Strategic Response to a Price Increase Demand

Summary

A client received a demand for a cost increase of over 20%. ENS trained the negotiating team and developed a negotiating strategy that focused on identifying and managing risks via structured questioning. After the negotiation, costs were reduced by more than 20% without straining the business relationship.

A sudden demand for price increase

The client and contractor had previously agreed to a fee of $16.4m for its part in a $250m construction project. However, the contractor increased the contract price to $20m, saying that it had underestimated the costs required to buy the business. The client was then faced with the challenge of responding to this price demand while protecting the viability of the entire construction project.

Crafting a strategic response using ENS frameworks

ENS prepared the negotiating team and developed a negotiation strategy that would help achieve results that are beneficial to both parties. Advisers looked beyond the requested price increase and considered the need of both parties to manage project risk.

In order to prepare the team, ENS did the following:

  • Created a negotiating strategy by identifying and discussing risks via structured questioning.
  • Encouraged the team to challenge resource estimates to provoke a more thorough identification and analysis of issues.
  • Facilitated intensive simulations to help team members test assumptions and prepare for the unexpected.
  • Selected members of the negotiating team based on the individual negotiation skills they exhibited during the simulations.
  • Provided an independent view of the other party’s perspective to assist the team during planning and rehearsals.

From price increase to cost reduction

The negotiation was a success with both parties benefitting from the outcome. The final negotiated fee was down to $13m, saving the client $3.4m from the original agreed price. The client reduced their cost by more than 20% while managing to enhance their business relationship with the contractor. The other party also saw the value of a structured negotiation approach.

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ENSI Team