Negotiations

Many Harvard professors always start with the big picture, so we see both the trees and the forest 🌳

It also reminds me: I need to let my team see which part each person is in, what role they play, and how everyone helps each other.

On negotiation strategy 1. Value 2. Fundamental Analytics 3. Negotiation Space/Map 4. Negotiation Process

Case Summary

The opening and the stakes

In 2009, Fairstar (a Dutch heavy marine transport company) bid for Australia's Gorgon natural gas project (total investment US$42 billion). If it won, the transport contract would be worth US$80–100 million and would significantly lift the company's standing. After 8 months of waiting and three announcement dates that "slipped," CEO Philip Adkins was finally asked the clincher: "What's your best price?" (Asking for the "best price" is a common buyer probe to push prices down.)

The industry and the company

Heavy marine transportation uses open-stern semisubmersible vessels to carry giant modules directly on deck (faster and more stable than wet or dry towing). For complex projects, front-end engineering can run to 25,000 hours. Day rates for top vessels can reach US$100,000/day, far above operating costs (see Exhibit 2). Fairstar was founded in 2005; its shipbuilding and refits overran by two years, and it lost US$7.53 million in 2007–08; by 2009 it had revenue of US$50.67 million and net profit of US$12.36 million, with an industry-leading EBITDA margin. It shifted its strategy to high-end module transport, targeting 80% utilization × US$80,000/day. Its two vessels, Fjord and Fjell, are open-stern, which gives it more bargaining power.

The rival and the opportunity

Industry leader Dockwise had 15 vessels and a significant market share. Gorgon needed roughly 250,000 tonnes of LNG modules shipped from fabrication yards in Singapore, Korea and China to Barrow Island in Australia (a Class A nature reserve with very strict environmental standards). Fairstar's asbestos-free vessels, shallow draft, and Fjord's 45m beam were an excellent fit for loading the largest modules.

A "no-contact" bidding process

The KJVG, led by KBR/Chevron, required that the whole process be anonymous, with no contact and a single online Q&A, where questions and answers were visible to all bidders; it also provided a "non-binding" sample transport agreement. Fairstar quoted US$95k/day for Fjord and US$75k/day for Fjell, with no discount, betting on "winning with quality." Both "announcement dates," in October and December, slipped.

A new variable appears

On February 25, 2010, Dockwise withdrew (presumably because its vessels contained asbestos and didn't meet environmental requirements), and Fairstar instantly became the favorite; but on February 28 the third announcement slipped again. Meanwhile, Fairstar had made a verbal commitment to Guangzhou Shipyard for two new vessels (US$101 million each), with payment due in June — but only on the premise of winning Gorgon. The financial and reputational pressure soared.

The buyer "changes the contract"

In April 2010, KJVG sent a new version of the contract: the terms were more one-sided, including a 10% performance payment it could withhold at will, and the right to replace crew members at will. Fairstar struck out every new clause in the electronic system and sent it back, gambling that it would "be called in to meet." Sure enough, the next day it got a call, and a face-to-face negotiation was set up in London.

Into the negotiating room

At the first meeting on May 11, it was 7 against 1 (Chevron/KBR lawyers + project managers vs. Adkins). The two sides went through the terms one by one: KJVG accepted some of the changes; Fairstar also conceded on "replacing crew" — the other side explained this was a uniform management clause needed because of another bidder, a Korean company new to the industry. Contract scope: Fjord for at least 1 year from 2012, with Chevron/KJVG able to extend by another 4 months; Fjell was excluded because the modules had grown larger. When they met again the following week, the only thing left unsettled was price.

The final kick

The board had discussed a "token reduction of US$5,000/day" (≈ US$1.5 million/year in concessions), but also worried about undermining its positioning and shareholder returns. In the meeting room, the other side's single line, "What's your best price?", pushed Adkins to a decision: hold the price? Concede a little? Or offer a structured price? Class notes

1. Could have been better?Have the meeting soonerChange offer when it came to 2 to 1 ？

2. Should he go ALONE or TAKE SOMEONE The upside: CLOSE THE DEAL, Confident. The downside: he's only the CEO — if he goes alone and the outcome is bad, it's bad for him.

3. One line to use: "What do you think is fair?" 4. Check the goals — not just the KPI The CEO negotiated down to the board's floor price and completed his task, but he didn't maximize the company's interests.

4. PREPARE - Position in Meeting

5. Don’t Lie

6. Better Prepared —— get more Information

7. Don‘t let them go first

8. Do not let the CEO/Proxy go alone.10. Do Not Rush