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Recent developments in Victoria demonstrate two important elements of negotiation. The first is the value of incumbency or the benefits of an existing relationship and how it can be leveraged. The second is that an existing contract can be an essential variable in a current negotiation.
The proposal by Transurban to build the urgently needed East-West link to supplement the ageing Westgate Bridge demonstrates how both can be used to create value.
The proposal has a value of over $5billion and Transurban appear to be the only company that can provide the solution that the government urgently needs. Terry McCrann gave an excellent analysis of the deal in the Australian of 2nd May.
The beauty of the deal for Transurban is that the East-West link cannot be funded from tolls on that road because they would be prohibitively high. The costs therefore need to be spread over the entire City Link network. In order to fund this Transurban have proposed a 15-year extension to their existing toll franchise. This creates enormous value for them as the incumbent provider. It is almost the infrastructure equivalent of the network effect enjoyed by Internet companies like EBay and Uber.
The issue of incumbency should always be part of the analysis of power rather than being overlooked or even discounted.
