Negotiations (Tendering) Partnering for Innovation

Negotiations (Tendering)

Partnering for Innovation and Maximizing Profits

Negotiated Tendering, another term for partnering, is an integral part of the construction industry. Seldom does one company possess all of the skills and labor necessary to complete a job by them. The construction industry has specific guidelines to help companies operate in a relationship that is beneficial and avoids conflict situations. Conflict is costly in legal expenses, time lost, and the degradation of the relationship. The best solution to resolving conflicts is to avoid them in the first place. The following will explore literature regarding the hypothesis that partnering is the key to the formation of innovative relationships. Innovative relationships result in maximizing profits by taking advantage of the innovations of both companies and by avoiding costly legal battles. This research will explore the elements that result in a successful partnership and those that can undermine the ability to develop a successful partnership.

What is a partnership?

Partnering, in its most simplistic form, means people working together. It construes a voluntary system of handling normal, everyday jobsite construction problems in a mutually agreeable manner. The goal is to resolve conflicts before they turn into major issues that result in costly lawsuits. There is nothing mysterious about partnering, but it does require the right attitudes from all parties involves. In a partnering relationship all stakeholders resolve problematic issues by peacefully employing a positive and cooperative attitude. The partners must be able to focus on the big picture and common goals, rather then individual wants and needs.

Real world problems are complex. The first step prior to negotiations is to narrow the focus of the problem and clarify what is needed to resolve the issue. Service means a willingness to meet the client's needs. Endless contract-based disputes can jeopardize the ability of companies to meet the service needs of the client. The client must be the primary focus of all parties involved. Taking the time at the start of the project to identify common goals, common interests, lines of communication, and a commitment to co-operative problem solving, and organisational structure will encourage dispute resolution and the ability to achieve project goals.

Partnering means establishing a working relationship among all team members that is based on co-operation, teamwork and achievement of mutual goals and objectives. Structured organizational learning is a key element in the ability to develop cohesive teams. Partnerships have a long-term viewpoint, whereas lesser relationships tend to focus on short-term gains for selfish reasons. Building team cohesiveness occurs on several levels. The first level is within the individual companies that will be involved in the negotiation process. The second level of team cohesiveness arises from the common objective of serving the needs of the client. All companies must share in the accomplishment of job objectives and strategies. At times there may be a conflict between team goals within an organization and team goals between organizations.

The first step in developing effective partnerships on the job site is to gain an understanding of the value of partnerships and strategic alliances. However, it is not enough to simply desire to develop these types of relationships. Developing sustainable relationships means knowing the hallmarks of a successful relationship and the characteristics of an unsuccessful relationship. Both sides must be committed to the maintenance of the relationship and be aware of situations that could harm the relationship.

When many people think of partnering and negotiations, they refer to lawyers and contracts in their lexicon. However, partnering and strategic alliances mean more than legal agreements and the enforcement of individual rights. Partnering means creating a positive and supportive environment that nurtures relationships that will endure not only for the present contract, but that may lead to further collaboration in the future. As one can see, partnerships and strategic alliances are much more complex and involve a number of psychological and sociological factors that go beyond the initial contract negotiation phase.

The Anatomy of a Strategic Alliance

Strategic alliances in the construction industry have many characteristics that are unique due to the nature of the industry. In addition, each and every jobsite has conditions that are only applicable to it. However, these differences aside, strategic alliances have many things in common with any other strategic alliance. The strategic alliance is a joint venture that can be formed for many reasons.

The most common reasons for forming a joint venture are cost-sharing, conflict management, or the complete merger of two companies (Lexis-Nexis 2006). The strategic alliance comes together for a specific purpose and for the accomplishment of a defined task or goal. There are several legal reasons for forming a strategic alliance. The first is to create an organization that can better compete in the marketplace (Lexis-Nexis 2006). Sometimes the partnership is designed to roll-up different organizations into a single legal entity. However, this is not typically the case in the construction industry, with a majority of the projects. Most partnerships in this industry are formed for the accomplishment of a defined task with a specific start date and end date. Partnerships make all of the organizations involved stronger, both economically and in their ability to combine resources to get the job done.

As one can see, there are many advantages to forming a strategic alliance or partnership. However, there are several disadvantages as well. One of the key disadvantages of strategic alliances is that many of them fail (Lexis-Nexis, 2006). The failure of a strategic alliance can cause more harm to the entities involved than if they had never formed in the first place. The old adage, "nothing ventured, nothing gained" may hold true, but one must also consider the downside in every business venture. In some cases the gains and loses may be personal, but on other hand, they may also place the entire project in jeopardy. Before embarking on a partnership, one must carefully weigh the risks and advantages to each.

According to Lexis-Nexis, there are several considerations that must be considered before entering into a strategic alliance of any type. These factors apply to the construction industry, just as any other joint venture. The points to consider are:

Costs of operating

Ownership and control

Profits and losses

Labor and employment laws

Potential liability exposure

Insurance coverage

Tax consequences

Regulatory hurdles

Administrative issues

Marketing angles

Many of these factors are not under control of the parties involved, such as labor and employment laws and regulatory hurdles. However, many of these factors can be terms of negotiation between the two parties. Administrative issues, ownership and control are important elements in the formation of the partnership. The amount of legal planning depends on the nature of the alliance and the goals of the partnership.

Many times on the construction site companies are together as a result of the job award and proposal process. They do not have the luxury of choosing with whom they will work. The owner or their representative is often responsible for hiring the various contractors involved in job completion. In some circumstances the owner will hire a general contractor, or project manager to oversee and coordinate the various entities involved. In this case, the organization and relationships are the result of external forces and not the result of individual negotiations. The general contractor will make the rules and will be the solve person responsible for dispute resolution. They act as a communication line between the contractors and the owner of the building or project.

In this type of scenario, relationships among various contractors may be strained or difficult. The contractors may have different structures and organizational cultures that affect their ability to work together for common goals. Sometimes the contractor may have to work with a partner that they would have avoided in any other situation. This creates a strained or difficult relationship at best. However, with the proper skills and knowledge, both parties can learn to work together for the benefit of everyone involved.

Determinants of Successful Alliances

Now we know that forming a partnership can lead to many benefits for both parties involved. There may be concerns that need to be addressed so that the relationships will be able to flourish. No that we know what a strategic alliance is and how it differs in the construction industry, let us turn our attentions to what elements will increase the likelihood of a successful strategic alliance.

No where has the importance of strategic alliances been more evident than in the global aerospace industry. Joint ventures are common in this industry and are the norm in order to maintain the global nature of the market. Studying the business relationships in this industry can give us a glimpse into the problems and solutions that may exist in other industries as well. Dussauge and Garrette (1995) examined relationships in the global aerospace industry and found several important findings that impact modern procedures on a global basis.

The most difficult partnership to form is that which is between former competitors. For instance, two plumbing contractors may have to complete the job together. They may have different ideas and strategies on how the work should be performed. There is a fine distinction between competition and cooperation (Porter and Fuller, 1986). The companies must maintain a balance between the alliances and their own strategic position. The companies must avoid situations where one partner overshadows the other one (Dussauge and Garrette 1995).

Borys and Jemison (1989) found that four main factors affect the performance of partnerships. These four factors were the breadth of purpose, boundary determination, value creation process, and stability mechanisms. The breadth of purpose of the project in the construction industry is typically defined as the duration of the construction phase of the project. Boundary determination has more to do with how contractors interact with one another. Sometimes this is defined by a contractor, subcontractor relationship and sometimes it represents a truly collaborative effort. Sometimes boundaries are a part of the negotiation process.

The value creation process is another factor that may affect the performance of the partnership. The value creation process means taking into consideration the strengths and weakness that both entities bring to the table. This may include equipment, labor or experience in the construction industry. The fourth factor discussed by Borys and Jemison was the presence of stability mechanisms. When one considers the nature of the construction project, this is the factor that is least applicable to the topic of this research. Stability is typically not an issue in a short-term contract.

During the 1970s and 1980s the trend toward forming partnerships and alliances gained the attention of the academic community. As a result there were a large number of studies conducted during that time which sought to identify and isolate the various factors that influence joint venture performance and longevity. These studies are generally too old to be considered in for modern academic research. However, these studies form the theoretical basis for the present research study. Therefore, they cannot be ignored for the purposes of this research study. Several patterns emerged during this research, which have a significant impact on our discussion of the anatomy of a successful partnership.

One of the most important factors that have an impact on the performance of partnerships is the organizational and structural elements of the company (Rumelt 1974). Of the factors explored, the management of strategic partnerships was determined to be the single most important dimension of the outcome of the alliance. Management determines the manner in which the operational tasks are carried out. There are a number of studies that confirm this finding (Killing 1982, 1983, 1988; Doz, Hamel and Prahalad 1989; Hamel 1991; Lorange and Roos 1992). This group of researchers focused on the aerospace industry, but there findings are highly relevant in the construction trades.

These studies unanimously concluded that the partnership has a dramatic impact on how the day-to-day functions of the combined organization are carried out. This means that both firms will have to modify their work flow in order to accommodate a successful relationship. In some cases, certain tasks were carried out by one of the partners, exclusively and in other cases a task was carried out as a joint effort. This takes advantage of the strengths and weaknesses of both firms.

Four taxonomic classes were identified in the research. The first class is the consortia where various entities operate their own independent project, within the same parameters that comprise the larger picture of the project. The second class is where various tasks are distributed to the entities in the group and each performs their tasks independently. These two forms of classes are relatively unstructured. This is often the form taken on construction sites where the various contractors have been hired to do a portion of the work in which they specialize. Typically, this type of structure will not use a general contractor to oversee the projects.

The next group of alliances is the semi-structured alliance. In these partnerships some of the functions are carried out by individual firms, while others are carried out in a joint fashion. The fourth class of alliances is those in which one of the partners dominates the relationship and hence makes many of the rules. This is a common scenario in the construction industry. One partner may hire the other as a subcontractor to aid in some portion of the project with which they do not have the capabilities.

These four classes of partnerships are defined by different strategic and organizational factors (Miller, 1986). It may be noted that the managerial style does not have to stay the same through out the entirety of the project and may be changed to suit changing needs. The structure of various organizations is better suited to different tasks (Bartlett and Ghoshal 1989). Therefore, it is important to examine the underlying structure of the organizations in order to determine where they would be most useful. This too can be a factor in the formation of a partnership that can greatly enhance the outcome of the entire project.

These studies were summarized in the works by Dussauge and Garrette (1995). They form the basis of the structure and knowledge that is still used in the formation of partnerships today. We have now visited several factors that play a role in building successful partnerships. It should be apparent by now that forming successful partnerships is no easy task, but that there are several important characteristics that can be used to help increase the chances of a successful partnership.

Partnerships and Negotiations

Partnerships are forged from the negotiation process, whether they are self-forming or the result of general contractors and the competitive tendering process. Partnerships are dynamic and change throughout the duration of project, each time needing to renegotiate one or several factors that formed pat of the original partnership. At times negotiations may be hostile and result in one firm attempting to dominate the other. Studying these negotiations and the dynamics of power in the relationship is one way to help define and improve the chances of success in a partnership (Subramanian 2003).

When one hears the term "negotiation" they automatically envision a table to people sitting across from one another arguing back and forth. However, Cindy Saunders (2005) feels that negotiation should be seen as a process instead of a one time event. Saunders feels that the process should be seen as collaborative instead of combative. However, that is not to say that the two parties should take the stance of such complete cooperation that they are placed at a disadvantage. She sees the goal of the negotiation process as the need to strike a balance between competition and cooperation among the parties involved.

The goal of negotiation is mutual gain. Therefore, the attitude that treats the other party as a partner rather than an enemy is the most likely scenario that will lead to a successful negotiation in which both parties come away feeling as if they have gained something. Saunders feels that unsuccessful negotiation strategies are the number one reason why 70% of all business alliances fail. Saunders also highlights the importance that the people that negotiate the terms are the same people that will be managing it throughout the project duration.

One of the key techniques used in vendor or contractor negotiations is that information is often kept back on one side. Saunders stresses that the sharing of information is the most important aspect of successful negotiations. The expectations and commitments by both parties should be stated clearly so that both parties can concentrate on achieving these objectives. Saunder's perspective and techniques are a new way of looking at the negotiation process. This is perhaps one of the most useful books on negotiations in recent years. It provides a fresh perspective on an old subject.

Saunder's perspective is an important element in understanding the elements of a successful relationship. Often one sees the negotiation process as being separate from the formation of partnership. This is especially true of negotiations that take place after a merger or acquisition. However, if one considers negotiations to be a form of partnership, then it is easy to see how successful partnerships are the result of skilled negotiation techniques.

Like partnerships, negotiations have several characteristics. In a negotiation communication is open and interactive between the parties involved. Intermediate solutions are possible. Both parties can make temporary offers and counteroffers directly to the other person. An agreement is not reached until both parties accept a proposal from the other. The nature of negotiations provides a mixed motive in the process. Negotiation implies that a tension exists between the creation and claiming of one's values (Lax and Sebenius 1986).

Negotiators can be grouped into two different categories. Those with individualistic orientation tend to use argumentation, calls for concessions and threats to enhance their position. Negotiators with a cooperative orientation end to use integrative behavior such as multiple issue offers, information exchange, and statements of a supportive nature. When two negotiators are cooperatively oriented they tend to achieve higher mutual gain than those that are individualistically oriented (De Dreu et al. 2000).

When two negotiators of differing orientation meet then members adjust their choices depending on the choices of the other. Liebrand and associates (1986) found that cooperators shift their behavior towards non-cooperation if the other person chooses to not cooperate after several turns. However, in these experiments individualists were not as likely to reciprocate their opponent's behavior. They will cooperate if they feel that it is in their self-interest to do so. This research by Liebrand and associates reflects several tendencies that not only affect negotiations, but that affects the formation of partnerships as well. Cooperatively oriented negotiators are more likely to mirror the behavior of the other party. However, individualists tend to avoid mimicking the behavior of the other, but remain true to their own self-interests.

The purpose of a joint transaction, such as a negotiation is to achieve an outcome that is favorable to all parties involved. If one party is treated in such as manner that the outcome is not fair and equitable, then the negotiations can not be considered successful. A primary concern is not for the individualistically oriented negotiator, as they are more likely to defend their own position and look after their own interests. The concern is for the cooperatively oriented negotiator. There is a concern that this negotiator, in their quest for cooperation will attempt to match the demands of the other to such an extent that they will receive an unequal distribution of the outcomes. In the experiments conducted by Liebrand and associates, individualistically oriented negotiators have the advantage because they have planned for the contention of the other. They also tend to contend first and to contend more persistently.

In the beginning of the negotiation, there is an expectation that the other person will be of the same orientation as oneself. Therefore both negotiators will prepare to meet someone that is like themselves. The individualistically oriented negotiator will prepare to meet contention. However, the cooperatively oriented negotiator will prepare for an interactive negotiation. This creates a mismatch that does not become apparent in the beginning of the negotiation proceeding as both negotiators begin to react according to the assumption that the other party is of the same orientation as themselves.

As the negotiation opens, the cooperatively oriented party tends to openly share information in order to move the proceedings towards a common advantage. However, the individualistically oriented negotiator will take advantage of this in order to get more information from the other party. They present demands to gain an advantage in the negotiations. They may strategically misrepresent their own goals and level of cooperation to gain an individual advantage. This was exactly what occurred in simulations conducted in a study by (Rhoades and Carnevale 1999). Individualists are more persistent then cooperators in their contention (O'Connor & Carnevale 1997; Carnevale & Pruitt 1992).

There is another perspective that becomes apparent as one studies the negotiation process. Pruitt (1990) found that cooperators see the outcome as a pie with fixed dimensions. They try to slice the pie in such as manner as to optimize the outcome for all parties involved. The cooperative negotiator may not have a strong objective and will be less likely to defend their position in the negotiation process. The outcome of the negotiation process is the most important factor in the negotiation process. Both parties must feel satisfied with the outcome, or they will not be willing to put the agreements into action to engage in future negotiations with the other party (Brett and Rognes 1986).

Much of the information on the actions of negotiators in the negotiation process is the result of studies involving simulations. These studies have an advantage in that they place the negotiators in a situation where the scenario is quite realistic. However, there is one point that those conducting studies such as this failed to address. Although, the situations for the studies were very realistic, the emotional state of the negotiators was not. In a simulation everyone knows that the stakes are not real. There is a sense that "this is only a game." In a real negotiation setting the stakes are real and the parties will be affected by the outcomes. A negotiation that takes place in a research simulation may not have the same outcome as if the negotiation were real and took place in another setting. One can find numerous academic studies on the negotiation process, but of the ones reviewed for this research, none addressed the difference in emotional state between real and simulated negotiations.

There are several factors that may be affected by the emotional state of the negotiators in a real-world setting. The first is that each of the parties may be more likely to engage in risky moves during the simulation. Risk taking behavior could be expected to change in a real-world situation. This is a factor that was not addressed in any of the studies found during the course of this research, but that may be considered a limiting factor in the ability of the study to make accurate predictions regarding real-world settings.

This limitation may be difficult to control and account for in the research setting, as it is difficult to gauge the effects of this factor when the stakes and outcomes are real. One way to eliminate this factor would be to study transcripts of real negotiations and compare them to simulations in order to determine if any differences exist that could affect the outcomes. However, this presents a problem in the research setting that could account for the lack of studies conducted in this manner. The primary limitation in conducting this research is that the information and strategies in real negotiations are highly sensitive and involve confidential information. It is highly unlikely that researchers would be able to gain access to the highly confidential nature of the material in a real negotiation setting.

Further investigations into negotiation styles revealed that the order of negotiated issues determined whether individualistically or cooperatively oriented negotiator would prevail. In instances where groups were instructed to consider all issues sequentially, those that were cooperatively oriented tended to gain the advantage. However in instances where the groups were instructed to consider the issues simultaneously, the individualistically oriented groups did just as well as the cooperatively oriented groups (Weingart, Bennett, & Brett 1993).

Studies also confirmed that each of the participants assigns a priority to the issues. Both types of negotiators are inclined to give in on low priority issues, but will remain firm on issues that involve a higher priority (Thompson 1998). This is true whether the negotiators are individually or cooperatively oriented. Prioritization is an important element in the negotiation process. In the construction setting priorities are often set by the general contractor or others that are outside of the negotiation process. The parties must adhere to group objectives, which tends to favor cooperatively oriented negotiations, rather than individualistically oriented negotiations.

In mixed groups interactions become complex. There were several studies found that involved groups of mixed orientation (Pruitt & Lewis 1975; Beersman & De Dreu 1999; and Weingart et al. 1993). However, upon examination it is difficult to credit them as valid. There were too many variables to be considered predictive. Studies that pitted well-defined dyads of individualistically oriented groups with cooperatively oriented groups were better able to isolate the variables for comparison. In mixed groups there are not only dynamics between the two groups, but also dynamics within the group that make the ability to analyze power structures difficult to say the least.

The goal of academic research is to develop the ability to make predictions regarding future events. In order to be able to do this it is important to be able to isolate the variables involved. Investigations of negotiations and partnerships are a key example of how complex studies on human motivation can become. The most important aspect of the studies examined is that they are useful in the ability to make predictions on future outcomes. The only studies that are able to do them from a validity standpoint are studies that can clearly isolate and define the variables involved. In this research, only studies that divided negotiation participants into two distinct groups were able to present conclusive evidence regarding negotiation styles. Studies that involved mixed groups were unable to make predictive analyses due to the inability to isolate variables.

From a strictly academic standpoint, it would appear the studies which divided participants into to distinctive groups are more useful in making predictions on the outcomes of negotiations. However, in the real-world one will seldom encounter negotiating groups that are so clearly defined. In the real world, negotiations involve random groups of people that may or may not have the same orientation. The motives and degree of cooperativeness is random as well. Individual motives will affect group motives. There are simply too many factors in the real world to even consider making predictions about the outcome of any one negotiation.

If this is the case, then one must ask why we should devise simulations and attempt to learn anything about negotiations at all if they will not be able to make predictions about the real world. The answer to this is simple. We need to understand the mechanics of the negotiating process to gain perspectives into the reasons why negotiations fail and why they succeed. The ultimate goal is to improve the outcomes of negotiations. Even though the studies examined on negotiations are not predictive from an academic standpoint, they still represent qualitative insight in the processes that may affect the ability to maintain equality in negotiations and assure that all parties walk away from the table feeling satisfied.

Attributes of A Successful Partnership

Several factors were discovered during the course of a study of materials regarding negotiations that help in our objective of identifying factors that affect the ability to form effective partnerships. In order to create an effective partnership both parties must be willing to share information with each other. The second factor is that the parties must be able to trust each other and focus on joint problem solving. When both parties have high aspirations for their own personal gain and have high expectations for the gains of others as well, then they will be more likely to achieve successful negotiations, even if they are individually oriented. To achieve this means that even an individually oriented person will have to make some concessions and put their own wants and needs aside for the time being (Fisher, Ury, and Patton 1991).