Chapter 1 Overview of Federal Government Negotiations

It’s long been the policy of the federal government to satisfy its requirements for supplies and services as much as possible from the commercial marketplace. Accordingly, the government spends more than $200 billion each and every year buying the stuff it needs from contractors. Whole industries have sprung up to service the federal government as a customer. It’s also federal government policy to buy these supplies and services at fair and reasonable prices, so the government relies on smart folks to negotiate business-savvy deals with private industry. Although almost everyone who comes in contact with a government contractor may find themselves in a negotiation situation, highly trained contracting officers (COs) and contract negotiators bear the brunt of this effort. That’s what this book will focus on—you as the professional government negotiator.

In your position as a government negotiator, you not only represent your particular agency and office, but you represent the entire federal government and every American taxpayer. That’s an awesome responsibility. So what exactly gives you this authority?

Although the government’s authority to enter into contracts is loosely derived from the Constitution, your authority to negotiate on behalf of the American people ultimately comes from the U.S. Congress and the President of the United States. Congress, of course, controls the purse strings of our government and is responsible for passing laws directing how the federal government spends its money. These laws, along with precedents derived from court decisions, executive orders, and so forth, have been summed up and put into one regulation: the Federal Acquisition Regulation (FAR). You are bound by law to follow this regulation when you negotiate. The President is responsible for appointing the heads of each federal agency, and the FAR gives agency heads the responsibility and unlimited authority to enter into contractual relationships to support their agencies.

But think about this. The agency head for the Department of Defense is the Secretary of Defense, for example. Now, do you really think the Secretary of Defense has the time to negotiate personally every supply and service the Department of Defense needs on a daily basis? Of course not! This person, as soon as they are appointed by the President, immediately delegates this authority in writing down to the agency senior procurement executive. This person, in turn, further delegates down the chain in writing to the heads of the major departments in the agency. Those folks do the same, and on and on, until this authority to contract is pushed down all the way to the CO.

Now, the COs may be, in turn, supported by other team members like contract specialists and price analysts (who may have authority to negotiate), but only a CO, acting in the scope of his or her authority, can obligate—or bind—the government. The limits of authority are spelled out in writing right on the CO’s warrant. The warrant is a piece of paper that must be permanently displayed.

So, that’s how you, the CO, obtain the authority to negotiate and bind the government as a result of those negotiations. It’s an unbroken, written chain that starts with the President. But, remember those laws? Remember the FAR? The FAR spells out how you are to go about your business: what you must do, what you can do, and what you can’t do. The FAR also lays out in general terms what you must strive for in every negotiation. First and foremost, you must uphold the goals of the federal acquisition system and your responsibilities as a CO, so let’s take a look at them.

GOALS OF THE GOVERNMENT NEGOTIATOR

Your first goal, quite simply, is to get your customers what they need. Negotiation isn’t an end in itself. Always remember you are negotiating to satisfy your customer’s needs in terms of cost, timeliness, and quality. Remember also that your ultimate customer is the American taxpayer. Unlike your industry counterparts, which we’ll discuss later, you must also comply with and make sure that all requirements of law, executive orders, regulations, and all other applicable procedures (like clearances and approvals) are upheld. Folks, that’s a tall order! For instance, there are laws supporting federal socioeconomic programs that you must abide by, even at the sacrifice (sometimes) of cost and timeliness.

Do you think the government expects its negotiators—its representatives—to uphold the highest ethical standards? You bet. And there are laws about that too. This is one of the disadvantages you have as a federal negotiator. Unlike your industry counterparts, you are sometimes bound to sacrifice the best deal you could negotiate, from a pure price standpoint, to support the “law of the land.” The FAR also precludes you from taking advantage of a contractor who has made a mistake or grossly underpriced his offer. You can’t be silent, let the mistake become binding, and then do “high fives” about how you “killed the contractor in negotiations.” You are bound to be fair and reasonable to both sides.

The government expects its negotiators to treat contractors—your counterparts in negotiation—fairly, impartially, and equitably. Do you really think this is a prime goal when private companies negotiate with each other? But, you are held to this. And, if you think about the big picture, it makes sense. To survive as a government, we need a robust private sector on which to draw for things we need. We decrease this by being unfair, partial, and inequitable when we deal with industry. We are not in the business of putting businesses out of business!

In addition, if you treat a contractor unfairly, what are the chances of that contractor ever wanting to do business with the federal government again? Word of your unfair treatment could also spread, and soon whole sectors of contractors may pull out of doing federal business. What would that do to competition? How would that satisfy your customer? So treat your contractors fairly. It’s the right thing to do—and it’s the law.

Hand in hand with the concept of fairness is your requirement to negotiate in good faith. Negotiating in good faith means that you must have an honest desire to reach agreement on differences through compromise and that you are not trying to take unfair advantage of the other party. Leading a contractor on in negotiations by implying you have funds available to consummate the deal, when in fact you know you don’t, is an example of negotiating in bad faith. In this case, at the very least, you have caused the contractor to expend time, energy, effort, and money to no good purpose, which is not fair to the contractor. Your ultimate goal, the result of your negotiation, should be an agreement that is fair and reasonable to both parties.

Now, let’s contrast your goals with the goals of your counterparts in industry.

GOALS OF THE PRIVATE SECTOR NEGOTIATOR

So what do your counterparts, industry negotiators, want to get out of negotiations? Are they bound to reach an agreement that is fair and reasonable to both parties? Do you think they are under the same requirements to comply with all the laws and regulations to which you are bound? Absolutely not! Their primary goal, if they are a corporation, is to maximize shareholder wealth. (If they are a sole proprietorship, their goal is to maximize the owner’s wealth.) They usually have certain profit objectives (or goals) given to them by management to attain for each negotiation. These goals usually, in turn, link back to the company’s overall profit objectives. Sometimes these objectives are a certain dollar amount for profit; sometimes they are a percentage. As a representative of the government, you will probably not know these objectives.

Sometimes these negotiators may have other company goals they have been told to strive for that, on the surface, don’t seem directly tied to profit objectives. An example is strategic placement. In other words, by winning this particular contract, the company will strategically place itself ahead of its competition for capturing future business along certain lines. They may also want the prestige and exposure that being a prime contractor on an important government contract can bring. This usually positively affects their commercial sales, and ultimately their profit. Winning a large government contract can also increase their standing among companies that are in the business of rating other companies, like Moody’s or Standard and Poor’s. Higher ratings, in turn, give them access to more ways to capitalize. More creditors are willing to lend them money, allow them to float bonds, underwrite stock issues, and give them breaks on interest rates.

Companies may also have a goal to capture a contract to keep up the general volume of their business. Contractors have overhead, right? They must continue to pay this overhead regardless of whether they have any business in-house at any given time. They need a certain level of business income to pay these overhead costs, to ride out the lean times, and possibly to prevent costly “idle” situations. I’ve known contractors to go into barely break-even contracts just to have enough business volume to keep paying everyone.

But don’t be fooled! All these “other company goals” have an effect on the bottom line: They all will relate in some way back to the first two prime goals of every business: to maximize wealth and to meet profit goals. Don’t let yourself be misled by a company negotiator that says, for example, “At the prices we’re proposing, we’re really losing our shirts on this deal, but we don’t mind because __________.” They can provide any number of other company goals to fill in the blank, and they’ll make it sound convincing. But rest assured, every company is in business to make a profit. You may have to be a fair and reasonable negotiator to both sides, but they don’t. I’m sure company negotiators would be more than happy with what they considered a win–win result, but they are usually just as satisfied with a win–lose result, as long as they are on the win side of the equation. Only by understanding this can you properly prepare for negotiations.