Oil well
Energy is a critical infrastructure component for any business. Large projects often need to negotiate separate deals with energy suppliers in order to meet their energy needs. A poorly negotiated energy supply contract, however, could result in you paying much more than you need. In order to negotiate a favorable energy supply contract you will need to understand the energy market, your company's needs and the energy supplier's market position.
Instructions
1. Understand the details of prevailing energy pricing structures. These can be quite complex and usually vary significantly from region to region. If you enter negotiations without having thoroughly mastered them, you will not understand what you are paying for.
2. Develop a comprehensive written energy supply strategy for your company that fits in with its overall business goals. Make sure that every company representative sitting at the negotiating table fully understands it.
3. Deal with multiple suppliers if possible. No one supplier should supply more than 50 percent of your energy needs unless there is a shortage of reputable suppliers in your region. By dealing with multiple suppliers, you put them in competition with each other and ensure better deals.
4. Learn about the energy supplier's current and future costs. You will need to know the wholesale cost of energy in your region, along with average price fluctuations. The NYMEX Designated Contract Market website (see the Resources section) is a good place to look for this information. It is important not to neglect regional differences in energy pricing due to capacity and transport costs.
5. Negotiate long-term contracts with "escape clauses" wherever possible. A long-term supplier is more likely to grant you favorable rates, and your gradually increasing knowledge of your supplier's market position and capacities will eventually put you in a good position to find mutually beneficial solutions to your company's energy needs.
6. Insist on the insertion of provisions that allow the built-in flexibility to take advantage of short-term price fluctuations without having to amend the contract in order to do so. Energy prices can be volatile, and this volatility can work either for or against your company, depending on how flexible the contract is and how prepared your team members are to take advantage of it.
