CIPS L4M5 - Commercial Negotiation

Professor Gavin Kennedy highlights that we need to distinguish negotiation from other forms of decision-making by focusing on what is unique about it (the voluntary exchange) and not shared by other

techniques such as persuasion, gambling (e.g., coin tossing), command decision, instruction, litigation and coercion.

Direct costs are attributable to a specific project — in construction, this includes materials and on-site labour. Legal fees, insurance, and office space are indirect costs, as they support the business overall but are not tied to one project. For buyers, distinguishing direct from indirect costs ensures pricing transparency and helps challenge excessive overhead allocations. This knowledge strengthens cost breakdown negotiations in project contracts.

Mark-up % = Profit ÷ Cost × 100. Here, profit is $80, cost is $160. So, (80 ÷ 160) × 100 = 50%. This differs from margin, which is profit ÷ selling price. Mark-up analysis helps buyers understand supplier pricing structures, detect hidden margins, and strengthen negotiation. By knowing whether a supplier is working with high or low mark-up levels, buyers can challenge prices more effectively or justify alternative offers. This analytical preparation supports objective negotiation rather than reliance on supplier claims.

In difficult negotiations and disputes, hardball tactics like punishment and threats often seem like the only way to win concessions. Some negotiators seem to believe that hardball tactics are the key to success in any negotiation. They resort to extreme demands and even unethical behaviour to try to get the upper hand in a negotiation.

The following are 8 typical hardball tactics:

1. Good cop / Bad cop

2. Low ball / High ball

3. Bogey

4. The Nibble

5. Chicken

6. Intimidation

7. Aggressive Behaviour

8. Snow Job

You can read the details of each tactic here.

In the contrary to hardball tactics, negotiators can adopt integrative approach to the negotiation. Some of integrative tactics are:

1. Expand the Pie

2. Bridging

3. Post Settlement –Settlement

Et cetera

Different questioning styles can be used to elicit desired responses:

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Variable costs change in proportion to production volume, such as packaging, raw materials, and delivery. Fixed costs (rent, insurance, loan repayments) remain constant regardless of output. Recognising the difference is crucial when negotiating supplier pricing, as variable costs are often more open to tradeable adjustments (e.g., bulk discounts). Buyers who understand cost structures can challenge inflated fixed allocations or negotiate on genuine variable elements. This knowledge is vital in price breakdown discussions and in cost-modelling negotiations.

Under the European Union public procurement directives, all public sector bodies must abide by certain rules when they procure goods and services over a threshold value. These rules are codified under 5 procurement procedures:

1. Open Procedure

2. Restricted Procedure

3. Competitive Dialogue

4. Competitive Procedure with Negotiation

5. Innovation Partnerships.

Under normal circumstances, there is no commercial negotiation allowed under the two most commonly used procedure, Open and Restricted. Under these procedures, the prices and terms and conditions of contract should be decided via reference only to the tenderers' responses to the buyer's requests for tenders, and not through 'post-tender negotiation'. Under the other procedure, negotiation within the rules is permitted. Interested learners can read more about these procedures here.

LO 1, AC 1.1

In MIL planning, “Musts” are non-negotiable requirements (policy, law, mandatory standards). Ethical/sustainable procurement is typically a policy/legislative compliance requirement, so it belongs in Must; “Intend/Like” cover important and desirable aims respectively.

Trust is built through consistent communication (e.g., regular meetings) and fulfilling commitments (keeping promises). Coercion erodes trust, while mediation is reactive and not a foundational element of trust-building.

Distributive bargainingfocuses onmaximizing one's own gainat the expense of the other party. Common tactics includewithholding informationandcoercion. It is typically used in zero-sum negotiations where parties compete over a fixed value.

“Tactics in distributive bargaining include withholding key information, making extreme opening offers, and using pressure to achieve concessions. These are aimed at maximizing individual outcomes.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.5 - Tactics of Distributive Bargaining)