How can you create value when you've been invited to negotiate through a tender process? - Part 1

So, you receive an invitation to tender from your client's procurement team...

Here are the rules to participate:

1. You agree to participate in a competitive bidding process.
2. You agree to their standard terms and conditions.
3. You agree not to speak directly with the client - attempting to do so will forfeit your tender opportunity.

What choices do you see?

A. Walk away? B. Capitulate to 'their' rules of the game?

Sadly, this scenario is more familiar than you think.

This deal, set up by the buyers (procurement), is structured in a way that destroys value for the sellers (suppliers).

You can call this a win-lose, zero-sum game approach.

Sellers who choose to participate may ultimately 'win' the tender, but they will most certainly have lost the negotiation.

So, if you're a seller (supplier) in this situation, what options do you have?

In Part 1 of this newsletter edition, we're slowing you down to explore where you need to begin. In Part 2, we will share further action steps on what you can do to influence the tender process itself.

Begin by analysing the deal set up and design

1. Don't assume that the procurement team has carefully thought through the design and set up of the deal to optimise the value that could be created.

Most teams default to a tender because it means they can tightly control the process and create leverage through increasing competition between suppliers.

It's the default option because it's also the path of least resistance, requiring the least skill.

A procurement team skilled in complex deal negotiation would be better equipped to negotiate across complex internal stakeholders and suppliers simultaneously. Not all procurement teams have the skills to do this.

Those that are least skilled in complex negotoation skills are stronger in administering processes than they are in creating value.

Controversial but true.

Collaborative strategic negotiations to create value require both will and skill. Competitive negotiations are in fact much easier for novice negotiators, who will default to protect or capture value, rather than create it.

2. Don't assume that the procurement team has the decision-making authority to impose the process rules and the required criteria.

Seek to understand how the ultimate decision will be made and who will be involved. Treat what you are told as a hypothesis to be tested - don't assume it's the absolute truth.

Your job is to identify who's who in the zoo - Decision Owners (approvers/blockers e.g., Budget Holder), Negotiators (e.g., Procurement), and Interested Parties (those who have a stake in the outcome or might shape the decision criteria e.g., Technical Expert).

By assuming the procurement team have ultimate decision making authority you give up your power to the gatekeepers. By knowing who the ultimate decision makers are, you are better equipped to create leverage with the gatekeepers.

3. Don't assume that the business requirements are adequately reflected in the RFP (Request for Proposal).

Your objective is to understand whether the scope of value in the client's mind has been adequately captured. Do the procurement team understand the interests behind the positions of each of their key stakeholders? Do they know whose interests carry more weight and why? Does the RFP reflect all the key interests for the business?

Expect that some information may be heavily guarded to be used more tactically in the negotiation, but it's always important to ask the questions - you always gain information even if they don't answer your questions.

Remember your objective here is not to make procurement look bad, by highlighting they've missed critical information or by exposing gaps that then create resistance within them. Pose questions in a way that is less like an interrogation and more like a curious friend that is seeking to help them look good to their stakeholders.

By helping procurement individuals to be better respected by their stakeholders and saving them from being exposed by their potential lack of good market/technical intelligence you demonstrate your ability to meet their unstated interests.

Meeting these unstated interests can be immensely valuable in influencing the process and outcomes of a tender.

In summary of Part 1:

1. Competitive tender processes often undermine value for sellers (suppliers), but there are ways to navigate and influence the negotiation.
2. Analyse the deal set-up and design to identify potential areas for value creation that may have been overlooked.
3. Don't assume that the procurement team has the sole decision-making authority. Seek to understand the ultimate decision-making process and the key stakeholders involved.
4. Challenge the stated business requirements to ensure they capture the client's true value priorities. Consider both stated and unstated interests when crafting solutions and communication tactics.

In Part 2, we will share further action steps on what you can do to influence the tender process itself.