How to negotiate high-value SITC contracts?

What are considered high-value contracts

Those types of contracts that involve SITC scope (supply, installation, testing & commissioning) and usually need integration with other large ongoing project packages at the site. Here, the company document to be given to the contractor is generally called an Agreement.

A few examples of high-value contracts are as below.

1. Setting up of new manufacturing plants for EV-electric vehicles 

2. Setting up Heavy engineering and fabrication works, e.g., for manufacturing turbines 

3. Setting up factories for Precision engineering companies needed for the Defence sector or aircraft 

4. SITC for Lifts and escalators for large projects like International Airports or residential complexes 

5. External & Internal Electrical works for large Projects

6. Air conditioning and Basement ventilation are important for large projects 

as are Plumbing, Fire detection, and firefighting. 

7. We’re evaluating a premium lift system designed for a high-traffic office environment.

8. The goal is to estimate costs from the ground up and negotiate smartly with vendors.

9. The lift must ensure speed, safety, security, and comfort, alongside long-term reliability.” 

   
   

   Please refer to my YouTube video on this article as per the link below:

Key components and material cost estimation

Estimating Material Costs – First Principles 

1. Break down every component—Traction system, Gearbox, car frame, guide rails, cables, panels, lights, rescue system.

2. Use OEM datasheets or similar past projects to benchmark quantity, weight, and specs. 

3. Add import costs, taxes, and logistic margins.

4. A resource template RT01 is proposed   for estimating the costs (for our illustration of lift system )as  Rs 41.60 Lacs as per the computation in the next slide 

5. The Material description, quantities, and rates/values indicated in the illustration are hypothetical for your easier understanding, and actuals can vary considerably 

Installation Process – Activities negotiating team must know &  capture the following 

1. Installation isn’t just physical fixing. It also includes scaffolding setup, shaft alignment, rail fixing, car frame, counterweights, door panel fitting, and wiring.

2.  Track man-hours, equipment used, and lift well readiness. 

3. Errors here impact safety and timelines later.”

Testing Process – Activities

The negotiating team must know the requirements for testing, Safety & Performance

1. Testing checks the system’s heart—load trials, overspeed checks, emergency stop, and door safety. 

2. It includes power-off simulations, vibration checks, and speed calibration. Noise levels 

3.  These tasks require skilled engineers—don’t under-budget here.”

Commissioning – The Final Checkpoint

The negotiating team must know the requirements for Commissioning to put the Lift ready for use

1. It’s not just a test run. 

2. Commissioning means checking floor-level accuracy, touch panels, call buttons, and Building management system integration. 

3. Also, it evaluates emergency alarms, waiting time logic, security features, and user comfort. 

4. Capture soft metrics too.

Manpower Estimation – Skilled & Unskilled Many People, What Skills, How Long? 

1. Break tasks by role: installer, testing, and commissioning

2. Identify mechanical technicians, electricians, quality inspectors, engineers, and unskilled helpers. 

3. Estimate man-day rates for each skill as well as unskilled rates  ( as total cost to the company) 

4. Map tasks to man-days and multiply by manpower rates

5. In the next slide, in the Resource template RT02, the computation of manpower cost is shown separately for Installation, testing & commissioning.

6. In our illustration, the amounts work out to Rs 96k, Rs 30k, and Rs 50k, respectively (total = Rs 176,000).

7. The skill  description, man-days, and costs per manday  indicated in the illustration are hypothetical for your easier understanding, and actuals can vary considerably 

Statutory Requirements & Approvals Legal and Safety Approvals  

1. List licenses needed from the State Lift Inspector, structural stability certificates, load testing documents, and third-party validation reports. 

2. These are costly and time-consuming—vendors must comply. 

3. Penalize non-compliance in contracts.” 

4. These are estimated as Rs 2Lac as summarised below (indicative only) 

5. Installation = Rs 100,000     Testing= Rs 20,000     Commissioning =Rs 80,000

Estimating Total Costs (SITC) for  the “Lift system” Resource template: RT04

The summary below captures all costs  as above + Overheads + contractor margin+Taxes 

1. Materials cost = Rs 41,60,000   (RT01.)  

2. Manpower costs -Installation, Testing & Commissioning -=Rs  176,000 (RT02)

3. Equipment ,tools, manufacturing & marketing variable  costs - = Rs 1,34,000   (RT03)

4. Statutory approval costs= Rs 200,000 

5. Subtotal of Costs as above = Rs 46,72,000

6. Overheads% to negotiate

7. Margin   = To negotiate as %

8. Taxes =As applicable

9. Total Cost = Rs 46,72,000  + OH+ Margin+ Taxes 

Negotiation Strategy – With Technical Strength a Strategic Negotiator, which is fair and data-backed 

1. Know your numbers. Compare competing vendor breakdowns.

2.  Question excesses—materials, man-days, equipment, tools & other costs margins.

3.  Use technical logic 

4. Negotiate terms and conditions, as they are also very crucial 

5. Negotiate AMC rates (beyond defect liability period) –while negotiating contract price as well, (say for 4-5 years), as you may gain some strategic advantage 

Top 10 clauses to negotiate. There are 140 clauses (34 domestic purchase +16 imports related purchase +90 installation, testing & commissioning related & clauses ) listed in Section 3 of my Udemy course for negotiation for high value SITC contracts. The top 10 clauses are captured below.

1. Scope of Supply, installation, testing & commissioning, and Responsibility Matrix,

2. Delivery, installation, testing & commissioning Schedule with Linked Penalties/Bonuses

3. Payment Terms Linked to Milestones 

4. Warranty and Defect Liability Period (DLP)

5. Advance Payment and Performance Guarantees 

6. Statutory conformance requirements and their payments 

7. Legal clauses such as Force Majeure, jurisdiction, etc 

8. Quality requirements and standards to comply with 

9. Risk management clauses

10. Change Order Management

    
    

    Mastering the art of deal-making with data, insights & experience