Industry motivation in negotiations
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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. Agenda. Nature of Negotiations Context of Negotiations Substance Process Relationship

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Industry Motivation in Negotiations

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Industry motivation in negotiations

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


Agenda

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


Nature of negotiations

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


Getting to yes

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


Principled negotiations

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


Interests and options

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


Context of negotiations

Context of Negotiations

Substance

Process

Relationship


Negotiation topics

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?


Negotiation topics continued

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?


Industry motivations

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


Industry motivation in negotiations

11


Three primary areas

Three Primary Areas

Business Stability and Continuation

Cash Flow/Financial Stability/ ROI

Ease of Doing Business

Non-negotiable

Negotiable


Business stability and continuation

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


Continuing business

Continuing Business

Expertise

Ability to gain new experience

Innate sense of ownership/ responsibility

Potential future work

Being known for quality

Excellent past performance


Stable workforce

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


Relationships and tools

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


Threats to business continuity

Threats to Business Continuity

Protection of owned IP

Developing IP they can keep and commercialize

Security of persons and property

Access to GFP


Market share and barriers to entry

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


Cash flow financial stability roi

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


Financial impacts

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


The triple constraint

The Triple Constraint

COST

SCOPE

SCHEDULE


How motivating is money

How Motivating is Money?

Higher profits can be gained in commercial businesses

Commercial contracting is much easier and far less regulated


Ease of doing business

Ease of Doing Business

Non-negotiable

Negotiable


Non negotiable items

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


Negotiable items

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


Definition specification

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


Alternate definition

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


Getting the point across

Getting The Point Across

28


Acceptable course of dealing

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


Course of dealing continued

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


Using appropriate tools

Using Appropriate Tools

Approved systems

Reasonable audits

Realistic schedules

Realistic budgets

Using the right tools for the right contract type


Professionalism

Professionalism

Working with knowledgeable, well trained, reasonable people

Peer recognition

Certifications

Active in professional associations


Roles on the team

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


Reducing frustrations

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


Conclusion

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


Industry motivation in negotiations

36


What is a high quality contract

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


Seller s tactical considerations

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


Buyer s tactical considerations

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


Reality check

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


Basic human needs

Basic Human Needs

Most powerful Interest

Security

Economic well-being

Recognition

Control over one’s life

Main interest is not always money


Industry motivation in negotiations

“The first responsibility of a leader is to define reality. The last is to say thank you.”

Max DePree

Author & Business Executive


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