Recently we were introduced to quite the force on the contract negotiation circuit, Eldonna Lewis Fernandez, and figured that some of her takeaways in how to effectively negotiate contracts may be helpful for our metal buying audience.
According to her official bio, Fernandez “has over 30 years of experience crafting killer deals both stateside and internationally, many in excess of $100 million. She’s currently the CEO of Dynamic Vision International—a specialized consulting and training firm that helps individuals hone negotiation skills—as well as a nationally regarded keynote speaker, session leader and panelist on the Art of Negotiation.”
Notably, Fernandez has amassed extensive experience in contracts for the US Air Force, Raytheon and Parsons, among others. Because of that experience, we thought we’d pick her brain on some topics that interest us:
MetalMiner: If I’m in a sourcing and procurement function at a company making significant industrial metal purchases, what are the Top 3 things to keep in mind when negotiating a contract with a supplier?
Eldonna Lewis Fernandez: First, never underestimate the importance of building good relationships with suppliers. Suppliers want to make a profit, buyers want to get the best deal possible. A good relationship will create the environment to have win-win results for both sides. In my time in the Middle East as a military contracts manager, the one thing that got me the best prices was the relationship. Building that “know, like and trust” factor goes far in getting a good deal.
Second, do your research – look for trends in the market for what you are purchasing. Know a little about the suppliers you are dealing with that you can use as leverage in your negotiation. For instance, the supplier may have had a successful year, which may drive prices down; or maybe they are not doing so well, which may drive prices up. While one supplier may be winning many contracts, there may be another equally qualified supplier that is looking to get into the market. You may be able to get a better deal from a lesser known but equally qualified supplier who is looking to get a share of a certain market.
And third, seek advice from experts – as a buyer, you may not know all the ins and outs of the particular purchases you are making. Get with some experts who are requesting the purchases, to understand more about what you are purchasing. I was a buyer for several years in the Civil Engineering parts store on a military base. I bought millions in electrical, plumbing, construction, HVAC and other commodities. I didn’t know one size PVC pipe from another. I took the time to visit some of the shops and talk with the people who did the work to find out a little more about what I was buying. In the end, that helped me as I was dealing with the suppliers and ultimately helped with negotiating price.
MM: Price volatility has loomed large in industrial metals markets much more over the past decade; what are some practical approaches or tools that a buyer can use in negotiating contracts to mitigate their price risk?
ELF: An economic price adjustment clause in the contract will mitigate risk when the market fluctuates either way.
MM: So how do you negotiate at the front end a contingency or an “out clause” for when a market goes the wrong way from everything you thought would happen?
ELF: Some type of economic price adjustment clause would be appropriate to include in the contract that allows for fluctuations in the market. This helps the supplier avoid financial risks that could derail the contract if this type of clause were not included. It removes the supplier contingencies and saves the buyer the possibility of those contingencies being included in the overall cost of the contract making, as the supplier would need to plan for those contingencies otherwise. For example, a supplier might bid a significant percentage higher for certain materials to allow for significant fluctuation in market conditions. Putting an economic price adjustment-type clause in the contract would allow the supplier to bid at current market prices and the clause would allow adjustments as the market fluctuates, making it a win-win for both sides.
MM: During your time at Raytheon, were you ever impacted by an anti-dumping case, and did that negate any of your contracts at that company?
ELF: I have not worked on any contracts that had anti-dumping requirements. I believe the Raytheon case was after I left Raytheon and have no knowledge of that case.
MM: Alright, then, just for fun…take us through the negotiation process of your latest – or most interesting – motorcycle purchase. (It didn’t take MetalMiner long to find out that Fernandez and “Pink Biker Chic” are one and the same.)
ELF: We all have some type of leverage that we can use to put us in the power position at the beginning of a meeting or negotiation. Thought you might enjoy this story, which is not really a purchase but using the motorcycle as leverage. I was taking over a $104 million aircraft maintenance contract when I was in the Air Force. I had heard horror stories about how the company project manager was a bully and would eat people for lunch, basically. He was a fighter pilot in Vietnam, tough as nails. I had never met him and had to go to my first meeting at the contractor’s location. I am a rather petite woman and although a Master Sergeant with Contracts authority, I was concerned about how I was going to start off in the power position with this company and him. I kept thinking about what leverage I had that I could use, then it dawned on me!
I threw on my leather jacket and helmet and rode over to the meeting on my Harley. I walked into the meeting with my jacket on and helmet under my arm. One of the managers came up to me and saw my helmet and asked if I had a bicycle. I said no, I have a Harley and I rode it over here today. He had a stunned look on his face, which spread around the room like wildfire. When we sat down to the table, everyone had a look that said, “don’t mess with her.” I used my leverage to gain power at the beginning of the relationship and never lost it.