LECTURER: JOHN DOE

INTERNATIONAL CONTRACT
MANAGEMENT
TOPIC OUTLINE

The Four Phases of Contract Management 1

Phase I: Offer Preparation 2

Phase II: Negotiation 3

Phase III: Implementation (Part 1) 4

Phase III: Implementation (Part 2) 5

TOPIC OUTLINE

Phase IV: Analysis 6

UNIT 3

PHASE II: NEGOTIATION

STUDY GOALS

− Understand the process after the bid submission.

− Distinguish between external and internal
negotiations.
− Identify possible negotiation strategies the
contracting parties may choose.
EXPLAIN SIMPLY

1. What happens after the supplier has submitted its

bid?
2. Why is there a negotiation externally and one
internally?
3. How should the negotiation take place in practice?
WHY NEGOTIATE?

− The customer will only want to

negotiate attractive offers but
knows that the offer is a (realistic)
best-case scenario for the supplier.
− The supplier has left sufficient
room to make changes.
− The customer knows this and will
demand concessions.
WHY IS AN OFFER UNATTRACTIVE?

− financial reasons
− reputation
− low-quality offer (typos, etc.)
− submission is too late
− …
LOI (LETTER OF INTENT)

− = declaration by one party that it is

interested in pursuing negotiations to
conclude a specific contract.
− Generally non-binding and used to
express intent only (“soft”).
− Often a necessary formality in less
affluent countries.
MOU (MEMORANDUM OF UNDERSTANDING)

− = expression by all contract parties

that they are interested in pursuing
negotiations to conclude a specific
contract.
− Generally non-binding and used to
express intent only (“soft”).
− Often necessary formality in less
affluent countries.
External Negotiation Internal Negotiation
− planned vs. unplanned − risk quantification
− planned: win-win − approval
− unplanned: win-lose
THE PLANNED

− Sets forth parties’ rights and

obligations → core of the contract.
− Should ideally be win-win
negotiation (focus is on optimizing
the common benefit).
− = value-creation or integrative
negotiation
THE UNPLANNED

− Provides for the rules when

something goes wrong in the
project (contractual risk).
− Can only be win-lose – the risk will
always be there and cannot be
completely eliminated.
− = distributive negotiation
SHOULD YOU NEGOTIATE WIN-WIN OR WIN-LOSE?

− There is no right or wrong.

− Negotiations typically require value
creation as much as they require
distribution.
− You must employ both styles.
➔ the Yin and Yang of negotiation
RISK QUANTIFICATION

− = probability of risk x expected

costs
− Can only be an estimate for the
future.
− Allows contract manager to
understand the financial
magnitude of risks.
INTERNAL APPROVAL

− Customer will not accept initial

offer and demand adjustments.
− → Terms of offer deteriorate for
supplier.
− The supplier’s contract negotiation
team will have to make sure the
adjustments are approved by its
management.
 External Internal
negotiations negotiations
REVIEW STUDY GOALS

− Understand the process after the bid submission.

− Distinguish between external and internal
negotiations.
− Identify possible negotiation strategies the
contracting parties may choose.
SESSION 3

TRANSFER TASK
TRANSFER TASK
TASKS

The Germany Company A has decided to bid for the mining project
in the Central African Republic. Its business partner, Company B, is
keen to start the negotiations on the bid. The parties thus quickly
reach a preliminary agreement. In comparison to the original bid,
Company A will receive 2.5% less in payments and have to assume
additional risks under the contract.
How could that happen? What will the representatives of Company
A likely have to do before they can sign?
TRANSFER TASK
PRESENTATION OF THE RESULTS

Please present your

results.
The results will be
discussed in plenary.
LEARNING CONTROL QUESTIONS

1. Optimizing the joint benefit of all negotiating parties

is synonymous with…
a) conducting a win-lose negotiation.
b) conducting a win-win negotiation.
c) playing a “prisoner’s dilemma” game.
d) playing a zero-sum game
LEARNING CONTROL QUESTIONS

2. Which of the following statements is false?

a) An MoU and an LoI basically serve the same purpose.
b) An MoU is signed by both (prospective) parties to a
contract.
c) Both MoUs and LoIs typically include binding
confidentiality provisions.
d) An MoU typically includes binding confidentiality
provisions, but an LoI does not.
LEARNING CONTROL QUESTIONS

3. In the orange example, what was the optimal

solution?
a) One child gets the orange peel and the other gets the
orange juice (Pareto optimality).
b) The father gets the orange peel and the orange juice
(optimal solution).
c) The children share the orange fifty-fifty (equity
principle).
d) The younger child gets 80% of the orange, and the older
child gets 20% (Pareto principle).
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