Dilemma 5:  Negotiation of a contract - Dilemma

You are the sales director of a contractor which is negotiating for a contract with the project owner for phase 2 of a project.  Your company constructed phase 1.  The project owner is very pleased with your company’s performance, and therefore has declared that it will award phase 2 to your company on a negotiated basis, with no competitive tender.  However, the commercial director of the project owner states that he is expecting you to put forward your most competitive price, just as if you were taking part in a competitive tender.  He states that he does not want the project owner to suffer as a result of not putting the contract out to tender.  You have assured him that you will put in your most competitive price.   Your company’s estimating staff prepare the price on the same basis as the phase 1 tender, with prices adjusted upwards to take account of inflation, and then add the same 5% profit margin that was added to the phase 1 tender.  However, there has been a significant drop in work during the last few months, with the result that your company is now bidding for other projects at a 0% margin just so as to keep the workforce occupied, and to avoid expensive redundancies.  You discuss the issue with the managing director of your company.  He tells you to increase the margin to 10%.  He says that the company was bidding for other projects at no margin, and so needed to make extra profit on this project.  He said that there were no competitive bids, so it would be easy to tell the client that the price increase was due to various factors such as material cost increases (even though this was untrue).

 

What do you do?

 

Consider your position, and then go to the answer on the next page.