I couldn’t ever imagine how does it work. Do they just call each other on the phone and arrange a meeting? Do they leave each other an email? A letter? Do they send a person into each others HQ? Also, when they eventually negotiate, is it just two ‘teams’ of people arguing over the conditions?
In: Economics
I’m a Senior Contracts Manager at a major defense contractor. I’ve negotiated $400M+ contracts. So I feel qualified to answer this.
It typically starts with one company having a requirement to do something or wanting something and looking for another company to perform either all or a piece of that. In my business, the buying company will send a solicitation to one or many other companies for proposals to create whatever the thing is. Typically the solicitation includes not only the request for a price, but also the technical approach and the terms and conditions that the company wants. The responding companies will provide their proposal, which includes their price, and changes to the technical approach, and any exceptions they are taking to the terms and conditions. The buying company picks the proposal it likes the best and the two companies engage in negotiations to hammer out the details.
This usually starts with the buying companies giving the selling company an offer (for a contract). The selling company may accept that offer, but more than likely they will provide a counteroffer where they make changes to the buying company’s offer, either in price, scope, and/or terms and conditions. This typically goes through several rounds of offers and counteroffers. The parties definitely could meet face to face to accelerate the process, but the earlier steps usually happen via email and phone. Once the parties completely agree on all of the elements of the deal they will shake hands and the buying company typically drafts a contract that the selling company will sign and return to the buying company for their signature. Once they have both signed, the contract becomes effective and the selling company is obligated to perform on its agreement.
That’s a very general flow of what happens in my world. It can obviously be very complicated and can take many months to complete.
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