Negotiation skills from the PM's perspective

Developed by Gustavo Pagliari Valerio dos Santos

Abstract

The term “Negotiation” comprises a few distinct definitions formally accepted. Some of those can be related to diverse contexts, such as conflicts solving, reallocation of resources, or contract agreements. For instance, Frank Acuff describes it as the process of communicating back and forth for the purpose of reaching a joint agreement about differing needs or ideas. The negotiations involved in a contract bidding process, for example, would lie in this definition.

The procurement process of a project or program typically involves in its initial steps the performance of bidder conferences, in which potential sellers are gathered in order to understand the main proposal and future contract requirements. The outcome of such meetings for the contractor is a clearer overview of the most proficient sellers, which are therefore given priority during the contract bidding process.

In this regard, not only understanding the procurement process from the contractor’s perspective, but also developing appropriate negotiation skills is essential for a Project Manager to optimise their chances of obtaining contracts as a seller or service provider. For instance, being able to ask relevant questions about the concerned project or program may indicate experience and professionalism. Likewise, building up traditional relationships with contractors shall be prospective operationally wise in the long term. Establishing a proper negotiation strategy is, therefore, perceived to be significant for a project manager to increase their opportunities of acquiring contracts as a service provider.

Introduction

It is fundamental for a Project Manager to hold fair negotiation skills, not only to adequately cope with issues during the project lifetime, being those related either to the internal or external stakeholders, but also to build trust in business’ relationships. The long term success of certain enterprises is understood to be based in well-established connections between groups and individuals that constantly will to support its development, following the favourable conditions which outcome from such bonds.

This cooperative mindset has led most of the biggest ventures to set a new approach for making business, on which the competition was replaced by an idea of creating greater values together.

This innovative strategy is justified by three main factors:

• Future considerations: focusing excessively on short term results might compromise opportunities with higher potential of outcome in the long term.

• Win-Win framework: by providing benefits to the counterpart in a negotiation, eventual rewards with greater value may come in return.

• Trust: Developing trust-based relationships reduces the necessity of spending resources on monitoring the partner’s behaviour towards following the contract terms and conditions.

Whereas the broad definition of Negotiation comprises a wide number of perspectives that relate to distinct stages or aspects of a project, this article discusses the most relevant features to be concerned by a project manager before taking part in a contract bidding process. In this regard, it is reasonable to identify the tools and techniques which comprise a procurement process beforehand, so as to understand the contractor’s perspective and further develop a suitable negotiation strategy based in that. Essential skills and possible basis for approach are also discussed in the following sections.

Procurement Process

In general, the procurement process for a project is conducted through the application of the following instruments :

• Bidder conferences: also referred to as contractor conferences, vendor conferences, or pre-bid conferences, such meetings gather prospective sellers before the submission of contract proposals, aiming fundamentally at providing all the invited members a clear and common understanding of the procurement requirements, therefore avoiding privileges for any of the parts beforehand. It is recommended that the contractor at this point ensure that all the participants have their questions answered, in a way that all of them become aware of every question raised and their respective answers. These questions might come either during the conference itself, or in previously organised field visits.

• Proposal evaluation techniques: A formal review might be applied by an evaluation committee, which selects a seller to be approved by the project manager according to their appropriateness within the whole bidding process.

• Independent estimates: In some situations, the procuring group responsible for holding the bidding process may opt for having an external member executing an estimate of costs, in order to define a reference point for the received proposals. In this regard, the incidence of significant differences between the established point might indicate flaws either on the procurement statement of work, or on the sellers’ proposals.

• Expert judgement: The assessment of the received proposals can be carried out by an expert or a specialised multi-discipline review team which evaluates the distinct areas within the documents involved in the process.

• Advertising: Placing advertisements in distinct media outlets potentially increases the number of prominent sellers intending to participate in the bidding process. Furthermore, in case of some government jurisdictions, public advertising shall be mandatory.

• Analytical Techniques: Such techniques serve as means of identifying potential risks in the procurement process, i.e. cost overruns, unprepared sellers, or misestimated budgets. The factors classified as risky shall receive special attention and monitoring by the procurement group.

• Procurement Negotiations: before reaching a final agreement, the requirements and scope of a contract shall be clarified between both involved parts. During that process, every aspect of the agreement is to be fully stated, such as responsibilities, terms and conditions, proprietary rights, financing, schedule and milestones, payments framework, etc. The final document can be prepared by both parts together in case of complex conditions, or exclusively by the contractor in general situations with previously set terms to be just accepted (or rejected) by the service provider. It is also to be remarked that the project manager in this context might not be the responsible for leading the process, either than just provide assistance or clarification of technical aspects for the negotiation group.

Considering and properly understanding the above mentioned points shall provide the project manager in the bidder position a good overview of the methodology utilised by a contractor to select a service provider after a bidding process. Based in that, a, adequate negotiation strategy can be formulated.

Negotiation Strategy

Negotiating within a project requires the establishment of a strategy or framework at any circumstance. The same applies for negotiations during a contract bidding process. A well-structured approach in such context significantly increases the odds on succeeding.

In general, three overall groups or stages can be defined within a negotiation structure: Planning, engagement and closing. In order to better understand each of them, the following processes are identified:

Preparation

This is the core of the planning stage. In this regard, the same way a contractor goes through a preparation stage before the bidding in order to define the place and time to carry on with the process, as well as the arguments to be presented regarding the contract conditions, the project manager as a bidder shall also prepare in advance a series of information to be remarked when necessary. This includes, for instance, policies and standards from their organisation, thresholds for possible benefits to be provided, feasibility of scope fulfilment, etc.

Discussion

This stage marks the initiation of the engagement stage. It involves questioning, listening and clarifying possible misunderstandings that might arise from the contractor’s side when introducing the project proposal. A recommended practice is to take notes of doubtful points during that stage, so as to further discuss and clarify them when needed. The acts of listening and questioning when appropriate are also essential, not only to avoid redundancies, but also to demonstrate interest and technical competence.

Clarification of Goals

Following the discussion phase, the interests and perspectives from both sides need to be understood, in order to reach a common agreement. As a contract bidder, the project manager shall be fully aware of the contractor’s expectations and requirements, but also have made their points clear for the final accordance.

Negotiation of Win-win outcome

Negotiating conditions from which both sides can take significant profits is the ideal situation for maintaining a positive connection, which can further lead to a partnership also for future projects. At this stage, the project manager shall be enough open and flexible to give and receive suggestions regarding possible alternatives to reach often better outcomes. Holding a conservative or rigid position at this point might even lead to a failure on obtaining the contract.

Agreement

Once both sides have come to an understanding in all aspects, the final agreement can be achieved. The closing stage is therefore reached within the negotiation framework. At this point, it is fundamental once again to assure that all the contract conditions have been made clear to all the involved parts.

Implementation of Course of Action

After the agreement, a course of action is set up by the project manager and his team, in order to plan the strategies for tackling the obtained project. This stage takes place just before the project initiation, and shall be thoroughly structured so as to avoid critical flaws during the project lifetime. Whether the project manager structure their negotiation strategy taking the previously mentioned steps into consideration, potential disagreements or misconceptions can be avoided during the process, and it can therefore progress through an uneventful way.

Negotiation Skills

An often assumed misconception in the corporative world is that the best negotiators are born with their skills, and therefore do not need much effort or training to accomplish positive results when negotiating.

In fact, project managers seen as successful negotiators are those who develop several skills from distinct fields, furthermore being able to employ them in diverse contexts, such as products and resources acquisition, services, stakeholders’ management, contract biddings, etc.

There are three key factors which tend to have a significant effect on the outcomes of negotiation processes and shall be given extra importance by project managers when seeking for means of developing their skills. These are the following:

Attitudes

Negotiations are strongly influenced by the attitude of the involved parts towards the concerned topic. For instance, an aggressive approach from one of the sides can lead the counterpart to adopt a defensive position. Likewise, demonstrating needs of personal recognition can be perceived as an extremely negative posture, most likely hindering the continuation of the process.

A project manager in the negotiator position, for instance, during a contract bidding process, shall adopt a plain behaviour, avoiding to demonstrate strong emotions and absolutely dismissing any sort of attitude that indicate interests apart from the ones of the company or group they represent in the process. Likewise, as the possible contractor may also apply an aggressive strategy towards the bidders in order to take high advantage of the final agreement, it is important for the PM to be able to manage their behaviour and avoid manifesting a defensive position. While seeking for a longer relation with the potential client is important, achieving favourable terms and conditions on the agreed contract is also a basic concept.

Knowledge

It is fundamental for a project manager to go through some preparation before a negotiation process. They shall be acquainted with as much as possible from the topic in order to assure a significant participation in it. In this sense, collecting general and detailed information beforehand, as well as studying some possible paths the negotiation may take are perceived as effective practices.

Interpersonal Skills

Besides possessing technical knowledge, it is indispensable for a project manager to have strong interpersonal skills, in order to facilitate and increase the odds of being successful in a contract bidding process, as well as in any other stage of a project lifetime. Developing a persuasive character is understood to be constructive for successfully negotiating in distinct instances and formality levels. The core of this concept lays on communication. From that, few main abilities can be listed:

• Assertiveness

• Persuasiveness

• Dealing with difficulties

• Decision making

• Effective verbalisation

• Listening

• Problem solving

• Empathy and affinity building

• Reducing misunderstandings

Discussion

There are two main types of negotiations: distributive and integrative. The first one refers to a process on which the main objective of both involved parts is to maximize their resources or benefits from the final agreement. It is a “win-lose” operation, where at least one of the sides shall stay under an unprofitable or even disadvantageous condition.

The second case is divided in two stages. First, the involved parts seek for additional elements that feature some potential of benefit for the overall process. In this regard, one of the sides might hold assets that represent little significance to them, but high value for the other. After identifying such factors, the second step takes place, and then the resources are distributed between the parts. This phase is, in fact, less representative in the bidding context, as such distribution would be replaced by the provision of services from the contracted part and the corresponding payment and availability of agreed conditions from the contractor. Anyhow, a negotiation process under such setup features a potentially higher value than a distributive one, due to its “win-win” or collaborative characteristic.

A third negotiation structure, defined as accommodative by Lewicki, Barry and Saunders, also presents relevance for the current context. In this case, the project manager would voluntarily stay under a losing position against a winning position of the contractor. While such agreement might seem contradictory or unwise for a single case project, it is nonetheless perceived as an effective strategy for building up a long-term relationship with the other part, therefore increasing chances of achieving further contracts with less effort.

Following these considerations, the form to treat a negotiation process is decisive on defining the characteristic of the accord. Whether one of the involved parts does not approach the deal from a visionary and long-term perspective, attributing little importance to the relation with the counterpart, it becomes prone to be limited to a single occasion already from the beginning. A negotiator that does not target the relationship with the client tries to obtain as much as possible from the immediate resources available, lying therefore in a distributive condition, whereas the one seeking for a long-term relation aims at an either integrative or even accommodative procedure.

The Project Manager as a bidder shall, therefore, essentially assess the conditions presented in a distinctive manner, and, based in their evaluation, manage their approach towards the process as either a single-case situation to take the best profit as possible, or as a mean of creating a permanent bond with the potential client, or partner in that case.

Conclusion

The participation in contract bidding processes fundamentally requires from a project manager the development of appropriated negotiation skills. In order to do so, a series of aspects shall be considered. In general, it is reasonable to understand the tools and instruments utilized by the procurement group holding the process to select the seller to be awarded with the contract, so as to define a negotiation strategy which can better suit in the process and increase the chances of being awarded with the contract. Possessing relevant negotiation skills is another crucial aspect in that regard. For instance, holding good interpersonal skills, technical knowledge about the topic of the contract, and a positive attitude towards the negotiation significantly improves the project manager’s performance from the contractor’s perspective.

At last, the approach adopted towards the process is decisive on the future relation between the two involved parts. A project manager who treats the negotiated contract as a mean of obtaining immediate resources might obtain a significantly smaller outcome than one who seeks for creating a long-term relationship with the contractor. It is therefore essential to evaluate meticulously which is the best strategy to take during the procedure, in order to ensure that the best agreement will be reached.

Annotated Bibliography

Craddock, W. T. (2010)

The article provides an overview and understanding of the distinct meanings comprised in the concept of “negotiation”, and further describes the 5 main aspects to be considered by a project manager in a negotiation process. It provides valuable input applicable for the whole of a project framework, and not exclusively for the bidding stage, according to mostly academic based sources, as well as technical ones, such as the PMBOK from the Project Management Institute, demonstrating its reliability as a reference for both academic and practical purposes.

Project Management Institute (2008)

While the reference to negotiation aspects are rather limited in the publication, it is fundamentally a manual of standards and practices to be followed in program management. Not only the core definitions comprised in the process are provided, but also frameworks and procedures related to all main stages of a program are presented and detailed.

Project Management Institute (2013)

The publication is an official guide to project managers, which explain the main aspects comprised within their overall scope in a project, as well as significant guidelines to approach its distinct stages. As for the current article, it is also suitable for externals or further stakeholders to understand the project framework and eventually devise their own strategy of approach towards that based on the project manager's perspective.