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the dual negotiation approach to ICT procurement

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2010 has seen a big uplift in ICT procurement activity in and around Wellington, particularly from the Government sector.  A feature of many of the larger procurements has been the conduct of dual negotiations with two or more suppliers (before down selecting to a single preferred supplier).

We think this approach is often a good option for high value procurement – NZ’s ICT market is competitive and the additional tension generated by a dual negotiation usually leads to a better deal for the customer, both on price and commercial/contractual terms.

Best practice with these processes involves:

  • attaching a draft contract to the tender documentation and requiring each supplier to agree to the terms of the draft contract except as marked by that supplier
  • making the supplier’s degree of acceptance of the draft contract an evaluation criteria
  • conducting negotiations in parallel with the same negotiation team (making it easier to compare each supplier’s offering and ensuring the competitive threat remains as real as possible for as long as possible).

However, customers need to be careful to not shoot themselves in the foot.  While the competitive tension could be used to require extreme customer friendly or even punitive contractual terms, this puts suppliers in an untenable position.  Do they (i) spend lots of $$ on lawyers to negotiate a fairer deal with the risk of losing the tender; or (ii) suck it and ignore the risk the contract poses (particularly if the supplier feels contractual provisions are untenable in the context of a long term commercial relationship)?  We’ve seen customers take it too far and the end result is usually bitterness and/or disengagement on the part of the supplier – not the best way to start your relationship . . .

We think the best approach is for customers to put forward a realistic and reasonable draft contract from the outset.  Being pragmatic, as a customer, is likely to substantially reduce the time spent in, and costs of, negotiations (as suppliers are more likely to agree to the terms) and sets the tone for a good working relationship going forward.

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