Hotel Procurement: Analyzing Negotiations in SITXMGT002 Task 1

This assignment solution addresses the requirements of Negotiations Task 1, focusing on procurement for a hotel complex. It analyzes two negotiation scenarios: acquiring large/small bar equipment and outdoor heating systems. The solution outlines the necessary research before contacting suppliers, including pricing strategies and methods for determining the initial contract price. It also delves into the importance of researching suppliers' organizations and cultural factors. The assignment includes a detailed breakdown of negotiation objectives, negotiable and non-negotiable requirements, and BATNA (Best Alternative To a Negotiated Agreement) for each supplier. Finally, it considers potential concessions during negotiations, emphasizing the importance of bargaining and finding mutually beneficial agreements to secure the best possible terms for the hotel.

Negotiations
TASK 1: ANSWER ALL QUESTIONS
Q1: What two (2) areas have you chosen to use as the basis for your negotiations?
1. Large or small bar equipment for the external bar
2. Outdoor heating systems
Satisfactory ☐ Unsatisfactory ☐
Q2: What information must you research before you make initial enquiries with potential
suppliers?
The initial maximum price is not only a line in the Procurement Notice, but also one of the
most important selection criteria that the customer is guided by when reviewing bids. If the
potential supplier exceeds the price specified in the application, such a proposal will not even
be considered.
Until recently, this question was not relevant for corporate customers - they could choose the
price randomly or be based on previous experience. Some corporations, in principle, did not
charge an initial purchase price. This was done to increase the transparency of the work of
companies with state participation.

The next item on the List was to ensure that state corporations and state-controlled companies
take decisions to reduce the cost of purchasing goods (work, services) per unit of output by at
least 10% per year. At the same time, the results of such a reduction are taken into account as a
key indicator to assess the performance of such organizations and their leaders. This includes :
Specification of the initial (maximum) price of contracts in the notice during the procurement
Specifying the initial (maximum) price of contracts in the documentation during the
procurement
Indication of the amount of security for the application for participation in the purchase
(usually - a percentage of the maximum price)
Indication of the size of the enforcement of the contract (contract)
Determination of the auction step
Establishing the initial (maximum) price of contracts when entering into contracts with a
single supplier
General principles for calculating the initial (maximum) contract price (contract)
The initial (maximum) price of the contract (contract) shall be indicated:
When conducting open bidding and quotation requests for quotations of prices: in notices on
placing an order, in the procurement documentation.
When conducting closed purchases: in invitations sent to potential procurement participants in
the procurement documentation.

The calculation of the estimated price of products must be carried out by the customer when
planning purchases. A more accurate calculation of the initial (maximum) price of the contract
(contract) should be made when preparing the technical requirements of the specifications and
technical specifications for the supply of goods, the performance of works, the provision of
services that are the subject of the contract, the preparation of the relevant procurement
documentation.
Methods for calculating the initial (maximum) contract price (contract)
Market (method of comparable market prices, market analysis method);
By peers;
Resource (estimated), design and estimate, basic index, cost;
By specific indicators using scaling (parametric method);
In practice, often used derivatives or mixed methods based on the above. The calculation of
the initial (maximum) contract price is recommended using several methods.
Methods for calculating the initial (maximum) contract price when purchasing goods
The most widely used market method is to determine the initial price of the contract, which
involves analysing market conditions for the presence of offers, demand or transactions for

specific products with certain parameters, which the customer is going to purchase.
For the purpose of calculation, information is collected and summarized in prices for a specific
model.
On the basis of the weighted average value found by calculating and applying various
adjustments for the terms of specific transactions, an approximate level of net product prices is
calculated, which is then adjusted to the terms of the proposed contract.
The method of determining the initial (maximum) price of a contract (agreement) by
counterparts is used when the subject of the contract (contract) to be purchased is not
represented on the market or it is impossible to find market data on its market prices, but there
are similar products with slight differences in functional and quality characteristics. At the
same time, essential and non-essential attributes of products are determined by the customer.
A market is being researched and analysed for the availability of offers, demand prices, prices
of actual transactions for similar or similar products, which are then applied to the prices of
purchased products by applying amendments.
Satisfactory ☐ Unsatisfactory ☐

Q3: Once you’ve contacted suppliers to negotiate with, research the people and the
organisation. Describe the results of your research and the cultural factors you’ll need to
consider during negotiations with the two different suppliers.
 Supplier 1
1. Large and small bar equipment for the external bar
The initial (maximum) price of the contract (contract) for the purchase of goods made to order,
the calculation It is built on the basis of prices for analogous products with subsequent
adjustment of the configuration in accordance with the requirements specified in the technical
specifications.
To obtain more accurate results, it is recommended, if possible, to use information about
several similar products received from different manufacturers or suppliers.
The resource (costly) method of determining the initial (maximum) price of a contract
(contract) is used, as a rule, when calculating prices in construction, when calculating prices
for complex equipment, and when calculating prices for complex works and services.
The price of the subject of purchase is compiled by recruiting and adding (calculating) the
prices of its components (works, goods, equipment, cost of machines and mechanisms) and
taking into account their volume (Holthusen, et al, 2016).
For a product, the costs of materials and spare parts, as well as the labor costs for its
production (assembly) are summed up

For the evaluation of works and services, lists of highly specialized tasks are compiled,
normative or estimated time for their execution is determined, which is multiplied by the
average price of labor.
Received labor costs are summed up with the associated estimated costs for goods,
consumables, machines and mechanisms used in the performance of work, provision of
services.
This method is the most time-consuming, but also the most accurate.
The method of determining the initial (maximum) contract price by specific indicators
(parametric method) (scaling) is used for express calculation of the estimated price of the
process equipment, facilities or industrial facilities erected as complete enterprises.
 Supplier 2
2. Outdoor heating system
This method is also used to determine the initial (maximum) price of goods made to order,
when information is not available on current and reference prices for goods with the required
technical characteristics, but if there is information about prices for similar types of goods.
In addition, the method is applied when a change in the main parameter of a product does not
entail fundamental structural changes in other parameters of the product with a corresponding

increase or decrease in value. It is also used to determine the initial (maximum) price for
simple goods or non-metal-intensive equipment, the level of prices for which depends on one
basic parameter that is significant for the consumer (weight, power, speed, performance, etc.).
This method is based on the dependence of the cost of equipment on its determining technical
parameter. When evaluating simple products, you can calculate the desired price by applying
directly proportional dependence. In this case, the coefficient of price braking (less than 1) is
introduced, since the price usually does not change as significantly as the main parameter.
To determine the initial (maximum) contract price based on data on prices of similar goods,
differing by the values of two or more parameters, the scoring method can be used. When
using the point method, a selection of several of the most essential parameters inherent in the
required product or similar products is made taking into account the degree of their influence
on the functional characteristics and property of the product. It is recommended to limit the
number of selected parameters to three or four.
Methods for calculating the initial (maximum) contract price when calculating prices for
services
Determination of the initial (maximum) price of the contract (agreement) is made on the basis
of the customer's requirements for the types of services provided, their volume and quality,
established in technical tasks on the basis of the market value of services or the resource
method by calculating costs. The results must be adjusted for price adjustments.
The determination of the initial price is carried out using current prices (tariffs) for the

provision of purchased types of services. To determine the initial price of an agreement
(contract), it is recommended to use unit tariffs (prices) established by three or more market
leaders specializing in providing the types of services required by the customer.
Depending on the type of services, the calculation of the initial (maximum) contract price can
be made on the basis of:
The cost of the unit of time: standard hour, standard day, etc.
Cost per unit of service
Amount of commission or interest
Other units of measure taken to establish tariffs.
The determination of the initial (maximum) price of the type of service can be made on the
basis of:
Average prices calculated as an arithmetic average of unit prices (tariffs), if the difference in
unit prices of the surveyed firms is 10% or more.
The highest unit price established by the survey of firms, if the difference between the
maximum and minimum unit prices of the surveyed firms does not exceed 10%.
Method of determining the initial (maximum) contract price by calculating
Satisfactory ☐ Unsatisfactory ☐

Q4: List and prioritise your objectives, negotiable and non-negotiable requirements and
BATNA (best alternative to a negotiated agreement).
Supplier 1 Supplier 2
Objectives of
negotiation
1. The main aim of contract
negotiation is to achieve certainty of
the equipment being supplied.
2. The second objective is to record
what is being supplied and in what
standards
3. The third objective is find the
consequences of failure or delay to
meet the requirements agreed.
.
1. The main aim of contract
negotiation is to achieve certainty of
the heating system being supplied.
2. The second objective is to record
what is being supplied and in what
standards
3. The third objective is find the
consequences of failure or delay to
meet the requirements agreed.
.
Negotiable
requirements
1. The negotiable requirements
include the quality of the equipment
2. The price of the equipment being
supplied.
3. The parties involved and
consequences of their failure or
delay of the contract.
1. The negotiable requirements
include the quality of the heating
system.
2. The price of the heating system
3. Consequences after delays.
4.

Non-
negotiable
requirements
Non-negotiable requirements include the
time for delivery and the quality of the
equipment since every equipment should be
top quality.
Non-negotiable requirements include the
time for delivery and the quality of the
equipment since every equipment should be
top quality.
BATNA
The best alternative to the negotiated
agreement BATNA is another supplier who
can supply the same quality of equipment
at lower prices or at a better timeframe.
The best alternative to the negotiated
agreement BATNA is another supplier who
can supply the same quality system at
better timeframe or at better rates.
Satisfactory ☐ Unsatisfactory ☐

Q5: What concessions (if any) are you prepared to make during negotiations to achieve your
objectives?
 Negotiations with Supplier 1
 Bargaining is the negotiation phase when the parties can agree. That is why bargaining
takes place in negotiations of any type. Of course, most often these conditions are financial
or can be transferred to those, and therefore, having agreed to sell a consignment of goods,
for example, for $ 310 instead of $ 300 per ton, you get additional profit. For the same
reason, bargaining immediately shows your effectiveness in negotiations, since it is not
enough just to agree with an opponent, it is important to find points of contact so that you
“do not go out in the red.” I have seen many examples when small suppliers come to
negotiations with large companies in retail and enter into transactions with such a low
profit margin for themselves that they actually then work “to zero” (Sousa, Lopes, and
Santana, 2015),.
 Negotiations with Supplier 2
 This is known that bargaining is an integral part of the selling negotiations, when the final
is a bargain - buying or selling. But in fact it is not so. In reality, bargaining is the process
of agreeing conditions, how to reach an agreement in negotiations, even if it actually does
not include money or its equivalent. The result of negotiations can be the exchange of a
product for a service, a product for a product, a service for a service, and similar
combinations. But in what proportions and ratios this exchange will take place - the

bargaining process decides.
Satisfactory ☐ Unsatisfactory ☐
Q6: Decide what roles team members will play during the negotiations.
 Negotiations with Supplier 1
the good guy
This is the manager of the Hotel. He negotiates with the suppliers at the recommended level by
the management. Anything beyond that, he will refer to senior managers. The good guys role
include:
 Bargaining for the convergence of positions, during which the exchange of rates and
conditions occurs.
 Reaching an agreement or exit from the auction if it is impossible for the parties to agree
on the terms.
 At first glance, the structure of bargaining seems to be simple, but in practice bargaining
often leads either to clinch the negotiation process, when participants disagree without
agreeing, or to push down the weaker side with a stronger opponent. In order for your
bargaining to be effective, especially when the forceful leverage in the negotiations is not
on your side, you must follow a number of rules. Otherwise, it will be painfully painful for
you, when once again, after completing negotiations, you will receive at the output not the
conditions that you expected.