Chapter 2 Negotiation Opportunities—More Than You Think!
Commonly, the average person on the street (and many government folks, too) sees government negotiations as relating to the source selection process—the way we award a contract in competitive situations. This is a well-defined and well-trained process with specific steps: development of evaluation factors, exchanges with offerors, request for proposal (RFP) preparation, proposal analysis, price analysis, cost analysis, competitive range determination, and so forth. There are already many good books, training courses, seminars, and other forms of guidance that cover this material well. Rather, this book concentrates on how to be successful in negotiations. We’ll concentrate on learning negotiation skills that can be valuable to you not just in source selection, not just in discussions, but in any negotiation situation.
THE IMPACT OF THE FEDERAL ACQUISITION STREAMLINING ACT
The need for professional negotiation skills has increased in recent years. When Congress passed the Federal Acquisition Streamlining Act (FASA) in 1994, it represented a sea change in the way the government conducts its contracting business. Before then, concepts such as best value and performance based were rarely heard of, much less used. Everything was, basically, a price shootout.
The government would dictate the requirements, step by step, to the contractor and they would simply price the solution we dictated to them, with the best price winning. Negotiations were relatively simple then. Because we dictated the technical approach to the competing contractors, in true read-a-step, do-a-step, geta-banana fashion, all the proposed technical solutions looked the same—no innovative approaches were allowed. Price was pretty much the only thing left to negotiate. COs back then were more or less simply procurement clerks or technicians who followed a rigid, predictable process that churned out a contract award.
FASA changed all that. Things are a lot less formal and a lot less process driven now. What’s important today is not how well you can follow some rigid procedure, but how well you can make a commonsense good business deal. And, as you’ll see, moving from “lowest price wins” to “best value” and from “dictated specifications” to “performance based” has made negotiation skills more important than ever.
Instead of awarding contracts based on the contractor who could give the best price while meeting the minimum requirements, the FAR now dictates that every contract award must be based on best value. Best value is simply picking the contractor based on the overall benefit—the best value—to the government, price and other factors considered.
Although it’s true that sometimes price alone is still the best determinant of best value, now we can look at other things, such as past performance, and factor them into the award decision. We can look at the contractor’s technical approach to solving the problem and many other nonprice factors, such as résumés of key personnel, to help pick the “right” contractor. We simply have to state what the evaluation factors are going to be when we go out with our solicitation. When the proposals come in, we can now trade off technical superiority against price. In other words, we can now award to other than the low-priced contractor, if the technical superiority of their solution merits it, as long as we can justify spending the extra bucks to get the extra bang.
This is great news for your customers, but it complicates your job as a CO and a negotiator. No longer is price the only thing to be negotiated. Rarely will the contractor’s idea of best value—the mix of price and technical factors they submit with their proposal—be your idea of best value. The mix often has to be negotiated, and this can get complicated. You now are not only negotiating price, but other things such as warranty terms, level of effort, delivery dates, level of government involvement, validity and chance of success of various technical approaches, and so forth. And you have to balance all these factors ultimately against price. How can you ensure best value if you’re not trained in how to negotiate to it?
Instead of dictating the specifications (the process to solve the problem) to contractors, we now simply state what we need in terms of outputs and invite them to come up with the process to solve the problem. This is performance-based contracting. As the government moved away from writing its own specifications and moved toward having the contractors propose the solutions, it unleashed the incredible innovative power of the private sector. Industry has come up with creative solutions to our problems that we never could have dreamed of on our own. After all, they’re usually the experts, not us!
Again, that’s great for your customers and the taxpayers, but it greatly increases the difficulty you’ll face in proposal analysis and, ultimately, in negotiations. When the proposals come in, you can no longer do an apples-to-apples comparison, because all the proposed technical solutions can be vastly different, and they come with different price tags.
One company, for instance, may propose to satisfy our needs by relying heavily on manual labor, whereas another contractor’s proposal may rely on automation and technology. Both proposals can meet our needs; they just have different ways of getting to the end result. Because each proposal can be substantially different, you now have to have separate negotiation plans for each contractor, tailored to the strengths and weaknesses unique to their proposal. And when you negotiate with these contractors, you have to talk about the merits of their particular technical approach in addition to negotiating price.
To make matters worse, you start off with an immediate negotiation disadvantage. They are the experts in their particular technical approach, not you. After all, they wrote it; you just reviewed it. They are in a superior knowledge position about the process because they came up with the process. And the process will drive the price. Only by possessing good negotiation skills can you overcome this inherent disadvantage and ensure you end up with a fair and reasonable deal.
NONCOMPETITIVE NEGOTIATIONS
As you know, you can have negotiations for noncompetitive contract awards too. Sole-source negotiations can be tough! In these cases, you don’t have the power of competition to give you an advantage. This is precisely where, in my opinion, most of the standard government training is found lacking.
Here’s the problem: The government has a clear preference for competitive contract awards. Because of this, the vast majority of contracts awarded by the government go through the competitive process. The power of competition tends to self-regulate the contractors, virtually ensuring their proposals will be fair and reasonable. If not, they get beat by the competition. Because of this heavy reliance on competition alone to determine prices to be fair and reasonable, the government has slowly gotten out of the business of teaching its folks how to negotiate. The thought process was, “There’s no need to. Competition will take care of it.” Unfortunately, not all your negotiations for contract award will be competitive, and very few of your negotiations will even be for contract award at all.
As a matter of fact, your most difficult negotiations will come with contractors after contract award. Not including those times when you have to negotiate a sole-source contract, here are some examples of other times you’ll be negotiating sole source after contract award:
• Negotiating contract modifications, also called supplemental agreements
• Resolving contract disputes
• Negotiating contract claims
• Adding in-scope work to the contract or deleting work
• Negotiating government-furnished property (GFP) issues
• Negotiating billing rates or settling indirect rates
• Negotiating adjustments for award or incentive provisions
• Negotiating a contractor’s proposed subcontracting plan
• Negotiating terminations for default and convenience (or for cause)
• Negotiating intellectual property rights.
I’m sure you can think of others. Folks, there are many other times during contract performance when a clause or simple common sense requires either you or the contractor do something if such-and-such happens. Most of these events will result in equitable adjustments to the contract, and all of these have to be negotiated. And because you’ve already locked in a winning contractor, these will all be sole-source negotiations. Luckily, the skill sets you need to be successful in these negotiation situations are basically the same, as is the process. This book shows you these basic skills and that process.
The basic steps are, in a nutshell:
1. Prepare for negotiations.
2. Conduct negotiations.
3. Conclude and document what you have done.
Sounds simple, doesn’t it? However, these three simple steps have a lot of important substeps embedded in each, and we will cover them in the following chapters. In addition, we’ll give you some useful tools you can put to work immediately to make yourself a better negotiator—both for the government and in your private life.
The next part of this book talks about what I consider to be the most important step of all—preparing for negotiations.