L4M5 opens by placing commercial negotiation in context: before examining styles, power or stages, the examiner expects you to understand when negotiation legitimately occurs across the procurement cycle and the contract management cycle. Aligned to AC 1.1.
1. What commercial negotiation is
Negotiation involves two or more parties and a channel of communication — whether a 1:1 discussion, team-to-team, or a hybrid meeting. The objective is to reach an agreement or settlement on one or more issues where there is disagreement or divergent views. It is a process, not a single event.
In procurement, the two key relationships are:
- Upstream — internal negotiations with stakeholders (agreeing specifications, budgets, timescales)
- Downstream — negotiations with suppliers on price, quality, delivery and contract terms
The other party is commonly abbreviated to TOP (the other party) in CIPS material.
2. Why negotiation situations arise
Four reasons negotiation situations typically arise in procurement:
- A buyer or supplier sees an opportunity to improve their position relative to competitors, other suppliers or other buyers.
- Buyers and suppliers hold different assumptions or attitudes regarding what should happen at a given stage.
- Mutual benefits may be achievable through negotiation at the relevant stage.
- Buyer and supplier objectives are in conflict at the relevant stage.
3. The CIPS Procurement and Supply Cycle — when negotiation occurs
Negotiation does not occur at every stage. The cycle below marks where it is limited, possible, or a core activity:
- Understand need / high-level specification — internal negotiations with stakeholders on what is needed.
- Market research and options (incl. make-or-buy) — evaluation of bargaining power between buyer and supplier begins here.
- Develop strategy/plan — the decision whether and what to negotiate is made at this stage.
- Pre-procurement market engagement — supplier conditioning begins (the process of influencing suppliers to accept certain circumstances or behaviours).
- Develop tendering documentation (ITT/RFP) — limited commercial negotiation activity.
- Supplier selection — limited commercial negotiation.
- Issue ITT/RFQ — limited commercial negotiation.
- Bid/Tender evaluation — this is the first stage where detailed commercial negotiation may start; the most significant negotiation opportunity before contract.
- Contract award — commercial negotiation takes place in the private sector. In the public sector, regulations often prevent negotiation at this stage (see below). There may be an opportunity to negotiate concessions before informing and awarding to the preferred supplier.
- Delivery of goods/services — limited commercial negotiation.
- Contract performance review — commercial negotiation takes place here, e.g. KPI achievement, disputes.
- Supplier relationship management and development — ongoing negotiation.
- End of contract / exit — negotiation regarding transition arrangements: data, staff, assets.
4. Public sector restrictions on negotiation
Public sector buyers must follow procurement regulations that restrict when commercial negotiation is permitted. The Procurement Act 2023 (commenced 24 Feb 2025) replaced the Public Contracts Regulations 2015 and introduced two competitive tendering procedures. Advertising moved from OJEU to the Find a Tender Service (FTS).
Under the Open Procedure — NO commercial negotiation: The Open Procedure is a single-stage process. Once submitted, tenders are evaluated and the contract awarded on merit. The authority cannot negotiate terms with bidders.
Under the Competitive Flexible Procedure (CFP) — negotiation MAY be permitted: The CFP is the authority's bespoke multi-stage procedure. The authority must state in the tender notice whether negotiation or dialogue will be included. If the authority has disclosed a negotiation stage, commercial negotiation is permitted at that stage. If it has not, negotiation is not permitted even within a CFP. The CFP can incorporate approaches that were previously available only via the PCR 2015 named procedures below.
PCR 2015 historical context (no longer current law): Under the superseded Public Contracts Regulations 2015, five distinct procedures existed. Negotiation was permitted only in three:
PCR 2015 procedure (discontinued) Negotiation? PA-2023 equivalent Open procedure No Open Procedure Restricted procedure No CFP participation stage Competitive Dialogue Yes CFP with dialogue stage Competitive Procedure with Negotiation Yes CFP with negotiation stage Innovation Partnership Yes CFP with iterative development These names are included here for historical reference only. The exam tests PA-2023 current law: two procedures (Open + CFP), with negotiation disclosed in the tender notice.
5. The Contract Management Cycle — negotiation within contracts
Negotiation does not end at contract award. The contract management cycle has multiple stages where negotiation re-emerges:
- Planning and scoping — agreement on scope, responsibilities, obligations, disaster recovery, slavery/ethics compliance.
- Stakeholder readiness — expectation management with stakeholders.
- Contract administration — operational management; minor schedule or specification changes.
- Relationship management — maintaining a productive relationship between the parties.
- Performance management — if a supplier disagrees with a buyer's KPI assessment, this becomes a subject for negotiation.
- Payment and incentives — negotiating improvements or additional services in return for additional payment or financial incentives.
- Risk and resilience — risk-share arrangements may need to be revisited and renegotiated.
- Contract changes and development — a core area for negotiation within the contract.
- Supplier development — improving capability, capacity and product/service range.
- Exit and termination — payments, staff transfers, assets, transition to the new supplier.
- Asset management — in some situations a buyer must negotiate post-contract with a supplier on disposal, upgrades and compatibility.
6. Sources of divergent positions — a preview
The source of most negotiation challenges is that buyer and supplier objectives genuinely differ. Typical areas of divergence include price (buyer wants lowest, supplier wants highest), quality, payment terms, risk share, volumes and flexibility, contract T&Cs, and governing law — all of which are developed across the remaining LOs.
§12 trap box: (1) Negotiation is limited, not universal — the open and restricted procedures specifically exclude commercial negotiation in the public sector. (2) The contract management cycle is as important as the pre-award cycle — many students ignore post-award negotiation. (3) Supplier conditioning (influencing supplier expectations) begins at the market engagement stage, before any formal negotiation.