Industry Motivation in Negotiations

2. Industry Motivation in Negotiations Breakout Session # WC10-383 Tom Reid, JD, CPCM Chief Problem Solver Certified Contracting Solutions, LLC Monday, July 19, 2010 2:00 pm - 3:15 pm 1

3. Agenda • Nature of Negotiations • Context of Negotiations • Substance • Process • Relationship • Industry Motivation • Business Stability and Continuation • Cash Flow/Financial Stability/ ROI • Ease of Doing Business • Non-negotiable • Negotiable • Conclusion

4. Nature of Negotiations • Government Buyer’s Objectives • Acquire necessary supplies and services of the desired quality, on time, and at the lowest reasonable price • Establish and administer a pricing arrangement that results in payment of a fair and reasonable price • Satisfy the needs of the user • Commercial Seller’s objectives • Profitability • Long term • Short term • Market share • Satisfy needs of customer • Build a relationship

5. Getting to Yes 1. Don’t bargain over position. 2. Separate the people from the problem. 3. Focus on interests, not positions. 4. Invent options for mutual gain. 5. Insist on using objective criteria. 6. What if they are more powerful? 7. What if they won’t play? 8. What if they use dirty tricks? 4

6. Principled Negotiations People: Separate the people from the problem Interests: Focus on interests, not positions. Options: Generate many possibilities before settling on one Criteria: Insist that the result be based on objective standards Fisher, Roger, William Ury, and Bruce Patton, Getting to Yes: Negotiating Agreement Without Giving In, 2 ed. (New York, NY: Penguin Books, 1991). 5

7. Interests and Options Where you will find this session most helpful is in identifying interests and thereby generating a broader array of options If you understand what motivates the other party – i.e. what lies behind their interests – you can be better prepared to address those interests. By understanding the interests, you are better prepared to develop options

8. Context of Negotiations Substance Process Relationship

9. Negotiation Topics GOALS: What does each side want? ALTERNATIVES: What will each side do if no agreement is reached? INTERESTS: What are the parties’ real interests? OPTIONS: What creative ideas can be developed to meet each of the interests of the parties? STANDARDS: Are there objective criteria or standards that will help the parties agree on what is fair?

10. Negotiation Topics continued COMMUNICATION: What can be done to improve each side’s under-standing of the other side’s concerns? RELATIONSHIP: What can be done to improve trust and make the next negotiation less difficult? REALITY TESTING: Is the agreement realistic? CONTRACTING: Do the parties accept the agreement as theirs? COMMITMENT: Do both sides agree to try to make it work?

11. Industry Motivations “Industry” is not a monolith It is made up of people of diverse backgrounds and interests Some are motivated by the wrong things Some are motivated by different things Others are motivated by the same things as you

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13. Three Primary Areas Business Stability and Continuation Cash Flow/Financial Stability/ ROI Ease of Doing Business Non-negotiable Negotiable

14. Business Stability and Continuation An underlying assumption for any entrepreneur or business owner/operator is that they want their business to continue. Continuing business; reducing competition Stable competent workforce High barriers to entry/ market share/ new markets

15. Continuing Business Expertise Ability to gain new experience Innate sense of ownership/ responsibility Potential future work Being known for quality Excellent past performance

16. Stable Workforce Ability to attract and keep best talent Challenging and rewarding work Education and experience For the fun of it Being part of history “Being Green” Civic responsibility Charity/altruism Pride in professional standards Pride in “Supporting America” Creating a legacy Professional awards Ability to work near home

17. Relationships and Tools Positive customer relationships Positive subcontractor relationships Proper Risk Management Avoiding criminal and civil actions What goes into a bid-no-bid decision What it costs to construct a proposal Proper PM and CM disciplines and tools require infrastructure and cost

18. Threats to Business Continuity Protection of owned IP Developing IP they can keep and commercialize Security of persons and property Access to GFP

19. Market Share and Barriers to Entry Competing successfully in a complex global market Expand locations Expand geographic areas served Defined product lines (Strengths) Develop targets and plans for: Retention of Existing Customers Expansion of Existing Contracts New Business Opportunities Establish bid decision process with criteria Establish standardized processes including proposal development methodology, format, and style Have a strategic plan for growing the business

20. Cash Flow/ Financial Stability/ ROI Cash flow prompt payment prompt negotiation of changes cost-type contracts Ability to cover overhead Allow audit as a “going concern” Effective use of equipment Proper Risk Management Contract type Insurance Best efforts Reasonable profit commensurate with risk

21. Financial Impacts Stable funding; multi-year contracts Profitability in a budget-constrained market Positive ROI Effective (and rationally administered) incentives What goes into proposal production Cost Manpower Resources Reasonable liquidated damages Clear understanding of cost/schedule/performance trade-offs

22. The Triple Constraint COST SCOPE SCHEDULE

23. How Motivating is Money? Higher profits can be gained in commercial businesses Commercial contracting is much easier and far less regulated

24. Ease of Doing Business Non-negotiable Negotiable

25. Non-Negotiable Items Rules on competition Legal work Ethical work Best value procurements (if SSO is trusted) Procurement integrity inadvertent technical transfusion unsolicited proposals Certifications Buy American Terminations for Convenience Criminalization of business judgment Christian Doctrine Doctrine of Apparent Authority TINA Increasingly complex regulatory environment Socio-economic programs Ethics compliance Political Support

26. Negotiable Items Clarity of requirements and direction Minimal ambiguity or assumptions Documented assumptions Excessive push for “faster, better, cheaper” Coping with change; managing expectations Simplified procedures Openness; good communication

27. DEFINITION: Specification • A document intended primarily for use in acquisition which: • Clearly and accurately describes the essential requirements for items, materials, or services. • Includes the procedures by which it will be determined that the requirements have been met. DEFINITION 26

28. Alternate Definition A SPECIFICATION IS: A voluminous and painstakingly dry document, designed to hamper, harass, and confuse contractors, disturb the digestion and emotional stability of contracting officers, and to discriminate equally against both large and small business. 27

29. Getting The Point Across 28

30. Acceptable Course of Dealing No jumping privity Unreasonable demands Unfair inspection Getting what you ordered, not what you wanted Defined disputes process with ability to appeal to higher authority

31. Course of Dealing (continued) Timely responses Consistency Freedom to just do the work Make it easy to do right; hard to do wrong Eliminate “gotchas” Sunshine approach/ transparency in process Using meaningful business info that yields quality business decisions

32. Using Appropriate Tools Approved systems Reasonable audits Realistic schedules Realistic budgets Using the right tools for the right contract type

33. Professionalism Working with knowledgeable, well trained, reasonable people Peer recognition Certifications Active in professional associations

34. Roles on the Team Ability to stay focused Delays in awards; excessively protracted procurement process What goes into proposal production; cost, manpower Negotiations are a team effort Management of subcontracts

35. Reducing Frustrations RFI then no award RFI and then no courtesy notice of solicitation Do not compete with industry (NASA, DOE) Failure to use FAR Part 12 when appropriate Excessive BAFO rounds Delayed awards

36. Conclusion The impulse is to say that contractors are motivated only by money Money can be a major motivator In reality, however, money is not the ends Money is simply the means to address a large array of real interests The successful negotiator will explore those real interests Many can be met without direct infusions of cash

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38. What is a High Quality Contract? Contract type represents reasonable apportionment of risk Requirements match the financial arrangement Contract clauses represent applicable laws and regulations Delivery/performance schedule is reasonable for desired goods or services Profit is reasonable for work to be performed and reflects current economic conditions

39. Seller’s Tactical Considerations Company’s need for contract Current economic conditions Maintaining a “going concern” Time available to complete negotiations Cash flow Options available Lead negotiator’s skills Other party’s skill at win-win

40. Buyer’s Tactical Considerations Results of cost or price analysis How much the buyer needs the contract Market considerations/ competition Time available to complete negotiations Complying with complex legal environment Urgency of the requirement Other party’s skill at win-win

41. Reality Check Negotiators are 24-hour people We are interested in the interests of our business We are interested in our own parochial interests We are interested in the interests of those around us

42. Basic Human Needs Most powerful Interest Security Economic well-being Recognition Control over one’s life Main interest is not always money

43. “The first responsibility of a leader is to define reality. The last is to say thank you.” Max DePree Author & Business Executive