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  © 2008 by Taylor & Francis Group, LLC. Chapter 28 Contract Negotiations Wendell C. Lawther CONTENTS 28.1 Introduction ........................................................................................................56428.2 Negotiation during the Solicitation Development and Supplier Selection ........... 56528.2.1 Planning for Negotiation ...................................................................... 56528.2.1.1 Potential Changes in Key Management Personnel ...............56628.2.1.2 Additional Discussion of How Key Contract Goals and Objectives Will Be Met .................................................56628.2.1.3 Quality Assurance ...............................................................56628.2.1.4 Price/Cost ............................................................................56628.2.1.5 erms and Conditions .........................................................56628.2.2 Choosing the Negotiation eam .......................................................... 56728.2.2.1 Project Manager .................................................................. 56728.2.2.2 Procurement Offi cial ........................................................... 56728.2.2.3 echnical Experts................................................................56828.2.2.4 Financial Experts ................................................................56828.2.2.5 Legal Experts ......................................................................56828.2.3 Negotiation Approach ..........................................................................56828.2.4 Power Relationships during Negotiation ..............................................56928.3 Negotiation during the Contract Administration Phase ..................................... 57028.4 Case Studies Illustrating Negotiation Approaches and Processes ........................ 57128.4.1 Florida Master Leasing Procurement Approach .................................... 57228.4.1.1 Negotiation Issues and Results: Cost ................................... 57328.4.1.2 Negotiation Issues and Results: Space .................................. 57428.4.1.3 Negotiation Issues and Results: Repair and Maintenance ................................................................. 574  © 2008 by Taylor & Francis Group, LLC. 28.4.2 iFlorida Conditions System ................................................................... 57428.4.2.1 Negotiation Issues and Results ............................................. 57528.5 Conclusion .......................................................................................................... 576Notes..............................................................................................................................577References ......................................................................................................................577 28.1 Introduction Negotiations are applied in a variety of settings and experiences. Tey are valued when agreement needs to be reached on issues where there is a divergence of opinion among affected parties. Te goal of an effective or successful negotiation should always be a result that is fair, based on objective standards, and one that is concluded amicably and effi ciently. As public agencies enter into an increasing number of contracts with private and nonprofit organizations, negotiation skills have become increasingly important for procurement offi cials and program managers. For the purposes of this chapter, these skills include negotiation planning, cre-ation of the negotiation team, and negotiation approach.In addition, the advent of information technology (I) has meant that public agencies are entering into contracts of increasing complexity and sophistication. Tis trend has had at least two profound impacts on contract negotiations: the complexity of negotiation content has increased and the opportunity for program managers and procurement offi cials to gain knowledge through negotiation has greatly expanded.Government offi cials should have confidence that the contractor has the requisite skills and knowledge to produce the contractual identified product or service. For noncomplex items, this confidence can be based upon past work history, checking with other jurisdictions regarding past performance, and industry standards. For complex products, those based on I technology, for example, it is expected that there will be a degree of customization 1  needed for any given contract. Negotiation can be a process in which the private contractor can educate and convince government offi cials that the final product will be acceptable.For many purchases of services and complex goods, negotiation skills are required throughout the contact administration process. raditionally, when making purchases that could be clearly specified, negotiation was only required during the pre-contract award process. After contracts were awarded, negotiation was required only when problems needed to be resolved.Negotiations should take on different approaches depending on contract type, and depending on the amount and type of information readily available. Depending on several factors, including the amount of competition created in response to the invitation to bid (IB) or request for pro-posal (RFP), the closeness of the ratings for the offeror’s proposals, and the complexity of the final product or service, a government negotiating team will spend a wide range of time in preparation and in face-to-face negotiations.Te following discusses negotiation as it should be found in the public procurement cycle. Tai (2004b) views this cycle as consisting of three phases:Phase one: Strategic procurement planning Phase two: Solicitation development and supplier selectionPhase three: Contract administrationFor the purposes of this chapter, negotiation occurs primarily in the latter two phases. In phase two, it is anticipated that negotiations during supplier selection may alter solicitation ■■■    D  o  w  n   l  o  a   d  e   d   b  y   [   R   M   I   T   U  n   i  v  e  r  s   i   t  y   ]  a   t   2   1  :   5   0   0   9   F  e   b  r  u  a  r  y   2   0   1   5  © 2008 by Taylor & Francis Group, LLC. and shape the final contract. Although negotiation needs and requirements differ in each phase, the extent to which there is a complete understanding of how solicitation development and supplier selection affects contract administration will greatly affect negotiation effective-ness for each phase.o further illustrate the negotiation approach and process, two case studies are provided that provide some insights into how negotiation should occur throughout the public procurement pro-cess. Te state of Florida master lease procurement process illustrates the impact of supplier selec-tion negotiations on a contract administration phase characterized by a high degree of customization. Te iFlorida conditions system procurement illustrates the need to negotiate rules, procedures, and policies during solicitation development/supplier selection that anticipate the need for highly com-plex negotiations during contract administration. 28.2 Negotiation during the Solicitation Development and Supplier Selection Historically, there has been the expectation that both buyer and potential contractor will take an adversarial approach during supplier selection. Harney (1992, p. 118), in referring to service con-tracting, suggests that “A local government that accepts a proposal without negotiating will almost certainly pay too much for the service. And failing to challenge restrictive terms and conditions may mean that the local government is not an equal partner in the final contract.”Te more complex the end product or service, the less this adversarial approach is appropriate (Ashford, 2004). Increasingly, as governments enter into partnerships with private and nonprofit organizations, it is recognized that negotiation should occur throughout the life of a given contract. Managing by relationship (Welch, 2003) involves accepting contractors as equals, and establishing a relationship that expects frequent interaction and communication concerning both the nature of the end products or deliverables as well as the delivery process. 28.2.1 Planning for Negotiation Once responses to an RFP or other solicitation have been evaluated, the next step is to plan for negotiations that will occur with the top ranked offeror. 2  Te issues that must be decided during this phase include the following:Identifying the key issues or questions that need to be resolved during negotiationChoosing the negotiation teamIdentifying whether negotiation training is required for any team membersIdentifying weaknesses in knowledge and understanding among team members and other key agency personnel, as well as ways by which this understanding can be increased before negotiationIdeally, the solicitation document should contain goals and objectives that then become evalua-tion criteria during the offeror rating process. Tese same criteria should then furnish the basis for some of the items that appear on a negotiation agenda. For example, negotiation issues should appear from lower rated items and questions raised by members of the evaluation team that has rated all responses. Tere may be aspects of the highest rated offering that were given low marks. For example, if commitment to women minority enterprises in the offeror response is absent or unclear, and it was stated in the RFP that this would be a criteria that would be evaluated, then the ■■■■    D  o  w  n   l  o  a   d  e   d   b  y   [   R   M   I   T   U  n   i  v  e  r  s   i   t  y   ]  a   t   2   1  :   5   0   0   9   F  e   b  r  u  a  r  y   2   0   1   5  © 2008 by Taylor & Francis Group, LLC. negotiation team can gain assurances from the offeror that such a commitment will be present. Issues to be resolved during negotiation include the following.  28.2.1.1 Potential Changes in Key Management Personnel  If the contract is for operations, for example, and specific management personnel—complete with resumes—are discussed in each offeror response, the highest rated offeror may then state that one or more of these management personnel will not be able to work on the operations. Proposed replacement personnel must be reviewed.  28.2.1.2 Additional Discussion of How Key Contract Goals and Objectives Will Be Met  Te RFP may specify that the winning contractor will have a specified amount of time (e.g., 90 days) to deliver drafts of specific policies (e.g., a procedures manual or training plan). Even though a brief description of these deliverables may be part of the responses, the negotiation team may have additional questions about what content is likely to appear in these deliverables. 3  28.2.1.3 Quality Assurance For contracts dealing with service delivery, the processes by which the winning contractor will ensure the highest quality of services should be discussed. Changes in these processes or in the required personnel may be negotiated.  28.2.1.4 Price/Cost  For the acquisition of products that can be clearly specified, analyses of the cost of similar products acquired by other government agencies may result in the need to negotiate the proposed cost as stated by the winning offeror. Specified aspects of costs, such as the overhead rate, profit margins, and administrative expenses may be analyzed (Karrass [1998] cited in Tai, 2004a). Alternatively, there may be industry or marketplace standards. If an agency is negotiating a lease  with a landlord, and remodeling existing space is required, a comparison of the charges for specific tasks to what other professionals may offer in the local labor market may lead to negotiations (Lawther, 2007). Also, to the extent that Harney’s statement is appropriate, the offeror may have artificially bid the cost too high, expecting that the government agency may wish to negotiate for a more reason-able cost (Dobler and Burt, 1996).In contrast, however, it may be very diffi cult to negotiate price or cost in reference to other simi-lar purchases or industry standards. o the extent that customization is required, for example, an I-based service that is specific to an agency’s needs, comparisons may be impossible. Also, a vendor may offer software that has been developed for other clients, and charge the agency less because the expertise gained by past efforts means the present response can be more effi cient/cost less.  28.2.1.5 Terms and Conditions  Any changes to delivery timetables, service provision outcomes, or any other term and condition changes that are raised by the highest rated offeror obviously need to be negotiated. Te negotiation    D  o  w  n   l  o  a   d  e   d   b  y   [   R   M   I   T   U  n   i  v  e  r  s   i   t  y   ]  a   t   2   1  :   5   0   0   9   F  e   b  r  u  a  r  y   2   0   1   5
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