Template - Negotiation Plan

4 Classifications For the purposes of this guidance: Clarification Description A clarification is contact between the Agency and a (potential) Respondent to clarify aspects of the tender or Offer which are unclear or abnormal. Clarifications cannot be used to fix deficiencies or material omissions in an Offer, materially alter the technical or cost elements of an Offer, and/or otherwise revise an Offer. Clarifications should not be used to seek additional information. Typical timing From Request advertisement to contract award. Shortlisting Description Shortlisting can be part of an evaluation process. Typically, offers are first assessed based on compliance and competitiveness. Offers that are nonconforming, non-compliant or non-competitive in comparison to other Offers that demonstrate value for money are excluded from further evaluation. The remaining Offers are shortlisted and subject to further evaluation. The inclusion of a shortlisting process in a procurement should be communicated to Respondents before Offers are submitted and detailed in the Request document. The rationale for exclusion or inclusion should be documented for each Offer. Typical timing During evaluation, before award. Negotiation Description A negotiation is a strategic discussion that seeks to resolve an issue in a way that both parties find acceptable. Generally, negotiations with Respondents should take place after the Offers have been evaluated and, as a result of this evaluation, a Preferred Respondent(s) has been identified. Negotiations can also occur during contract management between the Contractor and the Agency when changes to the contract are required. Typical timing Usually after evaluation, when a Preferred Respondent has been determined, or after contract award. 5 Principles of Negotiation Government must maintain its role as a model contracting party at all times and comply with the WA Procurement Rules, including the need to obtain the best value for money for the taxpayer whilst maintaining integrity and accountability. The following principles should be considered: 5.1 Act Ethically with Integrity and Accountability a) Negotiations should be carried out in a fair and equitable manner and in compliance with relevant Government legislation, regulation and policies. Please refer to the WA Procurement Rules and the Act Ethically – With Integrity and Accountability Guideline on wa.gov.au. b) Negotiations must be conducted in accordance with the process outlined in the Request document (including the Request Conditions). a) The negotiation team will not for themselves or others seek or accept gifts or benefits from the preferred Respondent(s), or any other party associated with the negotiations. b) Both parties should avoid negotiating on items that would effectively alter the scope of the Request or substantially amend the terms and conditions of the proposed contract. In some cases, there may be a need to negotiate a reduction in scope in certain circumstances (i.e. budget constraints), however care must be taken to ensure that Respondents are treated fairly. Negotiation on total price, itemised pricing or pricing structure or service standards must be carefully managed. c) Negotiations should only be undertaken with a Preferred Respondent if there is genuine intent to award that Preferred Respondent to the contract. d) The Agency should not provide one Respondent an opportunity to improve their bid if the Agency does not give the same opportunity to the other Respondents that submitted compliant Offers. e) Negotiators should not attempt to pit one Preferred Respondent against another. f) Outcomes of the negotiations, as well as any associated working papers or documents, are to be treated as confidential. g) Members of the negotiation team, including independent advisors, are to notify the lead negotiator if any conflicts of interest (whether actual, potential, or perceived) arise prior to any negotiations or during the negotiations. If this occurs, a decision will be made as to whether the member should remain as part of the negotiation team. h) Where a member of the negotiation team has not previously completed a Declaration of Interest and Confidentiality form, they are to complete the form at Attachment C prior to being provided with any information or documentation related to the negotiations. 5.2 Be Prepared a) All parties to the negotiations must be given adequate written notice of the issues to be negotiated. The period of notice would depend on the complexity of the issues to be negotiated. i) If the Preferred Respondent elects to bring along their technical or legal advisor, adequate notice must be given to the Agency to provide an adequate response. j) All items that the Agency and/or the Preferred Respondent wish to negotiate must be agreed upon beforehand and adequate time must be allowed for both parties to prepare their cases. g) Minutes of the negotiations should be taken and copies provided to both parties to ensure they are an accurate reflection of the negotiation outcomes. 6 Considerations for Planning the Negotiation 6.1 Conduct Negotiations in Accordance with the Request Conditions The WA Procurement Rules states in Rule D6 that: State agencies must only conduct negotiations during the evaluation of offers if: a) The right to negotiate was included in the Request; or h) No offer obviously represents the best value for money, and the Request documentation does not preclude negotiation. For this reason, it is important to be aware of the negotiation clauses within the Request document before entering into negotiation. For instance, the goods and services Request Conditions and General Conditions of Contract states that negotiation can occur at the preferred respondent stage and includes details of how this process will be undertaken. 6.2 Insurance Commission of Western Australia Contractual Liability Cover The Insurance Commission of Western Australia (ICWA) provides contractual liability coverage to Agencies contributing to the RiskCover Fund, which applies automatically unless: the Agency waives or limits its right of recovery (i.e. agrees to cap liability) or indemnifies another party; the indemnity, liability and/or insurance clauses in the Department of Finance Request templates, Request Conditions and General Conditions of Contract have been varied or departed from; or the contract establishes a joint venture or partnership in which the State is one party of the joint venture or partnership, in which case the cover is voided. Agencies should consult with ICWA prior to engaging in negotiations for indemnity or liability clauses. A risk assessment needs to have been undertaken prior to engaging ICWA. Agencies should notify ICWA if any of the above situations arise, and ICWA will evaluate reinstating cover. 6.3 Negotiating Price Negotiating on price is not considered standard practice for WA State Government. If Preferred Respondents are offered an opportunity to provide a better price than what was included in their original Offer, then there is an argument that certain Respondents are allowed to improve their bid and this opportunity is not being extended to all Respondents. This may mean compliance with the policy requirement to act ethically with integrity and accountability is not being met. Price negotiation must be considered on a case by case basis and balanced with the motivating factors which have prompted the need to negotiate on price. For instance, there may be a need to negotiate price where a project or contract requirement has a fixed, publicly advertised budget. Each scenario will invoke different considerations, however this must be weighed against not changing the scope too much as to be acting unfairly to other Respondents. Ultimately a rationale for the decision should be documented in each case. A Best and Final Offer (BAFO) process refers to a multi-stage procurement process in which Respondents' Offers are subject to clarification, shortlisting and/or negotiation, and the Respondents are then asked to submit their final Offer, which would not be subject to further negotiation. If a decision is made that a BAFO process is required, the process for doing so must be clearly documented in the Request document. This is not standard practice and a rationale for the decision, and the transparency of the process from Offer to award, must be documented. 6.4 Negotiating with Multiple Respondents Negotiating with multiple Preferred Respondents at the same time should generally only be undertaken if there is genuine intent to award all Preferred Respondents to the contract (i.e. for a panel contract). As an example, the Agency should not negotiate with two Respondents at the same time if the Agency only intends to award one Respondent to the contract. If negotiations with a Preferred Respondent are unsuccessful, then the Agency can determine if there is an alternative suitable Respondent to begin negotiations with. If there are no alternative Respondents considered suitable, all Offers should be declined. Negotiations should be exhausted with the Preferred Respondent before proceeding to negotiate with the next Preferred Respondent. Where time constraints require a decision to be made and the contract awarded, negotiations may take place with multiple respondents if this is allowed for in the Request documentation. Agencies should review the Request documentation to ensure this practice will not breach the process contract. Generally, negotiation with multiple respondents should be considered as an exception rather than common practice. Note that a shortlisting process is not considered a negotiation for the purpose of this guidance. 6.5 Directly Engaging One Supplier Procurement processes where the Agency directly engages one supplier without seeking competitive quotes may have greater flexibility for negotiations. This is mainly undertaken through an exemption or an exception to the procurement methods in the WA Procurement Rules (Rule C4.2 & Rule C5). This flexibility primarily relates to changing the terms and conditions of the Request or allowing the Respondent to alter their bid, as there are no other Respondents in the process that would need to be offered the same opportunity. 6.6 Accountable Authority The Agency’s negotiation team should seek approval from the Agency’s Authorised Officer regarding final positions agreed with the Preferred Respondent. Unless the Agency’s Authorised Officer is present at the negotiation and is in a position that they can agree to revised conditions, no promises can be made by the Agency’s negotiation team during the negotiation. This should be conveyed to the Preferred Respondent. 7 The Negotiation 7.1 Items for Negotiation The items identified for negotiation are recorded in Attachment B. [All items for negotiation should be clearly identified before the commencement of the negotiation. A recommended spreadsheet layout is provided in Attachment B, which demonstrates the original clause/position, the proposed clause by the Respondent, and the Agency’s position. If negotiations are being held with multiple Respondents, Attachment B should be completed for each Respondent.] 7.2 Strategy for Negotiation For more complex negotiations, a developed negotiation strategy may be useful for the Agency to determine how to approach the negotiation. Attachment A – Negotiation Strategy, outlines some considerations for each negotiation item. These considerations are outlined in more detail below. [If negotiations are being held with multiple Respondents, Attachment A should be completed for each Respondent.] 7.2.1 Objective What do you want to achieve from the negotiation. For example, it may be requiring a supplier to increase insurance requirements to reduce the risk to the Agency or reducing their delivery timeframes to meet government priorities. 7.2.2 Most Desirable Outcome (Best Case Scenario) The best possible outcome for the Agency. 7.2.3 Least Desirable Outcome (Worst Case Scenario) The minimum the Agency is willing to accept. 7.2.4 Zone of Possible Agreement An area where two or more negotiating parties can find common ground is considered to be the zone of possible agreement (ZOPA) or bargaining range. It incorporates at least some of each party’s ideas and is most likely where both parties will reach an agreement. The ZOPA exists between each party’s Least Desirable Outcome. It is recommended that the Agency’s negotiation team consider the Preferred Respondent’s best case and worst-case scenario when determining the ZOPA. Figure 1. Diagram demonstrating zone of potential agreement. If a ZOPA cannot be established by the negotiating parties, they are in a negative bargaining zone. In a negative bargaining zone, an agreement cannot be achieved since the needs and aspirations of both parties cannot be fulfilled. 7.2.5 Best Alternative to a Negotiated Agreement (BATNA) If the negotiations fail and an agreement cannot be reached, consider all the alternatives and determine what is the best option for the Agency. Some considerations could include: Is this item a must have? Do you have alternative Respondents that contain favourable positions on these items? What would be the associated costs involved with each alternative option. Which one represents the best value for the Agency? The BATNA is the walk away point. If the proposed negotiated offer is better than your BATNA, then you can feel comfortable accepting it. If the proposed offer is not better than your BATNA, you should continue negotiation until it is clear that an agreement cannot be reached. At this point, you should consider withdrawing from negotiations and pursuing your BATNA. Having a strong BATNA improves your negotiation power. If you have a strong alternative, then you do not need to concede as much to the Preferred Respondent and can push for a better deal. On the other hand, if your alternative options are not that great, or even non-existent, the Preferred Respondent can make increasing demands that you may have to accept. Therefore, it is important to continually consider and review you BATNAs. 7.2.6 Other Considerations Industry Consider key information about the Preferred Respondent and the industry that should be kept in mind whilst negotiating and may be used as leverage. For example, if there are a lot of suppliers in the market that can provide what you are looking for, this may provide more leverage to the Agency. Communication Consider how you are going to communicate your position to the Preferred Respondent, including what information the Preferred Respondent needs to know and what information should not be shared. Also consider who in the negotiation team should be responsible for leading each negotiation item. 8 Conclusion [Describe the main points that were negotiated and agreed between the Agency and the Preferred Respondent/s and confirm that the agreed positions have been incorporated in the contract and notified to the Preferred Respondent in the Award of Contract letter.] The outcome for each negotiation item is recorded in Attachment B. Overall, the negotiation/s was/were considered un/successful. [If negotiations were unsuccessful, explain here the items that could not be agreed upon and what the next course of action will be.] Relevant records to the negotiation are located here: