The aim of this assignment to Critically discuss the procurement method

adopted to obtain various contracts for the new power plants projects against its

competitiveness including the approach to evaluating and selecting bidders, the

challenges faced by the contract between YPF and foreign partners during the

administration of President Peron and President Frondizi and how they were

addressed, the negotiation approach adopted to procure various contracts for the

new power plants projects and finally the three main factors for successful

negotiation and three main reasons that may lead negotiations to fail.

I start by explaining what procurement is. According to Ajay (2018)

Procurement is an all-inclusive function that describes the activities and processes

used to acquire goods and services. Procurement as an organizational process is

intended to ensure that the buyer receives goods, services, or works at the best

possible price when aspects such as quality, quantity, time, and location are

compared.

Procurement procedure can be classified as Open Tendering Procedure-

when theoretically all potential bidders from the four corners of the world are allowed

to submit a bid (It allows companies to bid on goods in an open competition or open

solicitation manner) and Restricted Tendering Procedure-when the group of

eligible bidders is significantly reduced to a few qualified bidders who are invited to

partake in the competition (Kovacs, 2004).

According to Ajay (2018), the Basic procurement procedures to evaluate and

select bidders are Request for quotation (RFQ)-a standard business process

inviting suppliers into a bidding process to bid on specific products or services,

Request for information (RFI)-a standard business for collecting written information

about the capabilities of various suppliers and Request for proposal (RFP)-a
solicitation to potential suppliers to potential suppliers to submit business proposals,

often made through a bidding process, by an agency.

The procurement method adopted to obtain various contracts for the new

power plants projects is Request for Proposal (RFP) and minimum requirements

set forth by the CAMMESA in its RFP are: Bid Guarantee-$5,000 x Capacity (MW)

submitted for relevant Project at auction, ICC total: $1MM (based on percentage

share of each project) and Letters of credit or insurance bond and Power Plant

Construction Guarantee (Performance Guarantee)-Capacity Fee Bid (USD /MW-

month) x Capacity (MW) x 6 months, Must be valid until COD. Guarantee pays out

to CAMMESA, if the Power Plant was not built in timely manner and Backstop

letters of credit or an insurance bond

President Yrigoyen reorganized the country’s oil industry in 1922 and

replaced the Petroleum Bureau with YPF, the first state owned energy company in

the world. The company received a monopoly on oil exploration, exploitation and

transport. Private companies were allowed to sell oil via exports and to import oil

from foreign sources. YPF dominated the Argentine energy sector due to the

government mandated price controls. Private producers were squeezed out of the

Argentine domestic market early on because of the price controls system. While

YPF gained a domestic monopoly, its ability to invest in the development of

Argentina’s energy resources was severely limited by these same price controls.

In addressing this problem, Juan Perón was elected as President in 1946. To

meet the increased demand for energy and after months of consideration, Perón

approved by executive decree the first contract that would have allowed YPF to

enter into a joint venture agreement with a foreign entity. The intention of this
contract and others that followed were to promote Foreign Direct Investment

(“FDI”) in the country’s energy sector. When Perón’s FDI contracts were submitted

for approval in the legislature, it caused vigorous debate even within his own party

and languished for months. Before the contracts could be approved or executed,

Perón was ousted.

The FDI contracts between YPF and foreign entities were executed under

the administration of President Arturo Frondizi in 1958. Under Frondizi, the

approval process was far less transparent, and did not go for debate in the

legislature. With the adoption of these FDI contracts, between 1958 and 1962, oil

production grew by 30% and the country was oil self-sufficient by the end of 1962.

Despite the positive results, the FDI contracts were still perceived negatively by

many within Argentina. In 1963, following a military coup of Frondizi and the

election of President Arturo Illía, all FDI contracts were cancelled.

In the short-term, the cancellation of the FDI contracts resulted in an

earnings bonanza for YPF, as the royalties previously paid to the non-Argentine

partners became a part of YPF’s revenues. However, to address this problem,

YPF’s revenues were not used to invest into the continued exploration of

Argentina’s sizable oil and gas reserves. Instead, these revenues were diverted to

provide subsidies to other industries such as the Railways and the Airlines and to

ease State deficits in other areas.  

Negotiation is a strategic discussion that resolves an issue in way that both

parties find acceptable (Kenton, 2021). Negotiation could be of four types:

Integrative negotiation is a negotiation strategy in which parties collaborate to find

a win-win solution to their dispute. It focuses on developing mutually beneficial

agreements based on the interest of disputants. Distributive negotiation is a

competitive bargaining strategy in which one party gains only if the other party loses

something. It is used to distribute fixed resources such as money, resources, assets

between both parties. Teams negotiation is a situation in which two or more co

negotiators sharing interests and priorities negotiate with two or more co-negotiators

on the other side who share their own interests and priorities. Multi-party

negotiation consists of a group of three or more individuals, each representing his

or her own interests, who attempts to resolve perceived differences of interests, who

attempts to work together to achieve a collective objective (Katie, 2021).

The case adopted a multi-party and integrative negotiation approach. The

case shows a group consisting of EFC (Energy Finance Corporation) and BEM (Big

Equipment Manufacturer) which are divisions of ICC (International Conglomerate

Corporation) and other five local partners that was led by Bruce Wayne, the CEO

and Managing Director of EFC representing the group. The participants in the case

includes; Bruce Wayne CEO of EFC, Yacimientos Petroliferos Fiscales (YPF),

CAMMESA the government wholesales power administrator and the Argentine

Federal Government.

Bruce Wayne the team leader and protagonist proposed a winning proposal

with CAMMESA, YPF, CAMMESA was charged with the coordinating the delivery of

electricity and the prices to be charged. Bruce seek to protect the interest of its team

(ICC, BEM and EFC) through a lucrative deal with CAMMESA which would be

effective the other party could keep to their end of the bargain and the Argentine

federal government aimed at reversing the mismanagement. The negotiation was to

give a win-win solution to the multi parties involved in the negotiation and to

collectively achieve the goal of providing a sustainable solution to the Argentina

power issue that has been affected by political and economic issues.
 According to Nancy, (2017), there are three key factors to successful

negotiation which include communication, preparation and time. Firstly, preparation-

A skilled negotiator looks at the case from the perspective of all sides. It is better to

identify the weaknesses of the case before the negotiation starts because the other

party will point out the shortcoming of one’s assessment. The negotiator that walks

into the room with the most options wins. Bruce Wayne, the team leader investigated

the interests, legitimacy, relationships, alternatives and BATNA (best alternative to a

negotiated agreement), and options relating to the contract.

Secondly, Time-Decisions made under time pressure are most regretted. It is

important to allow a sufficient amount of time to complete the negotiations especially

where the topic is important involving multiparty. No matter how much time is

budgeted for the initial negotiation session, if a resolution cannot be reached another

meeting should be scheduled. Due to the long term nature of the project and the

parties involved, the negotiation require individual negotiations with the parties.

And finally, Communication-Communication influences the negotiation such

that if parties to the bargain cannot communicate, it is impossible for them to share

information thus leading to no negotiation. A communication requires listening and

speaking their language. Listening allows the parties to understand each other and

enables them to reason based on their point of view so as to arrive at a favourable

conclusion.

According to Katie (2021), a failed business negotiation includes that where

the negotiators walk away from the table in disappointment, those that parties come

to regret over time. Failed negotiation is caused by three main factors;

mismanagement of expectations, unwillingness to empathize and lack of preparation

(Shapiro, 2020).
 Mismanagement of Expectations-Proper managing of expectations comes

from preparations and flexibility. A party should be able to understand the past

precedents and current alternatives so as to have a more realistic expectation for its

encounters. Unwillingness to Empathize-By considering other goals, needs, interest

and thought processes, a negotiator will be able to anticipate arguments. Lack of

Preparation-A negotiator should come in knowing what relevant precedents exists for

the current negotiation, what alternatives may be available or unavailable.

References

1. Ajay, Bhargove “Project Procurement: A Real-World Guide for Procurement

Skills”, 2018.

2. Argentina Country Energy Report. Enerdata Intelligence & Consulting, June 2017.

3. Cancel, Daniel, and Pablo Gonzalez. “Argentina Cuts Utility Subsidies as Fiscal

Deficit Swells.” Bloomberg.com, Bloomberg, 27 Mar. 2014,

www.bloomberg.com/news/articles/2014-03-27/argentina-cuts-utility-subsidies-as-

fiscal-deficit-swells.

4. Chapter 16, “Types of Procurement Procedures” pp256-300.

5. Eiras, Ana. “Argentina's Economic Crisis: An ‘Absence of Capitalism.’” The

Heritage Foundation, 17 Apr. 2001, www.heritage.org/americas/report/argentinas-

economic-crisis-absence-capitalism.

6. Feldstein, Martin, Argentina and Inflation: what the Rest of the World Can Learn,

World Economic Forum January 2017.

7. Goldman, Francisco. “Children of the Dirty War.” The New Yorker, The New

Yorker, 10 July 2017, www.newyorker.com/magazine/2012/03/19/children-of-the-

dirty-war.
8. INTERNATIONAL TRADE STATISTICS, 1900 – 1960, May 1962,

unstats.un.org/unsd/trade/imts/Historical%20data%201900-1960.pdf

9. Katie, Shonk, “Why Negotiations Fail - Common pitfalls to avoid in business

negotiations”, Program on Negotiation Havard Law school, September 14th, 2021.

10. Kenton, Will, “Negotiation”, Investopedia, Business essentials, February 22, 2021.

11. Kovacs, A. (2004) “Types of Procurement Procedures. In: Enhancing

Procurement Practices” Springer, Boston, MA. https://doi.org/10.1007/978-1-

4419-8947-5_16.

12. Lietz, N. G. and Mccree, S. F. “Argentina Power - Don’t Cry for Me Argentina”

Havard business school, Oct 16, 2018, p1-26.

13. Nancy, N. Y. “Three key factors to successful negotiation”, Mediation Matter,

November 2017. www.plaintiffmagazine.com.

14. Shapiro, D. “3 Reasons negotiations fail” Negotiations, Prepare, Tactics by

shapiro_admin, 2020.

15. YPF: The Formative Years of Latin America's Pioneer State Oil Company, 1922-

39 (Carl E. Solberg), The Oil Business in Latin America: The Early Years, By John

D. Wirth, Ed.

16. YPF: The Formative Years of Latin America's Pioneer State Oil Company, 1922-

39 (Carl E. Solberg), The Oil Business in Latin America: The Early Years, By John

D. Wirth, Ed.