Contracts Management

PM 0018

Name: Aju K Panicker Roll number: 530911171 Learning centre: 2542 Assignment No.: Set 1 Date of submission at learning centre: 10/ 07/2011

Q 1. Describe the four basic elements of a contract A contract is a binding agreement between two or more parties. Once signed, this agreement can be enforced by either a court of law or binding arbitration. Because legal contracts cannot be signed under duress, there is the "mirror image" standard of binding agreement. This simply means that each party must be as willing to sign the agreement as the other. The concept of "breach of contract" is recognized by state and federal laws and is a valid reason for litigation. Mutual Consent To enter into a binding contract, there must be mutual consent and understanding between the parties. This means there must be a certain amount of conceptualization about the contract's terms. This is why legal contracts are so long and filled with what people refer to as "lawyer-speak." All the fine print is putting into words the concepts of the contract so there is no wiggle room for interpretation. Agreement This is known as the "offer and acceptance" element of the contract. It is just as it sounds. One party will make an offer, and the other party will accept the offer. This is what makes a contract take shape. If one party makes an offer and the other party makes a counteroffer, an agreement has not been made. This is usually seen as a rejection of the offer. If the unteroffer is rejected, the original offer does not necessarily stand anymore. Exchange This is one of the very basic elements of a contract. Each of the parties must bring to the table some form of product, service or legal tender to have a mutual exchange. This means that a contract can involve any of these exchanges. Employment contracts involve a business exchanging a salary and benefits for the work services of a new employee. Sales contracts involve the exchange of goods for the promise of payment from a customer. In most cases, contracts are only enforceable after one of the parties has fulfilled his share of the exchange. For instance, the new employee mentioned above would have a difficult time suing his employer for not paying him if he failed to show up for work. No Public Policy Violation Even if a contract meets all other necessary elements, violating public will automatically invalidate it. For instance, if prostitution is policy against the law

in a certain city, a contract in which a woman agrees to sleep with a man for a specified amount of money would be invalidated because it violates public policy.

Q 2. Describe the characteristics and legal issues of Lump-Sum Turn Key type (LSTK) contract
Lump-sum contracts (also called Lump-sum fixed price or Fixed price contracts) In a lump-sum or fixed price contract, the prime contractor agrees to complete the project, as described in the contract documents, for a fixed price. For firm fixed-price contracts, once a contract is in place the contractor is responsible for any cost-overruns. In this case, the buyer is responsible for providing a complete definition of what is required and schedule for delivery. The price provided by the seller is going to include an estimate of its costs and its profit. If the sellers costs are less than the costs included in its fixed price, the seller earns additional profit. If the sellers costs are more than the costs included in its fixed price, the seller earns less profit. Fixed-price contracts are adopted and are effective when the scope of work is well-defined. Fixed-price contracts shift at least some of the uncertainty associated with a project to the contractor. The evident advantage of a Fixed-price contract is that it encourages efficiency in the contractors work since the level of profit realized depends on a contractors ability to control costs. Fixed-price contracts are among the easiest to administer if change orders are not required. However, they can result in relatively inflexible project activities, with significant institutional disincentives to modifying activities once work has commenced as per the contract. Variations of Fixed price contracts: Other forms of fixed-price contracts allow variances or change orders if conditions are significantly different from what the original statement of work described. The example of the latter variety is a fixed price contract having some items of work having a fixed price per unit of these items. For these items, the price per unit is fixed, but their sub-total cost will depend of the number of units of work that get built. A portion of the fixed price applied for items of work that cannot be quantified in the beginning can adopt this mode of Unit prices. This is discussed later in this section under the heading Unit Price Contracts. Another variation is that if a project has a long duration, the fixed price contract might include an allowance for future labor and material escalation costs. Escalation provisions for labor and materials costs are frequently tied to relevant indices that are published by the federal government. Some public sector undertakings in India (e.g. Nuclear Power Corporation of India Ltd.) allow escalations for projects having a completion period of longer than twelve (12) months, and do not allow escalation if the period is less than twelve months. It must be noted here that theoretically, the escalation can result in either an increase in the fixed price or a decrease in the fixed price depending on how the indices vary.

EPC contracts: EPC refers to Engineer, Procure and Construct, which implies that the three scope elements which we discussed earlier in this section viz. design, procurement and construction are in the EPC contractors scope. D-B contracts have the nature of EPC contracts except that financing is invariably involved for the contractor in the case of EPC contract. Also EPC contracts are usually of the Lump-Sum Turn Key type (LSTK). Lump-sum turnkey (LSTK) EPC contracting is now popular world-wide as a project delivery system for large process and power facilities. Examples are steel mills, LNG facilities, petroleum and petrochemical facilities, power plants. It is also being adopted for large infrastructure developments such as airports, water treatment facilities and telecommunication systems. While the term LSTK implies a fixed price for the whole contract, one must understand that several variations of the EPC mode of contracting are in vogue. The contract price issue can however vary from fixed price to a hybrid price. LSTK EPC contracts offer the following benefits: 1. It meets the primary expectation of the owner which is that the owner looks to the EPC contractor as a single point of responsibility (SPR) for all facets of the project from basic design through commissioning and start-up. The project owner has therefore preferred to transfer more risk to the EPC contractor, understanding that this risk allocation carries a higher price tag. Examples of some risks which are handled by owner even in a D-B contract, but are transferred to the contractor in a EPC contract are: Contractor should account for existing site conditions (including sub-surface conditions) Even risk for some force-majeure conditions can be transferred to contractor 2. If the scope of the contract is well defined, the potential for significant changes is very low. Without the risk of significant changes, the schedule for performing the work is unlikely to change. In this case, a fixed-price contract is usually the best approach. Most standard materials are procured using a fixed-price contract approach since the scope of work and the schedule objectives are easy to define. If the design of engineered materials can be finalized prior to the need of acquiring them, they can also be procured using a fixed-price approach. Engineering equipment could also be acquired using a fixed- price contract if it is possible to articulate sufficient performance objectives for the project. The drawbacks of the LSTK EPC contract are as under: 1. It provides less incentive for a contractor to minimize schedule duration than is the case for reimbursable contracts. In addition, fixed-price suppliers and contractors often minimize quality management activities in order to reduce costs, which can result in quality problems. Therefore, the project manager needs to maintain close oversight during the project. 2. Renegotiations of the price might come into play since fixed-price contractors are reluctant to proceed with any work associated with a change request before resolving the cost of the change. These negotiations might have a negative impact on the schedule of the project.

Characteristics and legal issues of LSTK EPC contracts: We now review a few of the noteworthy characteristics and legal issues concerned with LSTK EPC contracts, the understanding of which is necessary in order to reap the benefits that this project delivery system can provide: Design In a LSTK EPC contract, the responsibility for basic and detailed design rests with the contractor. Owner gives the design criteria and contractor gives his price based on his basic and detailed design, which in turn are based on owners design criteria. In practice, the design criteria can vary from generic through broad to very detailed. If owner gives very clear design criteria, he becomes responsible for design deficiencies. If owners design criteria are ambiguous, then the contractor should clarify this ambiguity prior to submitting his price. If the design criteria are critical to the project, he should ensure that it is made part of the contract. Otherwise, different interpretations of the design criteria by owner and contractor can lead to disputes affecting both the schedule and cost of the project. This can only be prevented by pre-contract negotiations, scope review and clarification sessions, agreement on preliminary P & I d s (Process and Instrumentation diagrams) and design drafts. Such pre-contract discussions should not be restricted to project personnel only, but should include end users of the project like operation personnel. Changes or Variations Even when design criteria are clear, EPC contracts allow for variations (see note on FIDIC in this section). The impact that a change will have on the project will depend on the timing of the change e.g. a change in the P & I d at the design stage will have less adverse impact than at the construction stage. This means that changes should be addressed early. Schedule delay Owner regards schedule as contractors responsibility in a LSTK EPC contract. However, for the owner to claim compensation for schedule delay from the contractor, he must prove that the contractor delayed a work on the critical path of the schedule. Similarly, the contractor will have to keep producing a time-impact analysis of each delay throughout the course of the project in order to claim the right to be given an extension in the project completion schedule as well as any financial compensation he may desire from the owner. Force majeure These are occurrences beyond the control of either owner or contractor e.g. war, terrorism, labor strikes, radiation, changes in the law, natural catastrophes. However, precise terms regarding force majeure conditions also need to be included in the contract. These terms should also address whether only time extension will be given for occurrence of such events or whether financial compensation will also be allowed. Owner controlled activities Notwithstanding the single point responsibility to be owned by the LSTK EPC contractor, the owner is also responsible for his actions, some of which are:

 adequate site access assurance that basic design issues are addressed. This is usually handled by the protocol of owner formally affixing his signature on the basic design document prepared by the contractor conveying owners formal approval of the same facilities for commissioning like raw material feed, water, power and other utilities as applicable which are usually in owners scope. Payment and performance assurances EPC contractor is invariably bound for performance by a Bank guarantee for satisfactory performance of the project for a period (usually one to one and a half years) termed as the Defect Liability Period. For the owner, this is a mechanism to cover defective work or even late project delivery. In some contracts, contractor can get his payment assurance for work done by owner agreeing to open a letter of credit in favor of the contractor. However, this is usually for delivery of costly equipment or imported equipment. Insurance Insurance companies offer several options to both owner and contractor. Examples are LD insurance, cost over-run insurance, insurance for even some force majeure items etc. Insurance is an important risk mitigation mechanism adopted by owners and contractors in EPC contracts. However, the fine print of insurance policies must be scrutinized to understand complex policy terms, deductibles, exclusions which limit the coverage etc. Conclusion about LSTK EPC contract: EPC projects offer a mutually beneficial and exciting form of project delivery for both the owner and the contractor. However, project owners should not mistake the LSTK EPC approach as a license to do anything they want without the threat of increase in project cost or delay in project schedule. They must discharge their responsibilities without hindering the work of the contractor. Both owner and contractor must realize that the goal of LSTK EPC contract is to allow the work to proceed without disruption due to changes throughout the implementation of the project. Otherwise many of the benefits of this mode of project delivery will not be realized.

Q 3. Write short note on the following bidding methods: a. International/Global Competitive Bidding (ICB). b. Limited International Competitive Bidding (LIB). c. National Competitive Bidding (NCB). a. International/Global Competitive Bidding (ICB). International Competitive Bidding (ICB) In ICB, we (as Employer or Purchaser) invite open bids for works and goods (through wide advertisement in electronic as well as print media) from Contractors and Suppliers across

the globe, which are eligible to perform the contract. That is why it is also called Global Competitive Bidding. Requirements for ICB (a) Advertisement: we (as Employer or Purchaser) have to publish the Invitation for Prequalification of works/Invitation for Bids (IFB) in widely seen websites such as United Nations development Business online (UNDB online), and in the Development Gateways dgMarket to attract the attention of the foreign contractors and suppliers,. The Invitation for prequalification/ IFB shall contain details regarding the scope of the ICB, the address and telephone numbers of the officer from whom details could be got (or the/pre-qualification/bidding documents are available), the website where the detailed Invitation for pre-qualification/IFB and pre-qualification/bidding documents are available, the last date and time, the place for submission of the pre-qualification applications/bids. To ensure further wide publicity, we could also send copy of the Invitation for pre-qualification/IFB to the Embassies and Trade representatives of the countries from where we can expect participation in the bid. All the countries have their Embassies and Trade representatives in New Delhi. We should also publish the Invitation for prequalification/ IFB in national news paper(s) having wide circulation in metros and principal cities of India and also in the region where the procurement is being made. We should also publish the Invitation for pre-qualification/IFB in appropriate Trade Journals published in the country. These actions will ensure adequate publicity and we could expect better competition and thus economic and efficient procurement.
(b) Pre-qualification document (for works): The pre-qualification document shall

include sufficient details regarding eligibility, method of submission of prequalification documents, details of documents/ information to be furnished, qualification criteria to be satisfied, evaluation methodology, preparation of the list of pre-qualified applicants and notification of the list of approved pre-qualified bidders.
(c) Period for submission of pre-qualification documents: The pre-qualification

submission period, that is the period from the date of publication of the Invitation for pre-qualification in the press or the date of making available the document for sale (whichever is later) shall be sufficiently large, depending on the size and complexity of the proposed contract to enable the prospective applicants to obtain the pre-qualification document, study the field conditions, collect field data, compile the qualification and other required information and then submit prequalification applications. A period between 45 to 60 days depending on the size and complexity of contracts is considered reasonable.
(d)Bidding document (for works and goods): The bidding document shall include

sufficient details regarding eligibility, method of submission of bids, bid security

(amount and currency) to be furnished, period for submission of bids, qualification criteria to be satisfied, evaluation methodology, securities to be submitted, award of contract etc. It shall also include internationally accepted Conditions of Contract, such as those developed by Federation Internationale Des Ingenieurs-Conseils (FIDIC) and Institution of Engineers, U.K.
(e) Bidding period (for works): The bidding period, that is the period from the date of

issue of the bid document to pre-qualified bidders to the last date stipulated for the submission of the prequalification document, shall be sufficiently large, depending on the size and complexity of the proposed contract to enable the prospective bidders to obtain the bidding document, study the field conditions, collect field data, work out reasonable rates and then submit meaningful bids. A period between 45 to 60 days or even more in case of large and complex contracts is considered reasonable.
(f) Bidding period (for goods): The bidding period, that is the period from the date of

publication of the IFB in the press or from the date of making available the document for sale (whichever is later) to the last date for submission of bids, shall be sufficiently large, depending on the size and complexity of the proposed contract to enable the prospective bidder to obtain the bidding document, study the same, work out the reasonable rates and then submit meaningful bids. A period between 45 to 60 days is considered reasonable.

Steps for ICB (a) Works with pre-qualification: We, as the Employer, have to take the following essential steps: Notification and advertising for submission of pre-qualification applications; Issue/sale of pre-qualification documents to prospective bidders; Submission of pre-qualification applications by the prospective bidders; Opening of pre-qualification applications; Evaluation of pre-qualification applications; Preparation of the list of pre-qualified bidders; Issue the bidding document to the pre-qualified bidders; Submission of bids by pre-qualified bidders; Evaluation of the bids; Selection of lowest evaluated responsive bid; Contract award and signing of the contract with the Contractor; Contract performance by the Contractor;

(b) Works and goods without pre-qualification (post-qualification): We, as the Employer/ Purchaser, have to take following essential steps: Notification and advertising; Issue/sale of the bidding document to the prospective bidders; Submission of bids by prospective bidders; Evaluation of the bids; Selection of lowest evaluated responsive bid based on post-qualification; Contract award and signing of Agreement with the Contractor/ Supplier[6]; Contract performance by Contractor/Supplier; b. Limited International Competitive Bidding (LIB).

In this method of procurement, we (as Purchasers) invite bids for goods from selected Suppliers, who are the only known manufacturers, who can manufacture and supply the required goods. Here we do not issue advertisement through press or any other means. Since the bidding is open for a few selected manufacturers, no domestic preference is allowed. As in the case of the ICB, the bidders can submit bid in any internationally convertible currency and they are paid in the same currency. This method of procurement is for goods. It is usually adopted: (a) Where the cost of goods to be procured are small (usually less than the equivalent of 200,000 US dollars (b) It is reliably known that there are limited number of suppliers of particular goods; and (c) There are other reasons justifying departure from full ICB procedures

Requirements of LIB (a) Advertisement: Since we invite the bids from limited number of potential suppliers, advertisement as in the case of ICB is not required. We have to ensure that the list of potential suppliers is broad enough to ensure receipt of competitive bids;

(b) Bidding document: We have to prepare the Bidding document with all the details as in the case of ICB; (c) Bidding period: The requirement of bidding period is the same as that of ICB; Steps for LIB We as Purchasers have to take the following essential steps for LIB: Issue/sale of the bidding document to the potential suppliers; Submission of bids by the potential suppliers; Evaluation of the bids; Selection of lowest evaluated responsive bid based on post-qualification; Contract award and signing of contract agreement with the Supplier; Contract performance by the Supplier;
c. National Competitive Bidding (NCB).

As the name itself suggests we as Employer or Purchaser, invite bids for works and goods (through advertisement in electronic and print media within the country). However foreign firms, if they want can participate in the bidding process provided they accept the bidding conditions. The bidders have to submit their bids in national currency only and payment would also be made in national currency. We select NCB method of procurement for works and goods under the following circumstances: Contract values are lower than the threshold fixed for ICB; Where the works are spread out geographically (different villages or towns in a district) or spread over time with staggered period of starting, may be because of lack of availability of land or lack of financial resources;

 Where the works are labour intensive (that is deployment of huge labour force is necessary, which may not interest a foreign contractor) Where the goods are available nationally at prices below the international market because of high transportation costs; Where foreign firms are not likely to be interested to take up the works or make supply; Requirements of NCB (a) Advertisement: The Invitation for pre-qualification/IFB shall contain details regarding the scope of the NCB, the address and telephone numbers of the officer from whom details could be got (or the/pre-qualification/ bidding documents are available), the website where the detailed Invitation for pre-qualification/IFB and pre-qualification/bidding documents are available, the last date and time, the place for submission of the pre-qualification applications/bids. The Invitation for prequalification/IFB shall be published in national news paper(s) having wide circulation in metros and principal cities of India and the region where the procurement is being made. We should also publish the Invitation for prequalification/IFB in appropriate Trade Journals depending on the value of proposed procurement. These will ensure adequate publicity and we could expect better competition. (b) Pre-qualification document (for works): The pre-qualification document should include sufficient details regarding eligibility, method of submission of pre-qualification documents, details of documents/ information to be furnished, qualification criteria to be satisfied, evaluation methodology, preparation of the list of pre-qualified applicants and notification of the list of approved pre-qualified bidders. (c) Period for submission of pre-qualification documents: The prequalification submission period, that is the period from the date of publication of the Invitation for pre-qualification in the press or the date making available the document for sale (whichever is later) shall be sufficiently large, depending on the size and complexity of the proposed contract to enable the prospective applicants to obtain the prequalification document, study the field conditions, collect field data, compile the qualification and other required information and then submit

pre-qualification applications. A period between 30 to 45 days depending on the size and complexity of contracts is considered as reasonable (d) Bidding document (for works and goods): The bidding document shall include sufficient details regarding eligibility, method of submission of bids, bid security (amount and currency) to be furnished, period for submission of bids, qualification criteria to be satisfied, evaluation methodology, securities to be submitted, award of contract etc. It should also include simplified Conditions of Contract, such as those of Institute of Civil Engineers, UK; (e) Bidding period (for works): The bidding period, that is the period from the date of issue of the bid document to pre-qualified bidders shall be adequate, depending on the size and complexity of the proposed contract to enable the prospective bidders to obtain the bidding document, study the field conditions, collect field data and then submit meaningful bids. A period between 30 to 45 days or even more in case of large and complex contracts is considered reasonable. (f) Bidding period (for goods): The bidding period, that is the period from the date of publication of the IFB in the press nor from the date of making available the document for sale (whichever is later) should be adequate, depending on the size and complexity of the proposed contract to enable the prospective bidder to obtain the bidding document, study the same and then submit meaningful bids. Here also a period between 30 to 45 days is considered reasonable. Steps for NCB We have to take the following steps for NCB that are essentially the same as of ICB and are reproduced hereunder: (a) Works with pre-qualification: The following are the essential steps: Notification and advertising for submission applications by the prospective bidders; Issue/sale of pre-qualification documents; of pre-qualification

 Submission of pre-qualification applications by the prospective bidders; Opening of pre-qualification applications; Evaluation of pre-qualification applications; Preparation of the list of pre-qualified bidders; Issue of the bidding document to the pre-qualified bidders; Submission of bids by pre-qualified bidders; Evaluation of the bids; Selection of lowest evaluated responsive bid; Contract award and signing of agreement with the selected contractor; Contract performance by the Contractor; (b) Works and goods without pre-qualification (post-qualification): The following are the essential steps: Notification and advertising; Issue/sale of the bidding document to the prospective bidders; Submission of bids by prospective bidders; Evaluation of the bids; Selection of lowest evaluated responsive bid based on post-qualification; Contract award and signing of the agreement with the selected Contractor/ Supplier; Contract performance by the Contractor/Supplier ;

Q4. List the advantages of referring a dispute to arbitration.

Advantages of Arbitration: The advantages of referring a dispute to arbitration are (compared to those through the courts: The speed of conducting arbitration proceedings; The cost of dispute resolution is less for both the parties to the contract; The convenience of fixing the hearing dates; The informal atmosphere which prevails during hearings; The option to select Arbitrators; Availability of expertise in the Arbitrators particularly required for most engineering contracts; The privacy in the hearings, since court hearings are open to general public; The finality of award, as in most cases the decision of the Arbitrator is binding and cannot be challenged in courts except on limited grounds; Consent awards are possible with the consent of the parties to the contract during the arbitration proceedings; The presence of the arbitration clause is a safeguard for fair deal by the Employer and the bidder can offer most competitive bids;

Q.5. Write a short note on the following types of mergers: a. Product extension merger. b. Conglomeration. c. Horizontal merger d. Purchase merger e. Consolidation merger Product Extension Merger

According to definition, product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits. Example of Product Extension Merger The acquisition of Mobilink Telecom Inc. by Broadcom is a proper example of product extension merger. Broadcom deals in the manufacturing Bluetooth personal area network hardware systems and chips for IEEE 802.11b wireless LAN. Mobilink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are equipped with the Global System for Mobile Communications technology. It is also in the process of being certified to produce wireless networking chips that have high speed and General Packet Radio Service technology. It is expected that the pro c. Horizontal merger
A horizontal merger is when two companies competing in the same market merge or join together. This type of merger can either have a very large effect or little to no effect on the market. When two extremely small companies combine, or horizontally merge, the results of the merger are less noticeable. These smaller horizontal mergers are very common. If a small local drug store were to horizontally merge with another local drugstore, the effect of this merger on the drugstore market would be minimal. In a large horizontal merger, however, the resulting ripple effects can be felt throughout the market sector and sometimes throughout the whole economy. Large horizontal mergers are often perceived as anticompetitive. If one company holding twenty percent of the market share combines with another company also holding twenty percent of the market share, their combined share holding will then increase to forty percent. This large horizontal merger has now given the new company an unfair market advantage over its competitors.

Q 6. Describe in brief the major components of planning negotiation

Planning for Negotiations A complex negotiation requires specific planning to be successful. Without planning, a negotiator cannot possibly have the information required to argue positions effectively in a complex negotiation. Sufficient time needs to be committed upfront to the planning for a complex negotiation. Establish specific objectives and also the range of those objectives. Failure to do this will lead to agreeing to something that is not in your companys best interest, or

delaying the negotiation process. Buyers objective may be achieving a unit price of Rs.100/=; committing the supplier to a delivery time of 8 weeks; some control over the way in which parties execute the contract; persuade supplier to give maximum cooperation to him compared to buyers competitors; develop a sound and continuing relationship with competent suppliers. Objectives may need to be categorized as must have and would like to have. Analyze the other partys Strengths and Weaknesses as well as your own. This will help you to formulate convincing arguments or support for your positions. The negotiator should also identify areas of flexibility within those positions. Gathering sufficient information about the other party is very important. This may not be difficult for items which you are already purchasing. Otherwise, you must peruse trade journals, government reports, annual reports, commercial databases, internet or resort to direct enquiries to suppliers personnel. Understand the other partys needs e.g. if supplier desires market share and volume, he will want the whole contract and not part contract; if supplier is supplying to the buyer for the first time and wants to cultivate the buyer with an eye on future business, he will not mind to receive a small contract. When one party has an issue or requirement that is not important to the other, then parties will likely reach agreement. Differentiate between facts and issues. Facts are reality or truth and cannot be a negotiation issue. Issues are items or topics to resolve during a negotiation and are to be identified in advance. Establish a position on each issue. The negotiator should develop a range of positions on an issue a minimum acceptable position, a maximum or ideal outcome, a most likely targeted position. Fig.7.3 illustrates this by an example. Example 1

Example 2

Example 1 shows agreement cannot be reached Example 2 shows that Rs.110 to Rs.120 is the range in which agreement will be reached. This range is called Bargaining zone or Settlement zone or ZOPA (Zone of Potential Agreement)

Developing Negotiation ranges for a Purchase price per unit Develop negotiating Strategy and Tactics. These are two dimensions of the negotiating process. Strategy has a long term focus and is a predetermined approach or a prepared plan of action to achieve a specific goal or objective to potentially find and make an agreement or contract in a negotiation with another party or parties. Tactics refer to the art or skill of employing available means to accomplish an objective or strategy. Tactics should support the strategy. Tactics can also be viewed as the detailed methods employed by negotiators to gain advantage over other parties. Tactics should support the strategy. Brief other personnel in the organization who are participating in the negotiations as well as those who are affected by the negotiations. Briefing prevents unwanted surprises during face-to-face negotiations. Practice the negotiation. Holding a mock or simulated negotiation may help substantially for a complex and competitive negotiation. Power positions in Negotiations Power is simply the ability to influence another person or organization. A has power over B if A can get B to do things that directly benefit A. Use of power employed by the parties can influence the outcome of a negotiation and hence its use can be part of the negotiating strategy. Individuals and organizations bring different sources of power to the negotiating table. We review the sources of power as under Informational power: This comes from access to facts, data and other arguments. This power relies more on persuasion. Reward power: Here, the party is in a position to offer to the second party something that the second party considers a reward e.g. award of a large value

contract by the first party. One fall out of this power is that the second party may get conditioned to rewards Coercive power: If A can give something to B, A can also take away something from B. One fall out of this power is that this can lead to retaliation from B when the power structure shifts. Hence, prior to using this power, the buyer must consider the willingness of the supplier to comply. Legitimate power: This power stems from the position held by the party e.g. ministers, political office holders, prominent companies. This power relies more on persuasion. Expert power: This power stems from the expertise of a person. Non-experts will not challenge an expert in the subject. This power relies more on persuasion. Referent power: This stems from the personal qualities and attributes of an individual honesty, charisma, friendliness, sensitivity can be strong sources of power. This power can be used when referent is aware that a counterpart has an attraction to the referent.