Factors Affecting Supplier Contract Negotiations in the Public Sector

This research project, submitted in partial fulfillment of a Bachelor's degree in Business Management at Moi University in May 2022, investigates the factors affecting supplier contract negotiation strategies in the public sector in Kenya, with a case study focusing on the Rural Electrification Authority (REA). The study aims to determine how quality, product specification, government policy, lead time, and ethical issues influence contract negotiation. Employing a descriptive research design, the study surveyed 59 employees using questionnaires. The findings indicate that quality, product specification, government policy, lead time, and ethical issues significantly affect contract negotiation, with the majority of respondents agreeing on their impact. The study recommends that organizations prioritize quality, clearly define product specifications, implement effective government policies, manage lead times efficiently, and uphold ethical standards. The research concludes with recommendations for the REA, the Kenyan government, and future researchers, highlighting the importance of these factors in successful contract negotiations.

FACTORS AFFECTING SUPPLIER CONTRACT NEGOTIATIONS
STRATEGIES IN PUBLIC SECTOR IN KENYA; CASE STUDY OF RURAL
ELECTRIFICATION AUTHORITY
BY
ROSE MWIKALI KIMEU
BBM/2088/19
RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENT FOR THE AWARD OF BACHELOR DEGREE IN BUSINESS
MANAGEMENT MOI UNIVERSITY
MAY 2022

DECLARATION
I declare that this research project is my original work and has not been previously
published or submitted elsewhere for award of a degree. I also declare that this research
project contains no material written or published by other people except where due
reference is made and Research Data duly acknowledged.
ROSE MWIKALI KIMEU Reg. No. BBM/2088/19
Signed……………………….. Date…………………………
This research project has been submitted for review with the approval of my project
supervisor.
Dr. Robert Odunga
Signed…………………………. Date………………………
ii

DEDICATION
To my parents, fellow classmates and friends who have already made this proposal have a
positive outcome.
iii

ACKNOWLEDGEMENT
I wish to acknowledge my supervisor, Dr Robert Odunga for his guidance, brilliant
ideas and valuable support he offered throughout the period of writing this project.
Special thanks goes to my colleagues and Moi University fraternity for the necessary
skills, competencies and facilities.
My special gratitude goes to my parents for their encouragement and sacrifice
throughout all my academic endeavors, and for teaching me how to walk, run and
smile.
Above all, I devote my whole hearted thanks to the Almighty God for the wisdom,
knowledge and guidance throughout my life.
Thank you all and God bless you.
iv

ABSTRACT
The purpose of the study was to determine the factors affecting contract negotiation in
the public sector with specific reference to Rural Electrification Authority. The specific
objectives of the study was to establish how quality, product specification, government
policy, lead time and ethical issues affect contract negotiation in the public sector. The
study used descriptive research design where the target population was 118 employees
and stratified random sampling technique was used to derive sample size of 59
respondents which represents 50% of the target population. Questionnaires was used to
collect data which was analyzed quantitatively and qualitatively where quantitative data
were analyzed and presented inform of tables and figures while qualitative data was
analyzed and presented in form of context analysis or evaluation of text materials.
According to the study findings majority of the respondents indicated that quality,
product specification, government policy, lead time and ethical issues duly affect
contract negotiation in the public sector, 60% of the total respondents on quality, 80%
on product specification, 56% on government policy, 72% on lead time and 78% on
ethical issues were of the opinion that it affects contract negotiation in the public sector.
It was recommended that organization should put major emphasis on quality during
negotiation of contracts in procurement by following the three steps to quality which
are; leadership, modern quality technology and organizational commitment,
organization should basically describe items, their dimensions, performance or any
other relevant characteristics in sufficient detail to ensure it was suitable in all aspects
for which it is intended. There is also need to have effective government policy of all
services in procurement which would be followed to avoid ineffective procurement
procedures being experience by the public sector. It was further recommended that
organization should encourage their department to get more information that is needed
as pertains to lead time so as to avoid unnecessary delays additionally business ethics
should highly be maintained to uphold the integrity of conducting business and
professional values. The beneficiaries of the study was the management of Rural
Electrification Authority, Government of Kenya and Other Researchers.
v

TABLE OF CONTENTS
DECLARATION..............................................................................................................ii
DEDICATION................................................................................................................iii
ACKNOWLEDGEMENT...............................................................................................iv
ABSTRACT.....................................................................................................................v
CHAPTER ONE...............................................................................................................1
INTRODUCTION OF THE STUDY...............................................................................1
1.1 Introduction............................................................................................................1
1.2 Background of the Study............................................................................................1
1.2.1 Profile of Rural Electrification Authority (REA)...........................................4
1.3 Statement of the Problem............................................................................................5
1.4 Objectives of the Study..........................................................................................5
1.4.1 General Objective...........................................................................................5
1.4.2 Specific Objectives..............................................................................................5
1.5 Research Questions................................................................................................6
1.6 Significance of the Study......................................................................................6
1.6.1 Rural Electrification Authority Management.................................................6
1.6.2 Government of Kenya..........................................................................................6
1.6.3 Other Researchers................................................................................................6
1.7 Limitations of the Study.............................................................................................7
1.7.1 Confidentiality.....................................................................................................7
1.8 Scope of the Study......................................................................................................7
CHAPTER TWO..............................................................................................................8
LITERATURE REVIEW.................................................................................................8
2.1 Introduction............................................................................................................8
2.2 Review of Theoretical Literature...........................................................................8
2.2.1 Quality.................................................................................................................8
2.2.2 Product Specification.........................................................................................14
2.2.3 Government Policy............................................................................................16
2.2.4 Lead Time..........................................................................................................19
2.2.5 Ethical Issues.....................................................................................................22
2.3 Review of Critical Literature....................................................................................24
2.4 Summary...................................................................................................................27
2.5 Conceptual Framework.............................................................................................29
CHAPTER THREE........................................................................................................31
RESEARCH DESIGN AND METHODOLOGY..........................................................31
3.1 Introduction...............................................................................................................31
3.2 Study Design.............................................................................................................31
3.3 Target Population......................................................................................................31
3.4 Sampling Design.......................................................................................................32
3.5 Data Collection Methods..........................................................................................32
3.5.3 Validity and Reliability of Research Instruments............................................33
3.7 Research Ethics.........................................................................................................33
CHAPTER FOUR..........................................................................................................35
DATA ANALYSIS, PRESENTATION AND INTERPRETETION OF THE
FINDINGS......................................................................................................................35
4.1 Introduction...............................................................................................................35
4.2 Presentation of Findings...........................................................................................35
4.2.1 Response Rate....................................................................................................35
4.2.2 Gender Analysis.................................................................................................36
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4.2.3 Age Representation............................................................................................37
4.2.4 Highest Level of Education...............................................................................38
4.2.5 Working Experience..........................................................................................39
4.2.6 Quality...............................................................................................................40
4.2.7 Quality...............................................................................................................41
4.2.8 Product Specification.........................................................................................42
4.2.9 Product Specification.........................................................................................43
4.2.10 Government Policy..........................................................................................44
4.2.11 Government Policy..........................................................................................45
4.2.12 Lead Time........................................................................................................46
4.2.13 Lead Time........................................................................................................47
4.2.14 Ethical Issues...................................................................................................48
4.2.15 Ethical Issues...................................................................................................49
4.3 Summary of Data Analysis.......................................................................................50
4.3.1 General Information...........................................................................................50
CHAPTER FIVE............................................................................................................52
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS.........52
5.1 Introduction...............................................................................................................52
5.2 Summary of Findings...............................................................................................52
5.2.1 How does quality affect contract negotiation in the public sector?...................52
5.2.2 What is the effect of product specification on contract negotiation in the public
sector?.........................................................................................................................52
5.3.3 How does government policy affect contract negotiation in the public sector?52
5.2.4 What is the effect of lead time on contract negotiation in the public sector?....52
5.2.5 How do ethical issues affect contract negotiation in the public sector?............53
5.3 Conclusions...............................................................................................................53
5.4 Recommendations.....................................................................................................54
5.5 Suggestion for Further Study....................................................................................55
REFERENCES...............................................................................................................56
APPENDICES................................................................................................................58
Appendix I: Letter of Introduction.................................................................................58
APPENDIX II: QUESTIONNAIRE...............................................................................59
APPENDIX 2 - WORKING PLAN...............................................................................63
APPENDIX 3: BUDGET...............................................................................................64
vii

LIST OF TABLES
Table 3.1 Target Population ...............................................................................31
Table 3.2 Sample Size .........................................................................................32
Table 4.1 Response Rate ....................................................................................35
Table 4.2 Gender of the Respondents..................................................................36
Table 4.3 Age of Respondents ............................................................................37
Table 4.4 Highest Level of Education.................................................................38
Table 4.5 Working Experience............................................................................39
Table 4.6 Effects of Quality on Contract Negotiation.........................................40
Table 4.7 Extent of Quality on Contract Negotiation .........................................41
Table 4.8 Effect of Product Specification on Contract Negotiation....................42
Table 4.9 Extent of Product Specification on Contract Negotiation ...................43
Table 4.10 Effect of Government Policy on Contract Negotiation........................44
Table 4.11 Extent of Government Policy on Contract Negotiation.......................45
Table 4.12 Effects of Lead Time on Contract Negotiation....................................46
Table 4.13 Extent of Lead Time on Contract Negotiation.....................................47
Table 4.14 Effects of Ethical Issues on Contract Negotiation...............................48
Table 4.15 Extent of Ethical Issues on Contract Negotiation................................49
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LIST OF FIGURES
Figure 2.1 Conceptual Framework........................................................................29
Figure 4.1 Response Rate ....................................................................................35
Figure 4.2 Gender of the Respondents..................................................................36
Figure 4.3 Age of Respondents ............................................................................37
Figure 4.4 Highest Level of Education.................................................................38
Figure 4.5 Working Experience............................................................................39
Figure 4.6 Effects of Quality on Contract Negotiation.........................................40
Figure 4.7 Extent of Quality on Contract Negotiation .........................................41
Figure 4.8 Effect of Product Specification on Contract Negotiation....................42
Figure 4.9 Extent of Product Specification on Contract Negotiation ...................43
Figure 4.10 Effect of Government Policy on Contract Negotiation........................44
Figure 4.11 Extent of Government Policy on Contract Negotiation.......................45
Figure 4.12 Effects of Lead Time on Contract Negotiation....................................46
Figure 4.13 Extent of Lead Time on Contract Negotiation.....................................47
Figure 4.14 Effects of Ethical Issues on Contract Negotiation...............................48
Figure 4.15 Extent of Ethical Issues on Contract Negotiation................................49
ix

LIST OF ABBREVIATIONS
DPSM Degree in Purchasing and Supplies
MU Moi University
NRB Nairobi
REA Rural Electrification Authority
x

OPERATIONAL DEFINITION OF TERMS
Ethical Issues It refers to the respect for the confidentiality of
information, among members of staff in the course of
their work.
Government Policy A policy is a typically described as a principle or rule to
guide decisions and achieve rational outcomes.
Lead Time This is the duration of time taken between ordering and
delivering of products ordered.
Product Specification It is basically a description of that item, its dimensions,
performance or other relevant characteristics in sufficient
detail to ensure that it was suitable in all aspects for
which it is intended.
Quality It is defined as the efficient production of goods and
services that meet customer specifications and basic
needs.
xi

CHAPTER ONE
INTRODUCTION OF THE STUDY
1.1 Introduction
This chapter covers the background of the study, the statement of the problem, the
objectives, significance, scope and limitations of the study.
1.2 Background of the Study
Negotiation is one of the most important as well as one of the most interesting parts of
professional purchasing. It is generally accepted that a key competence in a
purchasing executive is an ability to negotiate. Negotiation may involve dealing with
a single issue or many. They may be conducted on a one – to- one basis or between
terms of negotiators representing different interests, and may be conducted over the
telephone in a matter of minutes, or take many months to compete. It is also worth
mentoring that negotiations are not necessarily confirmed to the buyer – seller
relationship, many purchasing negotiations take place on an intra – organizational
basis, involving the reconciliation of the views of supplier staff and colleagues. There
have been many attempts to define negotiation, for example ‘to offer with others in
order to reach a compromise or agreement (Clifford, 2008).
Kenneth (2006) defines negotiation as the process by which we search for terms to
obtain what we want from somebody who wants something from us. It is perhaps
worth mentioning that negotiation has two other meanings, not closely related to its
‘bargaining’ connotation. Negotiation may be employed by a manner or nugatory to
mean something like ‘finding a way, where as a banker might comply the term to
mean’ exchange for value. Negotiations depend on communication. It occurs between
individual acting either for themselves or representation of organization groups.
Therefore negotiation can be considered an element of human behavior. To be fully
effective in contract assignment negotiation must be utilized in its broadest context as
a decision making process. In this content negotiation is a process of planning,
reviewing and analyzing used by a buyer and a seller to reach an acceptable
agreement that includes all aspects of business transactions not just price.
In a successful negotiation, both parties gain best offer more than one party with more
than the other. It is also believed that persons, in the roles of negotiations are required
to communicate positions, make demands and conclusions, respond to changing
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