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The Dreaded ‘P’ Word

August 25, 2011

This morning I was reading an excellent article on alliances and collaborative relationships. Quite early on, it referenced the ‘price pressures being generated by today’s economic conditions’ and observed how these were causing strains on relationships. It then moved on to look at causes of failure in collaborative relationships.

Based on all the work we do at IACCM, I have come to realize that there is an automatic conflict created when contracting parties start to focus on (or even talk about)  price. The paper highlights ‘price pressures’ – but these are in fact a symptom of the real issue and focus on price cannot be reconciled with partnering or value. If price is everything, then corner-cutting and performance failures follow not far behind.

The real issue – and the ‘best practice’ focus – is cost. Organizations can partner around overall project cost and how to optimize value within a budget. But price focus is akin to risk focus – it becomes a debate about the allocation of relative pain, not a discussion about collaborating to achieve shared benefit.

Often, we use the word price quite casually, as if price and cost are interchangeable terms. But they are not.   ‘Price’ and ‘cost’ are very different and generate quite distinct emotions. This is something that no contract negotiator should ever forget.

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