating period, you should move in for the close by reminding the proponent that time is running out and that their competitors are waiting in the wings to take the deal from them. This will put you in a strong position to leverage final execution with speed and precision, allowing you to either win further contract concessions or compel the proponent to close the deal before it gets worse for them.

Your negotiating team should have a clear mandate of what it can and cannot agree to during direct negotiations. They should leverage the time constraints and their ability to proceed to the next-ranked proponent to counter any unreasonable proponent demands, to limit concessions, and to obtain improved results during the final negotiation process. To the greatest extent possible, your team should “occupy the field” with the final version of all legal, business, and technical terms during these discussions. This will limit any slippage during final contract signing.

As a negotiator, never let the opposite side open new issues once you have an agreement in principle and are formalizing final wording. Be ready to block any attempt at a final round of concessions during the time you are papering the final, agreed-upon deal. Hold off on any celebrations until you have the signed contract in your hands. Never let the proponent start performing without having first signed that final deal. Maintain a hard line on any further indulgences since you will seriously undermine your bargaining leverage if you leave yourself exposed to another round of negotiations after having demobilized your negotiating team in anticipation of proceeding to final contract approvals and signing.