Scottish Public Procurement Toolkit

Tender, or Bid Clarifications may become necessary during the evaluation of tenders where there are aspects of the bids that are unclear or contain errors. It may be that there has been a misunderstanding of the specification on the part of the tenderer, that there are outright errors in technical data, or that the style of presentation is such as to leave doubt as to the precise meaning of the tenderer. Purchasers should consider whether, where a certain aspect of the bid seems anomalous, it might be prudent to request a clarification. For example, if a bid appears especially low, or especially high on price, it may be that an arithmetical error has been made. Clarification may also be sought from tenderers on matters of quality performance or particular terms and conditions of contracts.

In seeking clarification, all communications with tenderers should be properly recorded so that an audit trail is maintained. The objective at the clarification stage is to evaulate the tenders as submitted. Negotiations in relation to price or other areas where improvements may be possible should not take place.

Purchasers should give all tenderers who are able to meet the requirements of the specification the same opportunity to engage in tender/bid clarification. Extreme caution and care must be exercised to avoid either unfairness to potential tenderers or the impression of unfairness to some tenderers.

Post-Tender Negotiation (PTN), where it is practiced by an organisation, should be handled as a separate exercise from Tender Clarification.

Post Tender Negotiation (PTN)

Definition

The definition of Post Tender Negotiation (PTN) used in this briefing is:

"Negotiation after the receipt of formal tenders, and before the letting of a contract, with one or more of the leading the tenderers with a view to obtaining an improvement in price, delivery or content in circumstances which do not put other tenderers at a disadvantage or affect adversely their confidence or trust in the competitive tendering system."

Post Tender Negotiation (PTN) should not be confused with "tender" or "bid clarification". Tender Clarification, explained in more detail above, is, as the name suggests, contact between the purchaser and the tenderer purely for the purpose of clarifying aspects of the tender which are perhaps ambiguous or anomalous. PTN, on the other hand, is a tool to develop aspects of the tender to improve or enhance Value for Money (VFM).

PTN is part of the competitive tendering process, bearing in mind that public purchasing policy is to use competition wherever possible and that the UK's international obligations normally require such competition for purchases above certain thresholds. There will, however, be occasions where competitive tendering is not used: for example, where the costs involved in comparison with the value of the purchase would not justify the process, (in which cases alternative means of testing the market for competitive sources of supply should be used) or where only one supplier is available and both purchasing policy and the UK's international obligations allow the purchaser to seek an offer only from that supplier - single tendering. In these circumstances it will be usual to negotiate with the supplier concerned, in order to reach a mutually acceptable agreement which provides value for money.

As the introductory definition suggests, PTN should not be conducted in a way, that put tenderers at a disadvantage, distorts competition or adversely effect trust in the competitive tendering process. In particular, PTN must not become any form of "Dutch Auction": unfairly trading off one tenderer against another by using the lowest tender to seek a reduction in costs from the other tenderers. Additionally, and equally importantly, competition must not be distorted by allowing a competitor, not clearly in the lead, a chance to improve its offer without giving the same opportunity to all other competitors. At all stages the competing tenderers must be treated in an honest, fair and ethical manner, whilst retaining confidentiality of their bids.

Purchasers engaging in PTN should have reference to the principles of Post-Tender Negotiation, namely;

Compliance with the EC Procurement Directives. -

For contracts covered by the EC Procurement Directives, it is essential that any negotiations held during the course of open or restricted procedures do not distort competition. For more information see the " Post-Tender Negotiations in Open and Restricted Procedures" section in the SPD Guidance on EC Legislation

It must be a controlled and documented process. It should not be used automatically on all procurements. Before engaging in PTN, the following criteria must be met:

there must be a considered and soundly based prospect of improving value for money;
it must be possible to justify the resource costs;
it must be subject to senior management's prior approval;
trained and experienced purchasing staff must conduct negotiations;and
the negotiations must be fully documented, so that a clear audit trail is left

A clear "audit trail" must be available so that it can be seen that it was conducted in a fair manner. The file should show:

the justification for PTN;
the approval for PTN (at a suitably senior level of management);
the aim of the negotiation;
the precise record of all exchanges written and verbal;
the approval for the award of contract.
When carried out in an atmosphere of openness and mutual trust negotiations can strengthen relationships with suppliers.

Overview of the PTN Process

PTN may be considered after the stage of Tender Clarification, where this has been necessary, but before the stage of Contract Award: it is designed to identify whether any improvements in the bidders' offers are available. Even if one bidder is ahead of the others in value for money terms, it may still be possible to achieve improvements. Hence PTN is the exploration by the parties of the means by which the purchaser can achieve a better deal on a mutually-acceptable basis. The potential areas for negotiation will differ for every contract but typical topics might be the terms of payment; quality of goods or services; supply and cost of spare parts; earlier delivery or completion dates; warranties and guarantees; documentation requirements; expediting and inspection procedures; maintenance, repair or after-sales service; compensation for failure to meet specified requirements (e.g. of delivery, quality etc); and procedures for remedial action for unsatisfactory service. The list is not meant to be exhaustive: it is a concept of purchasing that "everything is negotiable".

Following any such negotiations, the outcome should be documented, and substantiated by revised bids. Final bid evaluation can then be completed, the contract approved at the appropriate authority level and the contract concluded with the chosen supplier. Thereafter the unsuccessful tenderers will be informed. These latter may request a debriefing.

Additionally and equally important, competition must not be distorted by allowing a competitor, not clearly in the lead, a chance to improve its offer without giving the same opportunity to all other competitors. At all stages the competing tenderers must be treated in an honest, fair and ethical manner, whilst retaining confidentiality of their bids.

Negotiation in Practice

Types of Negotiation

Win/Lose Negotiation

Both parties have the intention of achieving their objectives at the expense of the other party. Negotiators see each other as opponents, and try to move the agreement to their advantage. It is an adversarial situation, which concludes with the party in the strongest position gaining an advantage at the expense of the other party. Unless both parties feel satisfied with the outcome of a negotiation the relationship will not be successful.

SPD does not normally support this type of negotiation.

Win/Win Negotiation

A co-operative attitude between negotiating parties makes for more effective bargaining. Both parties share the same objective of contracting in an equal partnership. Such relationships last longer than win/lose relationships due to the existence of trust and motivation in the relationship.

SPD's recommendation is to use the most appropriate negotiation strategy in the circumstances.

1. Definition

Purchasers engaging in PTN should have reference to the principles of Post-Tender Negotiation, namely;

Compliance with the EC Procurement Directives. -

For contracts covered by the EC Procurement Directives, it is essential that any negotiations held during the course of open or restricted procedures do not distort competition. For more information see the " Post-Tender Negotiations in Open and Restricted Procedures" section in the SPD Guidance on EC Legislation

It must be a controlled and documented process. It should not be used automatically on all procurements. Before engaging in PTN, the following criteria must be met:

there must be a considered and soundly based prospect of improving value for money;

it must be possible to justify the resource costs;

it must be subject to senior management's prior approval;

trained and experienced purchasing staff must conduct negotiations;and

the negotiations must be fully documented, so that a clear audit trail is left

A clear "audit trail" must be available so that it can be seen that it was conducted in a fair manner. The file should show:

the justification for PTN;

the approval for PTN (at a suitably senior level of management);

the aim of the negotiation;

the precise record of all exchanges written and verbal;

the approval for the award of contract.

When carried out in an atmosphere of openness and mutual trust negotiations can strengthen relationships with suppliers.

Overview of the PTN Process

Potential Areas for Negotiation

Some typical areas which may be negotiated are:-

payment terms;
price;
delivery dates;
warranties and guarantees;
quality;
performance indicators;
performance monitoring;
remedial action;
training;
documentation requirements;
maintenance, repair or after-sales service;
compensation for failure to perform; and
terms and conditions of contract.

Any changes agreed with the tenderer must be obtained in writing and incorporated into the written contract.

Stages of Negotiation

Stage One: Pre-Negotiation: gather and analyse information; set objectives; develop strategy and tactics.

Stage Two: Negotiation: listen; analyse; discuss; persuade; movement and agreement.

Stage Three: Post-Negotiation: confirm agreement, review negotiation.

When considering the Negotiation process, it may be useful to have reference to the SPD Negotiation Plan Template

Pre-Negotiation:

Gather Information.

Enter all negotiations knowing a great deal about your supplier's and your own organisation.

Some points to consider include:-

what is the market condition for these goods or services ?
what is the supplier's position in this market, i.e. how strong is the competition ?
what are the supplier's competitive strengths and weaknesses ? How has the supplier performed in past contracts and/or negotiations ?
what are the reasons for the position the supplier is adopting ?
how attractive is the business you have on offer to suppliers ? Is it a single purchase, or could there be additional requirements ? What percentage of the supplier's overall total business does the requirement represent ?
how does your business relate to your department's total purchasing of that product or service ? Is there scope to amalgamate purchases ? and
how financially sound is the supplier ? Do they have full order books ?

With this information, you will be better prepared to negotiate specific elements of the supplier's offer in response to your enquiry - the combination of quality, price, delivery, after-sales service etc. which constitutes VFM.

Setting Objectives

The aim of gathering and assessing this information is to identify your strengths and weaknesses in negotiation, so that you can set your objectives. To negotiate successfully, you must be clear on what you want to achieve.

Your objectives must be realistic. Points to consider when defining your objectives are:

the strengths and weaknesses of both yourself and the other party;
the main issues for negotiation;
what you want to achieve, in order of importance;
what you are willing to concede, also in order of importance; and
when you should be willing to compromise, and when you should not compromise.

Strategy and Tactics

Before meeting the other party plan:

who will form the negotiating team. Depending on the nature of the purchase, it might be sensible to include in the team the end-user and/or various technical/financial experts/procurement staff. It must include individuals who are authorised to negotiate and take decisions;
who will be responsible for taking formal minutes of the discussions;
what needs to be covered;
in what order should the areas be covered;
who will say what, and in what circumstances. This will be based on the objectives you have identified;
tactics for bidding and bargaining;
where the meeting will take place, and (if in your offices) what the seating arrangements will be;
what overall style and approach should be adopted. You will want to achieve some combination of appearing relaxed, confident and determined;
consider the use of a formal agenda; and
who you will be negotiating with - find out! Particularly, find out if he/she has the authority to make the necessary decisions.

The main point to remember is that your strategy and tactics should be flexible. You are going to have to respond to developments during the meeting. You should think in advance about the circumstances in which you might wish to have a break or call a halt to the meeting.

Negotiation Stage:

The aim of the meeting is to achieve an outcome which both sides can accept. Persuasion and strength of argument rather than force is more likely to succeed. Points to remember during a negotiation meeting come from the five techniques: compromise; bargain; logic; threat; and emotion and include:

try to establish a relaxed atmosphere, perhaps starting with social or general conversation;
allow yourself room to negotiate. As a purchaser, start high and have a reason for starting where you did. Have a structure to your argument;
clarify the issues on which you wish to focus. Set the agenda to make sure that you control the situation;
try to establish if the other party would be willing to make concessions;
use positive language e.g. "we need" rather than "we would hope";
don't let the other party dwell on your weak points. Either talk about their weak points or summarise the existing area of agreement;
only make a concession as a trade-off for something you want in return;
time your concessions carefully. The longer the other party waits, the more they will appreciate it;
treat every concession as real money;
summarise what has been agreed at regular intervals throughout the meeting;
put a value on any concession before you make it, not once it has been accepted;
trade things that are low value for you to give but worth a lot to the other party;
keep account of your concessions and those of the other party;
do not raise the other party's expectations by conceding too much, too fast or to a pattern;
be ready to bring back into contention any previously settled issues if you need negotiating room;
watch body language;
don't be afraid to say "no" when necessary;
avoid deadlock. If you cannot agree, are you sure that you need to deal with this tenderer;
adopt a controlled but fluid response and search out alternative ways to proceed;
have a break if things are not going well. Don't issue an ultimatum unless you are sure that it is irresistible to the other party or if you want to close the meeting; and
note agreements as they are reached and recap on agreements as they are made and at the end of the negotiation to confirm understanding.

Post-Negotiation Stage:

Any variations to a quotation/tender should be confirmed in writing by the tenderer. The variation will then become part of the offer.

The negotiation should be reviewed by the team members. Reasons for successes and failures should be considered. All team members should be involved in the discussion which should be conducted in a positive and constructive atmosphere, focusing on lessons learned and identifying areas for future improvement.

Points to Note:

Successful negotiators:

make consistently smaller concessions;
are less predictable in their concession patterns;
have better control of their concession rate;
are well prepared;
use controlled emotion;
use logic;
use silence and breaks effectively;
separate fact from assumption;
have the ability to listen and analyse information;
are persuasive; and
are principled.

Unsuccessful negotiators:

are more generous in their concessions;
are more predictable in their concession pattern;
have poorer control of the concession rate; and
have lower tolerance of uncertainty.

Holding successful meetings requires good interpersonal skills. These include: active listening, not interrupting, avoiding point scoring, sarcasm or threats and using 'friendly' body language.

Some do's and don'ts

Do:

wait for an answer after you ask a question;
pursue your question if the answer given is evasive or inadequate;
get your questions ready in advance;
keep your questions open (unless a closed question is necessary to move things on); and
choose the 'right' time to ask a question. If the time is not appropriate write it down and wait.

Don't:

ask a question to show how clever you are;
stop listening while you are waiting to ask a question, write it down and wait;
cancel out team-members good questions by asking yours before their questions are fully answered;
ask antagonistic questions unless you want an argument;
be afraid to ask simplistic questions; and
answer a question which has been put to another team member unless they have signalled for you to do so.

Page updated: Monday, July 23, 2007

Scottish Government