Negotiating Supplier Pricing

To win a bid on a competitive project, you may need to get aggressive with pricing. But that’s only the first step. Once you’ve won that project, you’ll need to start thinking about how to complete that project on time and under budget. And based on your pricing, you may need to get a little creative. In many cases, you can work with your supplier to negotiate more beneficial terms and prices. By offering them value of some kind — like a large volume sale — they may be willing to collaborate with you and ultimately help you stay within budget.

Here are three ways to partner with your suppliers to achieve better terms and prices.

1. Approach Project-Based Bidding as Partners

For some large projects, you will likely have to source a large volume of commodity-type materials, like concrete, coatings, or flooring. With the right approach, you can use those bulk purchases to help you negotiate a better price with suppliers.

The key to this tactic is to partner with the supplier and work together to win the project ahead of time. If a particular project requires a large volume of specialty floor coating, for example, you can ask your supplier to work with you on a better price that is specific for the project. The supplier will likely then approach and negotiate with the manufacturer, and together, the three of you can go after the project as a team. Because of the large volume, winning the project will benefit everyone involved.

Just remember that if you are able to agree on specialty pricing, it will apply only to that particular project. If you expect the same pricing for every project moving forward, you will quickly strain your supplier relationship. Use this tactic with a spirit of collaboration — understanding that by working together to win the project, the volume and pricing will benefit everyone involved.

2. Offer to Pay Cash

When projects get delayed or cancelled, the consequences generally flow downstream — the general contractor doesn’t pay the subcontractor, who isn’t able to pay the suppliers.

It’s an unfortunate reality, but it happens. Take the Fountainbleau hotel in Las Vegas, Nevada, for example. The $2.9 billion project was halted in 2009 and sat unfinished for nearly a decade before it was purchased in 2017 by a new developer.

Altogether, about one in six construction businesses wait 60 days or longer after invoicing to get paid. And only 52 percent of construction businesses say they always get paid in full. That represents a real challenge for suppliers. If their clients aren’t maintaining a positive cash flow, there’s an increased risk that the supplier won’t be paid if the customer is on terms.

With that in mind, paying upfront in cash can give you a significant advantage in negotiating supplier prices and terms. Cash discounts normally range from 1.5% to 5%.  By offering a cash payment, you can take away the risk that the supplier won’t get paid on time and in full. That won’t only give you leverage to negotiate a better price; it will help you build trusting relationships with each supplier that can lead to more advantageous prices now and in the future.

3. Double Check the Sales Tax

Often, you will find that extra costs are added onto supplier costs in the form of sales tax — but in many cases, that tax isn’t actually required.

In some states, for example, contractors are treated as resellers and are therefore exempt from paying taxes when purchasing materials. In other states, certain types of projects — like public or government-based work — are tax exempt.

And tax laws are constantly evolving. Some states are now moving toward separating taxes on services and taxes on goods or materials. In Texas, for example, the supplies and materials that go into a new construction commercial project are taxable, but the labor is not taxable.

While there are certainly projects where taxes will apply, it is always beneficial to double check. Make sure to look at every single invoice and verify if sales tax applies. If it doesn’t, go back to the supplier and have those taxes removed. That alone can save you between 5 and 8 percent depending on the location of the project.

Negotiating supplier pricing to come in under budget

By negotiating better terms and pricing with suppliers, you can ensure that your business is able to complete projects within budget. As long as you bring something of value to the negotiating table — whether cash payments, volume purchases, or insight into tax laws — you can maintain strong relationships and achieve the best supplier pricing possible.