How to Negotiate Small-Value SITC Contracts

🛁 A Practical Guide Using the “Jacuzzi System” as an Illustration

👋 Introduction: Why Small Doesn’t Mean Simple

In the corporate world, the spotlight usually shines on multi-crore contracts—turnkey plants, big IT systems, and civil infrastructure projects. But what about the smaller ones?

💬 “It’s a minor item… Just clear it quickly.”

That’s the trap. Many purchase or contract professionals overlook small-value SITC (Supply, Installation, Testing & Commissioning) contracts, assuming they’re too minor to negotiate. But in reality, a small value doesn't mean low impact. Even a ₹2–3 lakh contract can be overpriced, inefficiently executed, or poorly documented if not negotiated well.

This blog uses a practical illustration—a Jacuzzi system—to demonstrate how to handle such contracts professionally. But the same steps apply to intercoms, small HVAC units, RO plants, lighting systems, or UPS systems.

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

1️⃣ First, Understand What “Small-Value SITC” Means

Small-value SITC contracts are typically:

• Independent, standalone items

• Below ₹2–5 lakhs (or foreign equivalent)

• Not integrated with major project packages

  
  

Examples: portable cabins, surveillance systems, pressure booster pumps, or even Jacuzzi systems in clubhouses or hotels.

Even though the order value is small, the scope still includes:

• 🏭 Supply

• 🔧 Installation

• 🧪 Testing

• ✅ Commissioning

  
  

So, a structured approach is essential.

2️⃣ Use First Principle Costing (FPC) for Each SITC Element

Break down the contract into its fundamental cost elements:

• S = Supply (Material Costs)

• I = Installation

• T = Testing

• C = Commissioning

  
  

Each must be estimated separately using First Principle Costing. Only then can you negotiate with clarity.

3️⃣ Let’s Illustrate This with a “Jacuzzi System” 🛁

A. Material Cost Estimation (S) 📦

Start by identifying:

• Major assemblies: pump, heater, control panel, jets, filters

• Plumbing parts: CPVC/PVC pipes, elbows, joints

• Electricals: switches, sensors, wiring, control modules

• Miscellaneous: sealants, insulation, fixings

  
  

✅ Use catalog prices, vendor quotes, and old purchase orders to arrive at a logical cost base. Don’t forget to add taxes, freight, and insurance.

📄 Tip: Use a template (RT01) to capture all material elements and their source of cost reference.

B. Installation Cost Estimation (I) 🔧

Break installation into:

1. Site Preparation – Civil reinforcement, waterproofing, marking

2. Plumbing Setup – Water supply, drainpipe connections

3. Electrical Setup – Wiring, safety breakers, power line

4. Mounting & Assembly – Placement and physical fixing

   
   

Estimate the time and manpower needed for each. Then assign rates based on market wages or past projects.

C. Testing Cost Estimation (T) 🧪

Testing includes:

1. Water Tightness Test – Leak checks

2. Electrical Functionality Test – Heater, jets, lights

3. Operational Test – Smooth operation of all systems

4. Safety Checks – Compliance with IS or international safety norms

   
   

📌 Skilled quality control personnel are typically needed. Estimate man-days and supervision time.

D. Commissioning Cost Estimation (C) ✅

Commissioning activities:

1. Final Inspection

2. Calibration of controls (jets, temp, pressure)

3. User Training

4. Handover + Documentation (manuals, maintenance, warranty)

   
   

💼 A qualified technician or service engineer typically does this over 1–2 days.

4️⃣ Estimate Manpower & Tools Costs 👷‍♂️🔩

A. Manpower 💰

Categorize:

• Skilled: plumber, electrician, QC engineer, commissioning expert

• Unskilled: helpers, loaders

  
  

Calculate the number of man-days, apply fair market wage rates, and add food/lodging if applicable.

Example: In our illustration, manpower cost is ₹22,100. (Use template RT02 for calculations.)

B. Equipment & Tools 🛠️

Estimate:

• Drills, testers, pipe-cutters, ladders, multimeters

• Assembly consumables: adhesives, fasteners, clips

  
  

Example: Equipment/tools + assembly costs = ₹26,900(Use template RT03 to organize these.)

5️⃣ Don’t Skip Negotiating Clauses 📄

Even in small-value orders, you must negotiate:

• Payment terms

• Liquidated damages

• Warranty/Defect liability

• Installation responsibility

• Safety compliance

  
  

🚀 Final Thoughts: Big Results from Small Deals

✅ Don’t underestimate the value hidden in small contracts.

✅ Apply structured costing.

✅Use checklists and templates.

✅ Practice negotiation tactics on these simpler contracts—it prepares you for larger ones.