Professionals in the government contracting arena, from both government and industry, should understand and acknowledge the fact that the two sides have different priorities. Aside from the obvious financial objectives, the government staff are charged with attaining several other objectives, including some that provide a distinct advantage to the contractor. The contractor, on the other hand, is not constrained by artificial limitations, and is at liberty to maximize the benefits of their position. This article will focus on the government’s goals when entering into negotiations and provide some insights into the guiding principles they must adhere to.
Naturally, the government seeks to obtain favorable pricing, but the financial aspects of the negotiations are not as simple as that. For starters, the government personnel are also expected to reach a ‘win-win’ situation that ensures the contractor nets a reasonable profit. The contracting officer is responsible to reach an agreement that is fair and reasonable to both parties and must therefore approach the negotiation with an accommodating tenor. This is distinctly different from the industry aim, which is typically to maximize profit, and thus is more of a “I win, you lose” arrangement. In addition, the government personnel are spending other people’s money, so their definition of success might possibly slant more towards a signed contract rather than the best possible pricing. The responsibility to safeguard the US Treasury and the taxpayers is regularly discussed and borne constantly in mind. But COs do not suffer the direct consequences of the spending, and that may insulate their sensitivity to some degree.
This perspective, combined with the contractor’s profit-based motivation, results in mismatched emphasis on costs and pricing, which usually favors the contractor.
A second objective of the government, and in many ways just as important as price, is to ensure procurement integrity. This means that the government must take great pains to ensure a fair, impartial evaluation, selection, and negotiation process. The contractor, however, is under no such obligation, and understandably seeks to maximize its advantage. The government’s mandate to prevent bias results in a caution and defensiveness that often colors their strategy and methods. Seasoned government negotiators can overcome that apprehension, but it is an acquired skill.
Furthermore, the contractor is the recognized expert in their field regarding their product or service. Their knowledge, familiarity and confidence in their price position probably exceeds the government’s, which is derived from typically incomplete government estimates and cost and price analyses. The contractor knows the actual costs, and their challenge is to present these facts in such a way as to persuade the government of their validity. The contractor typically demonstrates sophisticated and mature proof that their costs are reasonable because of their technical expertise and market experience. The government, on the other hand, must not only strive to obtain all of the necessary facts regarding costs and inputs, but then must also analyze and evaluate the outputs. The government team’s expertise most often lags behind the contractor’s institutional and working knowledge, providing yet another advantage to industry.
And last, the government is often under severe time constraints, whether due to mission urgency or the impending fiscal year’s end, or other such limiting factors. Of course, the contractor is eager to conclude the deal and secure that work and revenue, but the nature of government contracting shades that approach as well. Since government procurement is requirements based, the system and process tilt the balance towards the contractor. Except for bids and proposals costs, the contractor assumes no risk until the contract is signed, so their urgency is all reward based. On the other hand, the government bears all risk of mission failure, before and after negotiations; this disparity places unequal pressures on the two sides. As a result, the contractor can more often walk away from the negotiating table, giving them a subtle but significant advantage.
All of these factors appear to place the government negotiators at a disadvantage, which often makes the negotiations more of a foregone conclusion than an actual contest. That truth drives the government to weight their effort on the pre-solicitation and proposal phase, with thorough preparation and careful comparison of responsive offers. The government can offset negotiation disadvantages by laying the groundwork in comprehensive, accurate RFPs and exacting evaluation of offers. This cautious diligence ensures a good solution regardless of who wins and tends to de-emphasize the importance of the actual negotiations. And in that view, the government really does achieve a ‘win-win,’ by getting that it needs at a fairly negotiated price.
*Note: The thoughts presented in this article are solely my opinion, based on my experiences as a warranted government contracting officer. Not all COs will have the same experience, nor will they necessarily agree with all or even some of my conclusions.