A project manager is negotiating a contract with a vendor for critical project components. The vendor is demanding a 20% price increase due to raw material cost escalations, but the project budget cannot accommodate this increase. What should the project manager do FIRST?

Explore alternative solutions such as specification changes, different materials, or phased delivery to reduce costs

Reject the price increase and seek alternative vendors immediately

Accept the price increase and request additional budget from the sponsor

Demand that the vendor honor the original price as per the initial agreement