Negotiation is an attractive method of concluding a contract when an existing contract comes up for renewal.
Since few people would likely argue that public sector procurement operates as efficiently or effectively as its private sector counterpart, it seems reasonable to suggest at least some consideration should be given towards a greater utilization of negotiation in public contracts than has formerly been the case.
There is no strong theoretical argument to support the widespread assumption that tenders or RFPs lead to the best possible price. On the contrary, the proposition the tender process is likely to yield the most competitive price to a customer has always seemed to me to be counterintuitive.
The dubious nature of this proposition can be demonstrated by asking two simple questions: First, between the public sector and the private sector, which is more likely to place a premium on securing the lowest source of supply? The answer must necessarily be the private sector, for it does not have the luxury (as the public sector does) of imposing a compulsory tax levy to cover costs if the price of its products goes above what the market will bear.
While it is possible the public sector could identify a more effective price-saving approach, it does not seem realistic to assume this would escape the notice of the private sector from whom it is purchasing goods and service, if this were to happen.
Since the private sector does not make widespread use of the tender approach one must then proceed to the second question: If the private sector found some cost-savings method of securing supply that the private sector was free to adopt, would the private sector not do so as soon as it became aware of the technique? Clearly the answer to that question must be yes.
Assuming the bids have not been rigged, a true tender involving a reasonable number of prospective suppliers will lead to some price competition.
However, tendering and RFPs are not the exclusive mechanism for introducing competition into the procurement process. Competitive negotiation allows suppliers to be played off against each other.
Concessions extracted from one supplier can be used to extract more concessions from an alternative supplier.
Thus, in the private sector, negotiation is a process that is used very effectively to control the price of supply.
What tendering and RFP contracting do lead to is a more open process in contracting than is the case in the private sector.
It would be difficult to argue there is no role, or only a limited role, for openness in public contracting. Since tax dollars are raised across the entirety of society, an open contracting process seems a just counterbalance: if all must pay for contracts, all should have a chance to participate in public contracting.
It is also consistent with the notion of equal treatment by government. However, important as these concerns no doubt are, they must be balanced against such competing consideration as the need to provide effective and low-cost supply of goods and services to governments as customers. The difficulty is in drawing the proper balance.
While it is doubtful the entire public sector approach to open and competitive procurement will be abandoned, I can see a considerable value in encouraging public sector staff to develop their negotiation skills to enhance their procurement efficiency and to introduce some measure of flexibility rather than formality into the public-sector procurement process.
Negotiation is the process by which (a) the parties to a dispute attempt to resolve their differences by way of voluntary agreement; (b) two or more parties attempt to devise a transaction involving the transfer of resources or performance of services between them, so as to enhance their mutual welfare.
Negotiations of both types involve similar considerations and require the utilization of similar skills. The relevance of negotiation to procurement is obvious.
Stephen Bauld is a government procurement expert and can be reached at [email protected]. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
