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Let’s Make a Deal

Contract negotiations can be uncomfortable for procurement professionals used to a different kind of sourcing, but the right strategies and tools can turn them from awkward to artful negotiators.
University Business, March 2013

If the phrase “everything is negotiable” makes you uneasy, you’re not alone. Even though negotiation is increasingly essential for campus procurement departments, the task is often approached with trepidation. This isn’t surprising, given the past experience of many procurement professionals, says Steve Mack, director of procurement services for the University of Missouri System.

For example, says Mack, who is responsible for procurement activities of the four-campus system, his staff comes from a background of simply facilitating processes; no negotiation required. This paradigm is starting to change, he says, but it’s not an overnight or easy transformation.

“This is because many who chose this profession did so because the skill-set requirements fit their abilities and the new requirements put them in an uncomfortable place,” he says. “It’s an ongoing challenge to help the staff acquire the skills and even more challenging to get them to use the skills on a regular basis.

Negotiating doesn’t come naturally for the majority of higher-ed procurement professionals, which may come as a surprise to administrators across campus who see a good deal as a top reason to turn to the procurement department when a purchase must be made.

Mack cut his own negotiating teeth when working for a purchasing group where this was part of every deal. But, he cautions to his procurement peers, negotiating is key to maintaining the department’s relevance. “There are plenty of companies out there just licking their chops to get their teeth into outsourcing a purchasing department.”

Many in higher ed procurement are seeing the value of implementing contract strategies that include negotiation. Consider Bill Wheelock, director of procurement services for Youngstown State University (Ohio). About six months ago, his department began issuing each RFP as an ITN, as well (Request for Proposals and Invitation to Negotiate).

“This allows us to solicit proposals and then negotiate with suppliers based on their submissions,” he explains. “Presently, we work on the ancillary portions of the proposal, including shipping, handling, fuel surcharges, and other special fees to reduce costs. We also look into volume cost reductions and potential rebates for volume and payment terms.”

The biggest value is that the ITN establishes that a negotiation might take place, whether it actually happens or not.

Wheelock says this strategy was adopted after the purchasing group of the Inter University Council of Ohio, of which Youngstown is a member, began doing it to reduce and control costs. Invitations to negotiate also give suppliers the opportunity to provide value-added service, keeping them from having to compete solely on price, says Wheelock, who is loath to drive prices to the basement.

“I want to make sure suppliers stay in business. If you drive four out of five suppliers out of business, then one supplier has all your business and they can do what they want with prices,” says Wheelock.

Gary Link, senior vice president of consulting services and contracts for E&I Cooperative Purchasing, applauds this approach to negotiation. “It’s not about winning at all costs,” says Link. “People need to understand that short-term success can often result in long-term failure.”

Recently, E&I began providing procurement and payable consulting services to the education sector in addition to, but not directly tied to, their cooperative purchasing contracts, shares Link. The purpose is to help these departments become more strategic, rather than tactical, in their operations. The ability to negotiate plays a primary role in this effort. But negotiation isn’t just about dickering; it’s about developing mutually supportive, collaborative partnerships that can go the distance. How does this happen? The following best practices provide a running start.

Do Your Homework

“It’s essential to understand your spend and the value of your spend analytics; you have to know where you’re spending, with whom and how much,” says Link, adding that e-procurement systems are integral to developing this understanding.

Sandy Hicks, assistant vice president and chief procurement officer for the University of Colorado office of the president, says getting a handle on their purchasing data has made all the difference when undertaking procurement negotiations for their four campuses.

“The power lies in the data,” says Hicks, who works at CU’s Denver-based procurement service center, which went live with an e-procurement system in 2011. “Now that we have the data to know what we’ve spent, what we’ve bought and with whom, we no longer have to rely on the vendors and suppliers to provide it.”
Understanding the institution’s goals is also critical to establishing a strong fit with suppliers and a win-win relationship for all parties, says Andy Lausch, vice president of higher education for CDW-G.

“Another key issue is ensuring that the institution’s IT leadership is on board with procurement’s supply chain strategy, and that IT has a voice in the decision,” Lausch adds.

Thoroughly explore the end user’s needs, requirements, and deal breakers, advises Alan Moloney, director of procurement services for the University of California office of the president. Moloney procures for the 10 campuses making up the UC
system, as well as for several national labs.

Don’t just check in with end users prior to issuing the RFP, he cautions. Because negotiation can happen months afterward—in their case, the gap is sometimes as long as eight months—make sure nothing has changed in the meantime in terms of needs, budgets, and so on. Also, investigate if the vendor’s needs and situation have changed since they submitted the RFP and made their initial presentation, he says.

Expand your focus, advises Eric Zoetmulder, director of product marketing for SciQuest. Sometime this year, the company’s contract management solution will include a negotiating module enabling users to measure negotiation success.

“We’ve found that most organizations concentrate on the dollars,” says Zoetmulder. “But there are other factors to consider, such as time to delivery, delivery charges, even proximity to delivery. Also, sustainability, life cycle, and the full life-cycle costs; these are not generally taken into account.”

Maurice Sevigny, vice president of operations for SciQuest, notes that “if you look at procurement, no one is following an established process, there’s no way to measure outcomes and if goals have been met, and there’s no way to evaluate the negotiation staff and identify who might need more training and support. You can’t manage what you can’t measure.” That’s why he says it’s important to determine your objectives and set KPIs.

Set the Stage

“You have to define the engagement strategy and how institutions and vendors will measure success moving forward,” points out Lausch. “Therefore, it’s important to discuss accountability before and during the negotiations, as well as after," he adds.

At the University of California, Moloney forms a negotiation team. He generally restricts its size to five people, the composition of which depends greatly on the objectives, objectives that everyone involved must approve. Qualifications considered include their skill set, ability to play act, and their experience in negotiation.

They then develop a script, determining the questions, the order of questions, and the cadence and timing. After the script is finished, roles are established and a seating plan developed. (Moloney doesn’t like seating vendors on one side of the table and the team on the other, like a face off. He wants to have the sight line of the team and vendor faces when running the negotiation.)

For Hicks at the University of Colorado, the negotiation process begins when the decision is made to go after a particular commodity. At this point, a team is formed and an RFP drafted and released. Sometimes vendors are brought in prior to issuing the RFP; a year before her team decided on its current travel management company, for example, and before a formal request was issued, initial meetings with vendors took place.

When preparing for a negotiation, her team reviews the goals of the session, how reasonable those goals are, and what needs addressing. An agenda is developed along with formalized talking points. For the actual vendor meeting, Hicks limits the number of university participants to just three to four people and asks the same of vendors.

“This session is a springboard for getting the BAFO [or best and final offer] from the vendors,” she explains. “It’s not a sales session; it’s to gain a better understanding of the strategic objectives and direction of both parties.”

Finally, adopt the right attitude going into the negotiation, suggests Cory Harms, associate director of purchasing at Iowa State University. “If we feel there’s room for improvement on anything worth money, we’re going to try,” he says. “And your mindset should be that there’s always room for improvement.

“I think a lot of people are uncomfortable asking; they don’t like conflict,” he continues. “But you have to be kind of hard-skinned about it; you have to let go and not worry they’re going to say no.”

It’s advantageous to know as much about your vendor’s business as possible, and what your peers have gotten from that supplier, Harms says. “Know your spend metrics and where you want to ask for discounts. You want to negotiate from a position of strength and knowledge,” he advises.

Asking for more than you actually want is another tactic Harms says can be useful at times. “You want to look for the best case outcome and work from there. And you have to determine what you won’t accept and be willing to walk away.”

Stay in Control

The most successful negotiations are those where expectations are forthrightly expressed by all parties. To this end, Lausch suggests that procurement professionals:

  • Share data (including any background data) that will support the points to be made during the negotiation, enabling vendors to understand what is required from them to support the institution short- and long-term and also what is driving the request.
  • Set clear expectations for key milestones, including award dates.  
  • Detail the expectations and goals of the contract, and best and final offer opportunities, when developing a market basket—that is, all of the components, from RFP to order and related expectations.

The most important part of any negotiation is keeping the tone positive, says Moloney. “If you’re not managing it well, it can get contentious and then neither team wins. You have to come out with both parties feeling like they’ve won something.”

Moloney designates certain team members as “spotters” who can discretely signal for a break when they’ve heard something that needs discussing or when the negotiation starts veering off course. “You also have to be willing to schedule a second negotiation if it’s not heading in the desired direction,” he says.

Remember, it’s a balancing act, says Hicks. “We’re looking to better us and we’re looking to better them. One of my favorite sayings is that we’re never going to pay zero. We need these suppliers to stay in business so it comes down to how we can both be successful. It’s not just the dollars,” reminds Hicks. “It’s also looking at the value-add, and there’s always something in it for both sides.”