Module 17: Negotiating and Contracting

17.1.  What is the process of negotiating?

Decisions during the execution of the PPP will be made inevitably by some form of negotiation between the various stakeholders in the partnership arrangement. For instance, when the municipality contracts the private sector to deliver certain services, both the municipality and the private company must agree to the terms of the agreement. Neither the municipality nor the private sector that are parties to the PPP can achieve anything much without the other. Negotiations do not always end in an agreement. Those making a decision by negotiation usually have the options of choosing some or other solution, of saying “no”, of walking away and of minding their own business. Negotiating is therefore the process of finding terms of agreement that are satisfactory to all stakeholders.

Negotiating involves five steps:

◊ preparing for negotiation;
◊ debating;
◊ making proposals;
◊ bargaining; and
◊ coming to an agreement (the contract).

A. Preparing for negotiation

The activity of preparation reduces on wasted effort and time. It identifies gaps in the information that will be needed to make decisions and establishes the criteria for judging the merits of possible solutions. In preparing for negotiation the following questions need to be answered:

– What do we need to do first?
– What are we negotiating about?
– How important is each tradable issue?
– What are the negotiable ranges for each tradable issue?

B. Debating

Negotiation requires communication because if the parties do not communicate in some way, it is going to be impossible for them to negotiate. Communication need not be oral – it could be written; it could be via third or fourth parties. Debate is the act of two-way communication between the parties to the PPP. Debate shapes the tone of the negotiation and removes or creates obstacles to the agreement. Debate takes up a greater part of the face-to-face interaction of negotiators. The debating stage can be either constructive or destructive.

Examples of destructive negotiation involves:

– irritating the other party;
– assertion and negative assumptions;
– interrupting and blocking;
– point-scoring;
– attacking and blaming; and
– threatening.

On the other hand, constructive debate could include:

– making neutral statements in order not to provoke the other party;
– assuring the other party;
– asking questions so as not to misunderstand the other party;
– summarising the salient points to demonstrate listening; and
– signalling the desire to move forward with the negotiation.

Sometimes there is a need to involve external experts (or mediators) to help with the negotiations and debates and to smooth any possible confrontations. Often public sector representatives will need help from consultants if they are to conduct constructive debates.

C. Making proposals

A proposal is any form of statement that makes a suggestion about how to proceed during the negotiation, or which indicates a possible solution to the issue under discussion. A proposal is a tentative suggestion that builds on a signal sent or one received. It is not a final solution (that is the role of bargaining). Effective proposals consist of two parts: the condition and the offer. A proposal is specific on the condition, but vague on the offer.

To make an effective proposal, three main rules should be considered:

– the proposal should be conditional;
– the proposal should be presented unadorned and without explanation; and
– on completing the proposal, the proposing party should go silent.

An example of an effective proposal is “if you agree to supplying water to the poor communities, then we will reconsider our policy on water tariffs”.

D. Bargaining

A proposal is not a bargain – a proposal is a tentative solution. A bargain, by contrast, is a specific conclusion; it is also always a specific condition attached to a specific offer. It takes the form of “if you do such and such, then I will do so and so”. A bargain in a negotiation is analogous to what sales people call a “close”. When a negotiator says “yes” to a bargain, the negotiation process is more or less over – all that remains is to write up what has been agreed (draw up the contract).

This stage is perilous for the poor, as the bargaining process can result in one or other of the negotiating parties stepping back on importantpoverty reduction issues. Often these are issues such as questions of price and service coverage, issues that the private sector will often try to use as bargaining chips. Thus it is important that the poor have a representative voice during the bargaining stage and that this voice is heard and considered.

E. Coming to an agreement (the contract)

The agreement (contract) is the final part of the negotiation. Since it is broad in itself, it shall be treated under separate headings which will consider the whole process of contracting.

A contract is a legal agreement between two or more parties where one party (the contractor, in this case the private sector) agrees to carry out certain tasks in return for a reward (or in legal terms, a consideration) paid by a party (the users of the service). The process of contracting is therefore a series of interactions between the stakeholders to a PPP contract; this in turn leads to the execution of the contract (delivery of the required services). Negotiation characterises all stages of the contracting process.

The rights, responsibilities and obligations of each stakeholder (the private sector and the municipality) fall into two categories:

1. There are specific duties and obligations required by the contract; these are set out in the contract documents.

2. Then there are general legal requirements – the laws of the country concerned.

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