John Andre (JA): Hello and thank you so much for joining today's acquisition seminar hosted by the Federal Acquisition Institute. Today's seminar, entitled Vendor Engagement and Negotiation -- meeting the challenge of better outcomes, features a fantastic speaker from the Department of Agriculture. Improving acquisition outcomes is really what you are all about, but so many things play into it. Vendor engagement and negotiation skills are very good places to start as they should be emphasized and refreshed on a regular basis. Fortunately, you will be introduced to collections of successful practices that will put you on a path towards unrelenting excellence. There are a couple of items I need to explain before we get started.
First, the federal acquisition institute is recording this seminar. The video along with all of the material will be posted to the video library on fai.gov in the coming weeks. Second, we will hold a live question and answer session at the end of today's seminar. If you have questions about vendor engagement, negotiating, or anything else you hear submit those questions using the survey link on the screen. We will collect and consolidate them as you submit them, and then we will take some time after the presentation to answer a few.
With that, let's get started. Today's presenter, Al Munoz, is from the Department of Agriculture and he’ll take us through how you can engage with vendors throughout the acquisition process. Let's go to him now.
Al Munoz (AM): Hello, and welcome to the Federal Acquisition Institute's latest acquisition seminar on vendor engagement and negotiation. I am Al Munoz, and I am a project manager here in Washington, DC for the United States Department of Agriculture. And over the last 20 years I have been a contract specialist, negotiator, procurement analyst, and a contracting officer. Lately, my duties include working on strategic sourcing and engagement for the Department of Agriculture.
Today, we will go through my presentation on vendor engagement and we’ll talk about negotiation skills for a little bit, for about an hour and then we will take a break during which time we will take a look at the questions you submitted during the presentation and then we will come back and answer those questions for you.
On the right side of your screen you will see a button to submit a question, so anytime during the presentation if you have a question about something I’ve said or about any of the topics that we are talking about today, go ahead and hit that button, submit a question and we will be able to see that during the presentation and read them during the break. Then we will come back and answer them for you.
The first thing I'm going to talk about today is something that has been a topic of much interest over the last few years in federal acquisition, and that is the topic of vendor engagement. What we will talk about is the existing myth-busters campaign that was started by the Office of Federal Procurement Policy a few years ago. We will talk about agency vendor communication plans and other areas where you can find information about how to do more vendor engagement within your agency. We will talk a little bit about the most pervasive misconceptions that still exist out there and then we will transition to how better and better engagement can lead to better negotiation for you and we will talk more specifically about some tools and techniques for better negotiations that we know about from our experience in federal acquisition. We will take a break at that point and then we’ll get into the question-and-answer session.
So let's talk about vendor engagement a little bit. As I was saying, the office of federal procurement policy started a Myth Busters campaign a few years ago, specifically on February 2nd, 2011. They issued the first myth busting memo: Addressing Misconceptions to Improve Communication with Industry during the Acquisition Process. This memo talks specifically about agency program managers and contracting officers and others with roles in acquisition about what specifically they could help do with vendor engagement.
For agency program managers, vendor engagement helps to define requirements, and for those on the contracting side, it helps to develop acquisition strategies, seeking opportunities for small businesses, and when negotiating contract terms. Access to current market information is absolutely critical. Now, here are some sources for more information about engaging with your vendors. Specifically, your industry partners, those that you are doing business with that you are writing contracts with, they are the best source of information about the market, about current technology, and about trends that are going to affect your future procurements. There is no way that you can be on our side, on the government side, and know as much about the market, about the competition, about any changes in technology as your industry partners are going to be. They are more than willing to give this information to you if you take the time to give them that opportunity and take the time to listen to them when they come to you with information.
I know that a lot of industry partners will reach out to you and they will solicit you, they will give you their marketing materials, they will want to come and have a conversation with you. I know you're busy, so it behooves you to take the time to find out when those opportunities are for engaging with your vendors. Any type of outreach events that maybe your office is doing, or other opportunities where you can take a break from your desk, interact with your vendors in a meaningful way, and get some information about what is going on out there in the marketplace.
The other place that I am going to direct you are the Agency Vendor Communication Plans. Each one of the 24 CFO act agencies, which are the largest executive branch agencies that are out there, the Department of Agriculture and GSA, for example, they have all posted to their Agency websites their agency and vendor communication plans. These are specific to your agency. Agency vendor communication plans provide clear and consistent to the work force and criteria for identifying which acquisitions must include vendor input in the pre-award phase. These are rich documents filled with a lot of information specific to the agency that you are working in. They talk to you directly in the workforce about where you should look for opportunities to include vendor engagement in your acquisitions.
Now productive interactions between industry and agency officials are important so that you and the government side clearly understand the marketplace. And that you can award a contract for an effective solution at a reasonable price. Now vendor engagement, I understand also because you are busy, that it is not always easy to get out there and have some type of vendor engagement activity all the time. And there certainly isn’t a need to engage with industry on absolutely everything that you are buying, certainly if you're buying simple things like office supplies, staplers, pens, pencils, you do not need to engage with the industry to find out with the latest technology is in order to make a good deal. Those things are easy to understand, your customer is probably not all that interested in the latest, greatest type of pencil out there, so can go out there and just make your purchase without doing too much engagement with industry.
When it comes to things that are more complex, if you are doing things like buying rocket ships or buildings, or doing something that is cutting edge in IT, you need to be out there talking to the vendor community, and you should be encouraging your customers and the end-users of the technology that you're going to be buying to get out there to understand what is available in the marketplace, to understand if there are any innovations coming that will be disruptive to what you are used to buying or anything that is going to be affecting what is available so you can make the best deal possible.
Vendor engagement is especially important for complex and high risk procurements where it makes sense to take your time, get as much information as you possibly can about the industry, about what is going on, and meet with your customer so that everyone has an understanding on the government side of what the best possible argument you can make is. OFPP continued the conversation with another memo they issued on May 7th, 2012 called “Myth-Busting 2: Addressing Misconceptions and Further Improving Communications During the Acquisition Process. The second iteration of myth busters focused on industry misconceptions, where the first memo was focused specifically on the acquisition workforce and the challenges and opportunities there and the misconceptions that many in the acquisition workforce have. This one focuses specifically on industry misconceptions. Industry, not surprisingly, has a tough time sometimes understanding the government's procurement process. It is a complex thing. The FAR is a large document with lots of twists and turns to it and it is impossible to memorize all of that stuff, and for industry, trying to understand both how all of that operates and what people on the government side are doing to implement that regulation is very tough. It is a complex environment for them as well. There are some misconceptions based on their observations that have cropped up, and that is what OFPP was trying to dispel with the second version of myth busters.
The key take away from the myth busters campaign to date, from both of these memos and the agency vendor communication plans, is simply to stop buying from strangers. It is easy for those of us on the government side to continue to just move the paper from one end to the other of the acquisition process. We have a requisition that is coming in, someone and somewhere in our agency needs to buy something in order to deliver their products and services to the public. It is easy for us to get caught up in just moving things through the complicated process to get to the end to make a purchase and be done with it at the end of the day so we can pick up the next requisition, which is already waiting for us by the time we’re halfway through.
But not getting that information from industry, not understanding your vendors, not understanding what is going on in their environment, not understanding what is going on with the technology, if there are things changing out there, it is really a disservice to your customers by simply blindly moving from one point to another. I know there is a competitive process involved and I know there is a selection process involved, but that selection process by itself will not give you the type of information about the market, it will not give you the type of information about the type of responses you can expect without going out and getting more information from industry.
So I'm going to ask you take a look at your existing processes and take a look at what you have been doing and maybe expand what you have been doing with you vendor engagement a little bit.
The first thing I’d like to ask you is are you still buying from strangers? All of you on the contracting side you have a business background, so you understand marketing, you understand business operations to a certain degree. You understand a lot about business that maybe you have not had the opportunity to employ yet in your work, but I will ask you to recall that business background and ask some questions when you're doing your procurements to find out if maybe there are some things about the process that you are going through right now, where some improvements can be made.
Now, these types of questions that I presented here are some basic of questions. These are some things that you probably remember from going through business classes that are really essential to getting to understand the marketplace, essential to understand business, essential to running a business that you probably remember hearing about. If you have these questions, if you start to ask these types of questions and you take an interest in the types of things that you are buying, I think these will lead to more questions for your particular procurements that will expand your knowledge base and give you a better picture of the markets in which you are operating.
How well do you know the vendors that you buy from? That is an interesting question because some of these vendors get in for a long time. If you have a five-year contract, for example, the vendor has been around for a while when it comes time to re-compete. It is kind of an odd question to be asked “well how well do you know that vendor?” Well, I have known him for five years. But how well do you know them really? What is really going on in that environment that you have not had a conversation with them about yet, to find if there are any new technologies coming out, is there any innovation, is there anything going on with the market that that vendor has been operating in that really is going to have an impact on how you're going to put together your next contract? Is that vendor large or small? Were they small when they got the award and they’re large now?
What about the competition that you’re expecting for your next procurement – are they large or small? How long have they been in business? How mature is the industry? If you're talking about something like office supplies or construction, maybe the industry is fairly mature, although I will argue that construction changes fairly rapidly. But for new technology, even for something as simple as laptops and desktop and telephone systems, those things change all the time, so even though your vendors have been around for a while, maybe the industry really isn’t that mature. Maybe there are a lot of changes going on, maybe there are some disruptive technologies that are out there that will make an impact on what your agency is able to get in its next solicitation to effectively prosecute its mission.
How dense or competitive is the industry? Now, competition in the industry makes a huge amount of difference. If there are a few large vendors dominating the market, you can expect competition to go a certain way, but if it is highly competitive, if there are many participants in that particular market, maybe your approach should be just a little bit different. When you start looking into that, I think you'll understand when you look at the markets in which you are trying to procure, the composition that is out there in the market place today is going to make a huge difference in the amount of competition that you're naturally going to get at the response to your solicitation.
I would also ask how well you know the products or services that you buy. Some things are easy to understand, staplers do pretty much what they have done since we were kids. They staple some pieces of paper together. There is not much there and I think everybody really understands from beginning to end what it is going to do, the expectations are pretty easy to manage. But what about other things that you are purchasing today? Do you really understand what is going on with those things? I can speak from experience and I can say that I have bought many things that I didn’t really understand what they did, and in a lot of cases I did not even know what they looks like. That is unfortunately the nature of the acquisition process today, especially at things get more and more automated, the documents don't even get handed to you anymore. They come over your e-mail or your computer system and there may or may not be a very good explanation of what it is that you are being asked to purchase. I would ask you to take a minute and if you see something that has come across your desk for purchase and you do not really understand what it is or you have not seen one in a long time, pull it up on the internet, take a look at it, see if you understand it, see if it makes sense to you, see if anything and what you were seeing out there makes you wonder a little bit more about it, gets you curious about what it is that you are buying. I can assure you that the more you understand things you are buying, the better purchases you are going to make.
Again, what the market is like, you know, if the market is highly competitive, it may not be particularly profitable for the vendors that are in there. That might not make an immediate impact on your solicitation, but when it comes time to negotiate with those vendors later on, if they're in an industry where the margins are very thin and it is highly competitive, you might not be able to activate that 50% discount you can if you are buying something off of schedule or if you are buying something from an industry where you have a very profitable business model out there.
Take a look at those, asks those types of questions, see if they lead to more questions about products and services that you buy, about the vendors that you are interacting with and about the market.
I would say that it really makes a lot of sense for you, and now I am talking to everyone, program managers, the end users, the contracting officers, to analyze the sector that you are doing business in, commensurate with the level of complexity and risk inherent in the products or services that you buy. Of course, something that’s riskier, if it has a higher degree of development for example of if it’s extremely complex for everyone to understand, it is going to take more analysis, more time, and more skill to examine the market to see what is out there and to see what impact on your solicitations anything that is going on the market or anything that is going on with technology is going to have.
Let's talk about the most pervasive misconceptions. Our colleagues over at ACT-DIAD --did a survey a year and a half after the initial myth-busters memo came out, and that survey went out to a large number of industry and it went out to a large number of government respondents as well, and what they came up with was a list of misconceptions that were still out there that still need to be debunked. Part of that survey looked at the existing myths and which ones of those seem to be the most pervasive, which ones seem to be the ones that hung on the most severely, and we’ll talk about those two misconceptions right now.
The first is that the government cannot meet one-on-one with a potential offeror. The other one is that a protest is something to be avoided at all costs -- even it means the government limits conversations with industry.
Let's take the first one first, “cannot meet one-on-one with a potential offeror.” Generally there is no such prohibition. Any time prior to solicitation, anyone on the government side, from program managers, end users, the person down the hall who is going to use the product at some point in the future, all of those people are able to meet one-on-one with the vendor. If you check the FAR, FAR 15, it actually encourages these types of interactions and there is no prohibition that you’ll find anywhere in any of the regulations that says you absolutely cannot meet one on one with the vendor. You can. There are some rules, and there are some parameters under which you can do that, and we will talk about a few of them here today, but I would encourage you to meet one- on-one with the vendors, and the reason for that is when you limit yourself to just meeting with vendors and groups at industry days or other types of event like that, the vendors, not surprisingly, do not want to speak in front of each other about anything that they might consider proprietary or trade secret or something that is giving them a competitive advantage, but they absolutely do have information about the market, they do have information about the technology, and they are willing to share that with the government if it means that together you can find a better solution. I know that there is a healthy suspicion of industry at times based on the competitive model and the fact that they are out to make a profit, but really, the vendors want to do a good job too because their existence depends in a large part on the amount of business that they continually have. It is not just a matter of getting this contract; it is a matter of their livelihood for the next foreseeable future and keeping them in business for a long period of time. So they do not want to destroy their relationship with you by keeping secrets from you if it means you will get a better product at the end of the day.
Now, communication obviously is more restricted during the solicitation, during which time the contracting officer is going to be the focal point and ends with the receipt of proposals. Of course, any time you have information directly affecting proposal preparation, it must be shared with all potential offerors. Keep it fair and be ethical in your engagement. Now, the thing that you have to watch out for on the government side is that your customer, your program office, does not become enamored of one or a minority set of vendors. That leads to some bad outcomes, and it can direct your solicitation in a way that it creates a barrier to entry for some technologies or some vendors that might have a better solution for you if you write your solicitations in a particularly restricted way. You have to be careful for that. Your contracting officers -- this is something that you're monitoring already. I would just encourage you to continue doing that.
I am also going to say that as you go down this journey of increased vendor engagement, you're going to see some mistakes. People are going to have conversations that may be bordering on the line between what is possible and what should not really be done, people are going to cross that line from time to time. There are going to be something that happened, people are going to make mistakes. I would tell you that in regard to those mistakes, good judgment is going to come from experience, but experience comes from bad judgment. So those mistakes, even though they are troublesome at the time, overall, they're going to lead to having a better understanding of what vendor engagement is actually the best type of vendor engagement where things are moving, progressing toward better outcomes for you and your agency, and when they may cross the line and create additional headache for the acquisition staff or for the agency that is looking to purchase something. But over time, as you get used to that, and as these mistakes get worked out, you will find that your outcomes will improve dramatically.
Let's talk what the second misconception that seems to be hanging around also. That a protest is something to be avoided at all cost -- even if it means the government limits conversation with industry. I can speak for my own experience that I have heard this one quite a bit. Just being in an operational contracting office, putting together solicitations, and having those conversations about well, if we do this, we will get a protest, or if we answer this question, we will get a protest, if we answer this e-mail, we will get a protest. Protests are not really all that frequent. They are something that is a check and balance on the system, so they are -- they do take more time. It is something that is going to cost you some paperwork, it is going to cost you some time, it is going to delay your solicitation by some time, but at the end of the day the protest process is designed to keep everything above board. Having someone come in and take a look at your process, right, wrong, or indifferent is not really a negative thing other than the time that it is going to take to deal with the protest. But like I was saying protests are quite rare. Statistics around protests is…I think it’s something like .02% of all acquisitions gets protested, and of those protests there is less than a 20% chance the vendor that filed the protest will actually be successful.
The rest of the time, solicitations go just fine, the level of engagement has been effective to the point that protest was not filed, and at the end of the day, when that protest was lost, it was over something that, legitimately, the government probably should have paid just a little more attention to. I know it is going to take some time, and I know that there is still a healthy fear of protests out there, but realistically, you are going to stand a much better chance of defending against a protest if you have good documentation and if you have had that level of engagement, which we will talk about in a second, with your vendor so that the vendor clearly understands with the government has done in that everything is fair and above board, so a protest is far less likely.
I want to ask you also, when you look at a protest, what are you thinking about? If someone has protested your solicitation or protested your award decision, what is it exactly that they are seeking? I know that there is a lot of thought that a protest is really just an upset vendor firing their last torpedo at you at some effort to disrupt or delay what it is that you're trying to do, but why is that vendor really protesting, and what is a protest, really? Other than a vendor who is just saying, you know, I have not really had the amount of engagement that I could use in order to understand the government's process, to understand the government's decision so that I'd know what to do next time, I know what I did wrong, I know how I was beaten, if I was beaten, and what I can do to improve my chances the next time I answer a solicitation. A protest really signifies that a vendor wants answers from you, they are not getting them, and one of their only recourses is to file a protest. Unfortunately, a lot of protests go down that road. Vendors are saying we think there is something that has gone wrong in government, you really haven’t answered our questions about this particular part of your process. A much better option in this is to just have a debriefing. I would encourage you to have the debriefings even with your winning proposal. A debriefing gives you an opportunity to have a discussion with the vendors that have submitted responses to your solicitation and talk about where they went wrong, if they went wrong, and what they can do better next time.
Now, the protest process itself is not really designed to give them those answers. It is really more of a look at what the government has done to make sure that everything was fair and balanced. It is not really going to give the vendor more information how to do better next time, but a debrief is, and that is exactly what a debrief is designed to do. Here is what has gone wrong, here is our interpretation of what we have seen in front of us in this particular solicitation, and let us help you understand what went wrong this time, and what you can do better next time. And even for winning proposals, you know, that vendor is going to be submitting responses to future solicitations, and even though they have won this round, it going to behoove you and them to give information on how to do better next time so that everybody improves in the process. Thorough debriefs, I am going to tell you, lead to better future proposals and I will be honest with you, the times that we have had debriefs, we have had a lot fewer protests. In those times where we have not had a good job doing debriefs, the process was much more argumentative -- doing the debriefs, the process was much more arbitrary, much more argumentative, rather. I want to leave you with this thought about vendor engagement before we move into negotiation: government contracting of the future will be about interacting with industry more meaningfully and about designing effective solutions together, not about buying from strangers.
Now I’m going to talk about negotiations a little bit, and I want to show how -- I'm going to give you some tools and tips of negotiation that have come out of years of experience, but I am also going to talk about how better vendor engagement can lead to better outcome negotiations as well. Vendor engagement gives you an opportunity to know the vendor. If you have ever gone into buy something large on a personal basis, if you’ve gone in to buy a refrigerator, gone in to buy a car, you know that you don't know much about that vendor specifically. You do not know a whole lot about what is going on for that vendor, but it would make a lot more sense for you, and I think it would ease your purchase, if you knew more about that vendor, if you knew more about what was going on without vendor's industry, if you knew, for example, that the refrigerator you are looking for is maybe last year's model and there are deep discounts around. That would make a lot more help for you when you go into make a bargain over that particular refrigerator or car. You know the product and service. Again, as I was saying, if you know, for example, that last year’s model is on sale or a new model was about to come out, you know you will be able to negotiate a better deal with that model that you're looking for, or maybe it is time to wait.
Whichever, but you will know the product or service that you are going to buy, and you have a better opportunity at that point to bargain over -- to have a more effective bargain at that point. Finally, know the environment in which you are engaged. Again, if there is a lot of competition, that will mean one thing for your vendor engagement in your negotiation techniques, and it is going to mean something else altogether if you are dealing with a few large vendors, perhaps or maybe even one vendor, and they are the only ones that provide that product or service and it is the only place you're going to get it. That will make a huge amount of difference in your approach, it will make a huge a lot of difference in the bargain you can expect, and it will make a huge amount of difference in how long it will take you to reach that bargain.
Without these, I will be honest with you, your negotiations are going to be a lot more difficult. If you go in blind, just like anything else, you would never go into a car dealer and just pick something off the lot and say hey, give me the best price on this. You may or may not get the best price. But if you go in armed with this information, if you go in armed with this background knowledge about the vendor, about the product or service that you want to buy and the environment that the vendor is operating in, you will have a much better negotiation, you are going to have a much better outcome at the end of the day.
Now a negotiation, just on a very basic level, is a discussion aimed at reaching an agreement. As a process, negotiation is communication in which two parties attempt to reach a mutually satisfactory result on a matter of common concern. That’s kind of textbook and maybe normative perhaps in terms of what a negotiation really is, I think if you think about it a little bit, really at the end of the day, at the end of that negotiation, what you want is a mutually satisfactory result. You do not want anybody walking away from the table that is unhappy with what has happened at the negotiation table. You do not want to have the vendor walk away having cut their price below a sustainable price, knowing that they're going to lose money on this, and now looking for ways to make it up elsewhere. You also do not want the government walking away with a horrible bargain and perhaps finding out later that you paid far too much money for something or you paid the right amount of money for the wrong product or service.
I know that a lot of people when they first get into negotiation start talking about it in terms of winning and losing as if going to the negotiation was some type of contest or a game, and there is going to be a winner, there is going to be a loser, and if you are going to be in a win- lose situation, of course everybody wants to be on the win side. That is really not the case. Negotiation is not a game or a contest. Remember, we are looking for a mutually satisfactory result. There are no players and no sides and no one really wins in negotiation unless everybody wins in negotiation. A successful negotiation is one in which the parties achieve a mutually satisfactory result. Thinking of negotiations as a contest is really detrimental to the goal of achieving better outcomes. Now I’ve seen newer 1102s or newer contract staff going into their first negotiations and they're reluctant to do so because they are afraid they're going to lose. That causes a whole lot of reluctance not only to get into the process but it causes a lot of reluctance to actually get in and get into the details that you are going to need to get into for a particular negotiation.
It also allows for bad outcomes. I've seen folks come out of negotiations declaring victory, giving the high five saying wow, we really got the best bargain possible, and finding out later on that yeah, you won because the vendor actually knew that you are going to make a contest, and they gave you what you were looking for. What really happened is somewhere behind the scenes, they have already made allowances for that, and brought to the table only those things that would make you think you won. I've seen that happen dozens of times over a career, and it takes some time, it takes some experience. You have to get in there and do the negotiations over and over again. But if you are upfront with the contractor and upfront with your vendor, if you're prepared to be reasonable, they will be prepared to be reasonable. If you're prepared to be unreasonable, unfortunately you're taking your chances on whether or not you're going to come out of there knowing that you got a good deal or just guessing that you got a good deal and high-fiving your pals when you get back to your desk.
Let's talk about what happens what happens when someone loses a negotiation. What do you suppose a vendor would do in the case it went into the negotiation room and came out agreeing to a price that it could not pay, that it could not do the work for? What’s going to happen? I can assure you that it's not going to happen. The vendor is going to come out of that negotiation if they have been forced to agree to a price that they can’t possibly perform for -- something is going to suffer. Either the employees are going to suffer, the quality is going to suffer, timeliness is going to suffer, if you force the vendor into that corner, if you made them agree to something that they cannot possibly do, you're going to end up finding out that later on something else is going to be more difficult. Unfortunately, that is quality in a lot of cases, but in some cases it just means that your next negotiation is not going to be a negotiation, it is going to be a shouting match because your vendor is going to dig their heels in trying to make up for what they just lost in the last negotiation.
Worst case scenario your vendor is simply not going to perform. The vendor agrees to a price at the negotiation table that is just completely unsustainable, they absolutely cannot make it up, they absolutely cannot pay their bills because they have agreed to a price that they just cannot support. Worst case scenario, and I've seen this happen as well, a vendor comes back and says I’m sorry, it is just not going to happen. And that is a tough sell back to your agency and back to your mission area that we had this great deal, we declared victory, we were high-fiving you a few minutes ago, but now the vendor is come back and saying I'm sorry, we're just not going to deliver.
Going into a negotiation, obviously the government has a superior bargaining position. The government has all the money, the government has the need, and the government has the ability to reach out and go to any vendor it wants to. In that regard, the government is in a superior bargaining position, and that can force some bad outcomes. The example I was giving a little while ago where the contracting staff comes out of the negotiating table happy that they got a price that is not reasonable but the vendor agreed to it anyway, you know, that is a reflection of the government's superior bargaining position. If you go into a negotiation with a vendor, and you put your fist down and say I am absolutely not going over this price, take it or leave it, we’ll find somebody else, the vendor is going to do their best to keep your business, but that is going to cause a problem later on down the road, like I was just saying. Leveraging that superior bargaining position to the detriment of the vendor is going to result in some bad outcomes. You will get poorer quality, the employees are going to suffer, I've seen safety go out the window, all kinds of negative outcomes can come out as a result of trying to win a negotiation. It is not worth it.
Realistically, what you want are long-term relationships with your vendors that are beneficial for everyone. If you stuck it to a vendor at a negotiation table, if they are out on the jobsite or working in your spaces and they see something that is going to cost you money, they might be reluctant at that point and say hey, you could save some money by doing this. They might keep that to themselves and say well, we got a great bargain, we are not even going to bother telling the government that what we agreed to is actually going to cost us about a third of what we told him it was going to be. That is probably a worst-case scenario, but those types of situations come up. Because in contrast, the vendor has a superior knowledge. The vendor knows what their employees are going to cost, they know how efficient they are, they know how productive they are, they know what their products and services cost. They know what they’ll be able to negotiate with their second- tier subcontractors, perhaps, to get the rates they need in order to sustain their business model. They may not necessarily be passing on any discounts or changes in technology that are lowering their cost on to you especially if they know you will just take advantage of them when it comes time to actually entering into negotiations over whatever product or service is that you need to buy next. If you are being unreasonable, you cannot expect your vendor to be cooperative with you, you can’t expect your vendor to be forthcoming with you when changes come up that are going to reduce their cost. You just can’t expect it. Maybe you think you can, maybe you think you understand the industry well enough that you will see these things coming. I assure you, you have absolutely not the same amount of information that a vendor does, and that vendor is out there, and their day-to-day livelihood depends on their ability to run their business. They're going to always know more than you know about the products and services, about the industry, about the competition, what discounts they can get. They are always going to know more, and if you are reasonable, they will help and pass that information onto you. If you are unreasonable, they will try to take advantage of you just like you are trying to take advantage of them.
Now, let's talk about something where this has gone horribly wrong. Let's talk about a negotiation that happened where all of this came into play, where you had an unreasonable buyer, you had a vendor doing their best to meet that buyer's demand, to maintain that relationship, and everything went absolutely wrong. Let's talk about the 30 pence gourmet burger. As you recall, about a year, a year and a half ago, over in the United Kingdom, there were some problems with hamburger meat that was showing up on the market and on people's tables that was made from something other than cow. Looking at that if you read the report that came out of the UK government about that situation, you will see that very early on in that entire situation, there was an unreasonable buyer who demanded that a burger patty be produced, a gourmet burger patty be produced for 30 pence. If that buyer had taken the time to understand the market, when you look at the report, you will find out that a gourmet burger of the caliber that that buyer was looking was reasonably available for 69 pence. So when that vendor put together that 30 pence burger for that buyer who back in the office high fiving, declaring victory over the great deal that they struck at the bargaining table, what ended up showing up at the supermarket was hamburger that had something in it other than cow.
The result of all of that, as disgusting as that was in and of itself, the result of all of that, trying to repair that damage, the company that that buyer worked for, the damage repair far exceeded the profit that could have been made from the 30 pence burger. This is something where being unreasonable with the vendor, forcing the vendor to come to your terms, using, leveraging your superior bargaining power in order to force the vendor into a situation that is not sustainable, resulted in not only embarrassment but some pretty disgusting hamburgers.
Let's talk about planning for negotiations. Now, anyone that is involved in the acquisition process, you're going to negotiate at some point with your vendors. I know a lot of people in the process right now are buying things like office supplies or if you are just coming up in your career and you have not yet got into the more complex things, you haven’t yet gone into the types of procurements where you have an opportunity to negotiate, but you’re going to negotiate at some point. I would say be prepared to negotiate on every acquisition, even the simple ones, even where you thing nothing will go wrong. I can tell you from experience that some of my simplest contracts, the ones that seemed to be going the smoothest, the ones that had the lowest dollar value and the least complexity, have jumped up and bit me and then some of the most complicated negotiations that I have been in in my life.
I want to point out to you also that you probably negotiated at some point today. If you have children, young children in particular, you know that you have gone through a process this morning to get their shoes on, to get them dressed, to get them out the door on time, and that process really is you going through a negotiation with that child. The child wants one thing, you want another thing, but at the end of the day, everybody comes together. That is a mutually satisfactory result. There might be some hurt feelings there. You cannot expect a child to always be reasonable, but at the end of the day everyone is happy because everything went smoothly and everyone got what they needed in order to move on with their next step. I will point out also that this happens quite frequently during the day. Two people trying to get on an elevator. You might not even talk, but you will have this negotiation. There are two people, one door, one of you will go first. How do you make that decision? You negotiate. You may have in your mind for example that your position is I’m fine with anyone else going in front of me as long as I get on the elevator. The other person might have the exact same attitude or they might have the other attitude that well, I am just going to go first because I'm closest to the opening or whatever is in their mind, but at the end of the day, you are both just trying to get onto the elevator to get onto another floor, and you work that out between you, often in silence. That’s a negotiation.
So, when you are thinking of getting into negotiation for the first time, that’s really all it is. You are looking for a mutually satisfactory result. In this case, getting the kids out the door on time or both getting on the elevator to go to another floor, and at the end of the day, you come to that mutually satisfactory result. Everybody has gone on their way and it really wasn’t all that difficult a process.
The objective of negotiations in the government is to get the right price for the level of quality and delivery that the government requires. Again, it’s not to get the lowest price. In some cases, you want to pay a higher price because you want a higher level of quality, you want something that is more rugged, perhaps, if you are biting some type of hardware, you want something that is going to last longer, maybe you want something that will be more expensive on the front end, but it’s going to be less maintenance cost. That is really what negotiation is all about, it is making those choices and having that discussion with the vendor so that you strike the right balance between what it is that the government needs, meeting its future needs, but also meeting its budget constraints. At the end of the day, I know that there has been a lot of discussion about the budget, and getting the lowest possible price for things, but really when you go into negotiations, lowest price is only one of your concerns. You want to pay the right price for what your agency needs in order to fulfill its mission.
Now, the FAR itself discusses negotiation in terms of developing a pre-negotiation position and also in developing pre-negotiation objectives, somewhat interchangeably. Now, a position gives the impression that this is my place, this is the thing that I am bringing to the table, and I can only be bumped off of this by someone convincing me that my position is incorrect. That is not quite right. When you come to the negotiation table, what you are really trying to get is not so much what you have decided your position is going to be as you are objective of walking away from the table with having something at the right price. Position has a static connotation suggesting that the vendor has to come to the table and convince you that you are wrong in order for you to come away with some type of an agreement. And that is not really how it should work. You are both trying to get something, obviously, the vendor is trying to get paid, the vendor is trying to get some additional work from you. You are trying to get the best possible bargain for your agency.
But have that in mind, have that objective in mind, getting the best possible bargain for your agency, not getting exactly what you think you’re going to get when you go in, not getting exactly the price, maybe not even getting exactly the product that you were trying to get when you went into that negotiation. You really want to meet the objective of your requirement. So if your requirement, for example, is to get a wall built or a wall painted, for example, at the end of the day, that is really what you are looking for. You may have done your research and you know exactly what it will cost to build or paint that wall, you know how high it is going to be, maybe you have called around to a few suppliers and gotten some prices, but at the end of the day what you really want is to learn from the vendor what its bringing to the table and maybe even pointing out that you have done some market research on your own and maybe even the vendor is not at the right place. Maybe the vendor hasn’t considered the suppliers that you’ve considered. That is the type of back-and-forth exchange that needs to take place so when you walk away from the table, you have met your objective. The wall is going up and it is going to be painted. Maybe it is not the same type of paint, maybe it’s not even the same height of wall. There are all types of flexibilities and possibilities that come out of a negotiation. At the end of the day you are going to get a painted wall and that is what you are really looking for. Your objective should not be “I want a painted wall at the lowest possible price and that is my position and somebody has to convince me otherwise or I’m just going put my feet down, dig my heels in and require the vendor to come to me.” That is not necessary.
At the end of the day, be reasonable, have the objective in mind that you want to get your mission accomplished, and your negotiation is going to go a lot more smoothly. Having that adversarial position when you first come in to the negotiation, you know it really distracts from meeting that objective. You get into a discussion over pricing, over suppliers, profit margins, you start having a discussion about everything except for the wall and really that is not the objective, so what I would encourage you to do is be open about what your objective is, be willing to share information that you have gathered, when you’ve done your research coming to this negotiation, and at the end of the day, come out of there with a mutually satisfactory result. Identifying those mutual interests, around which the Government and industry partners can bargain, I’ll be honest with you, can achieve a much more mutually satisfactory result then going in and trying to duke it out with someone. Remember, the point of negotiations is to achieve that mutually satisfactory result, don’t become overly focused on achieving the lowest prices, and remember the lowest price could really cost you.
Let's go over some tools for effective negotiations. Preparation, obviously you are going to do your homework before you go into negotiations just like going onto the car lot to buy a care. You’re not just going to say, “Hey, you tell me what I need.” That’s just not a possibility and that is not a good way of picking out a car. Do your homework, just like that situation, take ownership of what it is that you're trying to get, and prepare to have that discussion with the vendor, maybe even point out some information that they didn’t know, maybe expect that some things are going to happen at the negotiation table that you had not prepared for, and be flexible and be ready for them. Focus on your objectives and remember that your objective is to get out of there with a mutually satisfactory result, to get what it is that your agency needs to meet its mission, not to duke it out or win the negotiation or get the lowest possible price. Remember -- should be flexible.
Going back to what we talked about earlier about effective vendor engagement, go through the process of effective vendor engagement. Go through the process of understanding your vendor, having that discussion with them, having that open dialogue back and forth with them, to understand them, and to understand the environment in which they are operating. Thoroughly document with your customer the government's requirement do your homework on what its fair price is. Remember that fair and reasonable price is not a number, it is range, and that range depends on the things that you need to meet your requirement and the things that you would like to have in your requirement. The level of quality, sustainability, maintenance costs down the road, other things like that are probably negotiable. Find that out with a thorough dialogue with the customer first. Understand the objectives of the negotiation and be able to distinguish which those objectives that must be met from those that can be reduced if needed, and do not be tied to that position.
Understand the limit of your own infallibility. I cannot even tell you the number of times I have gone into a negotiation and the conversation went in a completely new direction that I had not anticipated despite the amount of preparation that I had done, and I came out with some type of a surprise bargain or maybe had to stop the negotiation to go back and do a little more homework.
Those are humbling experiences, and what they have taught me is that anything can happen in a negotiation, and despite the amount of preparation that I've done, despite how thorough a job I think I have done, or how experienced I am, just about anything can happen in there, and I may not always be right. Being reasonable about that, being understanding about that, being self-aware enough to accept that you are not infallible will help with your negotiations. Your vendors will see that you are willing to be reasonable and they will be reasonable in return. Be prepared but be prepared for change. And remember, at the end of the day, there is more than one way to make a burger.
The last thought that I will leave you with today is remember that you and your team will make mistakes along the way. Remember that those mistakes, that bad judgment is what will build up your experience. Honestly we could use more small mistakes to build upon our experience so that we will make fewer large mistakes in the future.
Thank you for listening to my presentation today. We will pause for a few minutes, and then we will get right back with you during which time we will read the questions that you have submitted, and we will start to answer those.
JA: That was an amazing overview of how you can engage with vendors for improved acquisition outcomes. We hope you found today's presentation extremely valuable and useful. If you didn’t before we began, I bet you now see how easy it is to engage with vendors throughout the acquisition process. Now, don't go anywhere. We have been collecting and consolidating the questions that you have submitted. After a brief five-minute break, we will be back to answer a few of them. We will be back in five.
Moderator (M): Welcome back to the Acquisition Seminar on Vendor Engagement and Negotiation. Thank you all so much for rejoining us again. We have Al Munoz here and we are going to transition to a question and answer session with Al. Over the break we’ve been collecting several of your questions from viewers and received a number of great questions that Al is here to answer for us.
Before we move into those questions though, I’d like to remind you all that all of today’s materials from today’s presentation, such as the slides, will be posted in upcoming weeks on FAI.gov so you can check FAI.gov to view the slides and view the seminar if you’d like. So let’s go ahead and transition to our first question from a viewer. Al, someone submitted this question: “Say you don’t buy from strangers, doesn’t this lead to buying repeatedly from the incumbent? How do new sources get in the door, especially small businesses?”
AM: Well, we got a lot of questions about the incumbents and what vendor engagement means in terms of this incumbency, and I think there are a lot of misperceptions about the number incumbents that do get in the door and of course there are a lot of questions from industry whenever they see the incumbent get a follow-on contract for the same or very similar work.
No, not buying from strangers doesn’t mean buying repeatedly from the incumbent. Actually, I would say it’s exactly the opposite that is probably more the concern when you see the incumbent getting in the door that perhaps the contracting staff or agency that is doing the buying is not getting enough market research and is not really looking at what else is available in the market and not really looking at what that level of competition probably should be for that particular procurement. And that leads to the incumbent coming back in and getting another shot at exactly the same work again. So I would say that by not understanding the market, not understanding the incumbent, the other businesses that are competing with the incumbent, leads more to the incumbent coming in and getting repeat work than not.
As for new sources getting in the door, especially for small businesses, of course there is the Office of Small and Disadvantaged Business Utilization at every agency, there is the Advanced Acquisition Plans that are published out there that are available for vendors that are interested in doing work with agency.
New sources getting in the door, as far as that goes, it’s really a matter of looking at the market, seeing who is available, taking a look at your solicitations, seeing if they’re even competing for the work. Anything that happens when you’re not getting enough competition or you’re seeing the incumbent come back to the table time and time again and getting repeated work, there is some sort of problem there.
Perhaps it’s a barrier to entry for that particular contract, or the solicitation, or perhaps if it’s worded in such a way that it’s not drawing competition. Where you should go for that information is you should go directly to industry and ask them why aren’t you competing for work, what is it about our solicitation that is creating barriers to you to competing for our work, and have that conversation there, get that information back from the vendor community to see what it is that you can do with your solicitation perhaps or a number of other things. Perhaps your requirements are a little too strongly worded or perhaps it’s not allowing for new innovations to be brought to bear. Something in there could be changed that would allow those vendors to submit responses to your solicitation and compete for the work.
M: Great. Another question that was submitted was this idea about not buying from strangers. Our viewer has asked “I fully recognize the value and the need to do market research, but when we have to publically post or synopsize most procurements, and any source can submit a proposal, how do you not buy from strangers?
AM: Another good question, a couple of things going on there. How do you not buy from strangers when you're putting something new out? Also, when you don't have an existing contract for that or you’re buying something that needs to be developed. Well, find out, again, look at FAR part ten, look at the type of market research that you can do to find more about the industry and the sources that are available in the market in which you do business. Getting to know those vendors, getting to know that vendor pool, getting to know what the competition is like, is it small businesses mostly, is that large businesses that you’re going to be expecting, where are they located in the country or on the planet, for that matter. All of those things are going to make a difference in the type of responses you can expect and they can also make a difference on the type of solicitation that you write, the type of vendor engagement activities you can engage in, and how you can increase the amount of competition, increase opportunities for small business and allow for innovations to be brought to bear. Getting to know that market commensurate with the level of complexity, the dollar value, and the type of work you are doing, that is going to keep you from buying from strangers.
M: Great. Ok, someone else has asked, "Are you saying we should not seek new vendors do distribute business around equally? Are we supposed to just use the vendors we have been using for years?”
AM: Ok this is another question related to incumbents. No, I'm not saying you should not seek new vendors. Despite the fact that you had a vendor working as an incumbent for a while, you should know the vendor a great level more than you know the vendor pool. I would say you need to equalize that a little bit and find out what other vendors are available to compete for that work, that might be submitting responses to your solicitations that might be interested in doing the work. Maybe they have some innovations, maybe they have some news about the industry that is changing so that they can come in and compete for the work and maybe provide a better solution than the one you are anticipating at the time the solicitation was written.
You definitely want to seek those new vendors out. Do your vendor engagement, industry days, small business conferences, wherever you have an opportunity to reach out and touch the vendor community, go out and talk to those vendors. Find out like we were saying on an earlier question if there are any problems for them, if there are any barriers to entry, if there are any prohibitions that they see on competing for the work because there are a variety of things that might cause that. Again, don't continue to use the vendors you’ve been using for years or don't necessarily exclude them, but at the same time don't think that that is the way to go, to every single time to award a contract to a vendor you are familiar with. The door is open at solicitation time to any vendor that is able to provide that solution to the government and all sources should be considered. If there are things in the markets that lead you down one path or another path as far as business size or type of industry, those are the things you should consider when you put the solicitation together, those are the things you should be asking industry about. When it comes time to putting your solicitation together and doing your market research, they're going to be the ones that have the information you are going to need to put out the best possible requirement to compete on so that you get the most competition, that you allow for innovation and that you reduce any barriers vendors might be having to responding to the solicitations that you’re putting out there.
M: Great! That is some great information. So the next question is “If you are the COR on a task order or contract, what is and is not permissible when engaging with vendors or contractors?”
AM: Ok, so the answer to this question, like so many questions about acquisition is it depends. And it depends on a number of things that you will be able to see as you go through the process. If for example, you don’t have a solicitation yet, if you’re just doing the market research to see what’s available, pretty much anybody can communicate with vendors and in all manner of different ways. Talking to vendors one-on-one, having industry days, going to industry events, all of those things are permissible at that time; you can have a conversation so long as you don’t cross the line and talk about your upcoming procurements and proposed plans to solicit. Those have some restrictions in the FAR and it depends on your agency. Agencies have their own written rules about when you can and cannot engage with vendors and what you can and cannot say. So I would say what you want to do in that situation is find out, take a look at the FAR, and see what it says about market research, see what it says about talking in the pre-solicitation face and have a conversation with the contracting shop about what is and is not permissible and have a real conversation with them. Some contracting officers will tend to say that you cannot talk to anyone at any time and that is just not true, not at any agency. Have that conversation with them and find out what is and is not permissible and get a good sense of where the comfort level is for your particular type of work and then get out there and do some engagement.
Things change when the solicitation gets issued. At that point all communications should go through the contracting officer and any communication on an ongoing solicitation should stop at receipt of proposals. Be careful, also, that if you do get into that phase where you are starting to make adjustments to your solicitation based on the types of questions that you are getting from vendors, that that information is shared, as is required by FAR 15, with all vendors who are possibly going to be responding to your solicitation.
M: The next question is also related to COR duties, so we’ll go ahead and go to that one. Our viewers asked “How do CORs encourage innovative, efficient, and effective performance by federal contractors without the authority to provide financial incentives or quick/immediate ‘sticks’?”
AM: One of the things this question brings up is one of the overlooked parts of the engagement in the application process. I think we’re seeing more discussion about it now, it seems to have been neglected a little bit perhaps in the past, and that has to do the performance evaluation of the vendor at the conclusion of their contract. One of the things for communication with your vendor is to have that permanent record for them so that they can look at how they were rated on performance on a particular contract and so the next contracting shop that has a chance to look at the vendor for the proposed contract could have information on how that vendor performed in the past and have that open conversation. It is twofold. It has the conversation between the agency and the existing vendor but also for the next agency that has to do business with that vendor or potentially doing business with the vendor, gives them an idea of how the vendors doing.
Now, the vendor community knows that these things are out there. They know that these things are generated and that they go down to the next agency. They want to do a good job; they want to get a good performance evaluation because it means the next contract for them. If they are in line for a future contract and their performance has been poor, their performance evaluation has been poor, they know that their chances of getting the contract have also been decreased so they want to do a good job. I would say that to incentivize them, within your existing structure, there are some other ways to do it within your contract. You are probably familiar with incentive contracting or award fees or other ways you can incentivize performance, cost savings. Those are all permissible methods in the FAR. One way that you can apply to every type of contract you do is to have that conversation up front with your vendors saying here is your performance evaluation, here is what we will be rating you on. Have that conversation during performance. In the end, have that dialogue, have that open dialogue with the vendor, the honest communication back and forth about how the performance went and formalize that and get that into the system so the next contracting office down can see how they performed on that contract. And that is going to improve quality outcomes for everybody down the road.
M: That was some great advice and good suggestions for all the CORs out there. The next question is about statement of work, that we’d like to get into. A viewer has asked, “At one point can you circulate or advertise a draft Statement of Work to industry partners, and how should this be done?”
AM: The answer to this question is another "it depends. " it depends on your agency's internal guidance and the way that they have structured handling draft scopes of work. Some agencies have more information about when the circulated drafts go forward, some have less. You see all kinds of innovative things going out there right now with draft statements of work. GSA, for example, has been posting their draft solicitations up on a wiki and allowing vendors to come back and provide comments that everyone can see. Other agencies are doing similar things with their draft statements of work. Going out to industry. they are having industry days, some agencies are even doing industry days for the purpose of market research. They're going out with a really draft document where they are really not sure; they know what requirement they need to fill but they are really not sure what things are available to even meet that requirement from the vendor community or even if it exists, so they’re going out with a really draft document and getting back some information about what is available, what they can expect at that point in terms of competition. So they are doing some really innovative things. There are different rules in different agencies, I'm going to say. But getting that information out there even if it is not a draft scope of work, if it is something that is even less than that, if it is just an idea of something and you are just going out to do research, all of that prior to solicitation and prior to when that document has been formalized and you are ready to go out with a solicitation, those types of things are permissible.
Again, I would advise you if you have a document that’s formal and it is something you are planning to procure, make sure with your contracting officer that you are not violating the rules when it comes to giving out pre-solicitation information.
M: These are all great questions our viewers are submitting. Please continue to submit your questions. We are collecting them as we speak. The next question we have asks, “How can vendors get information about future procurements and what can they be told?”
AM: This is a great question if you're just getting into the whole vendor engagement thing. Vendors get information from a wide variety of sources. Advanced acquisition planning documents are something that are generally public documents generated in each agency, something that your office of small and disadvantaged business utilization is going to keep and share with vendors throughout the year at business conferences they attend. That type of information is always available for vendors. It is information that is not protected. It is very, very rough, I am going to say. There is not a lot of meat into the scope of work but it gives an idea for vendors about what solicitations they can expect from the agency or potentially expect from the agency during the next year. Other vendors have found that they can go back even a step before that and take a look at appropriations language that gets passed every year that shows what programs are going to be funded. If they’re working in those industries, they will know that if a program is getting funded, that is something that some potential solicitations are going to be coming out of. That gives them some additional information early on. And again, when you go out and you start doing your industry days around a particular solicitation that is going to give them more information. Draft RFPs, there are other documents that are going out, RFIs, that give information to vendors about what it is you are going to be soliciting. Again, some more formal than others. But always with the intent of getting information from industry about your solicitation and potential solicitations, so you can craft a better document so that you increase your competition and your use of small businesses.
M: The next question that has come in is about multiple vendors. Our viewer has asked, “If multiple vendors have similar products or services, how many vendors need to be engaged?”
AM: Unfortunately, as so many things in acquisition are, the answer is it depends. I don’t think there is a specific number that can be given for any solicitation. Of course scale, your efforts with the level of complexity, dollar value, the type of industry that you’re working in, if you working in a very fast industry, things are changing all the time, you will probably need to expand your efforts. If you're working in something that isn't quite so fast moving, you probably don't need to have that much engagement with industry for everybody on the government’s side to understand what is available, what is upcoming, any disruptions or any innovations going on out there that will cause you to alter your course a little bit with your solicitation. But you want to go out -- again, at a level commensurate with the type of thing you are buying. In some cases that answer is going to be zero and in other cases you are going to have to do a lot of engagement and a lot of market research in order to make sure that you’re getting the best bargain possible for your agency.
M: Great. And someone also would like to know if they should read the "Mythbusters memo" to get guidance related to communications with contractors. Is that something you would recommend?
AM: Actually it is. The memos themselves are both posted on the OMB website, the White House website. You could probably just Google Mythbusters Memo and you will find both of the documents there. These memos when they came out they were directed to the agencies. They were directed the agency heads, the CIO, the CAOs, chief acquisition officers, the senior procurement executives at the agencies then who then turned around and created specific guidance for that agency. Some of them passed it along whole. Some of them passed it along to their acquisition staff. Some attached memos. Some of them wrote their own memos and maybe just had a link to those memos. But I would say that you definitely want to read those memos; you want to absorb the information that is in there. Both of those documents are filled with information, filled with FAR citations. They are good documents to have with you if you are going to your contracting officer for the first time to talk about vendor engagement. For the vendor community, they are good documents to bring into the agency to have a discussion about vendor engagement. I would say that anyone involved in the process on either side from any level would benefit from taking a look at those documents and understanding both the misconceptions and their answers that are written out in the Mythbusters memos.
M: Great. Another viewer has a concern about conflict of interest. Doesn't engaging vendors constitute a conflict of interest?
AM: The answer there is going to be yes and no. No, in particular because just engaging with a vendor and having a conversation about the possible is not a conflict of interest. There are some things you have to be careful of. I will refer you to the FAR and your contracting officer to talk about what organizational conflicts of interest are out there. Perhaps even have a conversation with counsel. If that’s something that looks like it might be a possibility depending on the question you have to ask, but FAR part 10 and part 15 are clear about the need to go out and encouragement to have those conversations with vendors, to do market research to find out what is possible in response to your solicitation, to find out what business sizes are available, and to see how you can best structure your solicitation in order to get the maximum response.
M: Great. We have some more time and viewers just keep on sending questions so let’s go ahead and answer another one. Al, you may need to help me with the pronunciation of this one. Our viewer has asked what is meant by "commoditized."
AM: Commoditization occurs when products or services in the industry have become so alike from one vendor to another that competition is reduced to simply price. When you think about something that you buy commonly in your life -- maybe it is pens and pencils or something – those are really good example of something that has been commoditized. If you’re looking to buy a pen, one pen does pretty much what another pen does. You should probably buy the one that costs a dime rather than the one that costs $10. For what they do, for what a pen does, it’s a simple thing to compare them. Blue versus black ink perhaps is a separate discussion. But the term "commoditized” means that the product or service has become so similar that really the only difference between them is price. Now on the services side there is some commoditization occurring for such things like janitorial services, cable services, utilities; those things have become commoditized. They are so alike from one vendor to another that there is no distinction between them except for price. When something becomes commoditized, of course the recommendation I always make to my buyers is to just buy the cheapest one.
M: You mentioned in your presentation, “Know more about the vendor”, and one of our viewers would like a little clarity around that. They would like to know, do you mean the manufacturer of the product or the actual vendors selling the product like a reseller?
AM: Another excellent question. The first question I would ask you in return is, “Which one are you going to be buying from?” If you're going to be buying from a reseller, is the reseller going to be able to give you enough information about the product you are buying, about maintenance costs, about warranty, that you don't need to further engage with the manufacturer to find out some of the specifics? Some of the more technical things that get purchased out there, the manufacturer is going to be the only source of information for the specifics, the details of how it was put together, what it’s made out of, is it sustainable, is the supply chain transparent, for example, that a reseller is not going to be able to answer. In a lot of cases there are no resellers for the product. Really, all you have is manufacturers. In many cases all you have is resellers; there are very manufacturers that you can tap into that will sell directly. So it is going to depend on what you're buying, and your market research is going to tell you whether or not you should be engaging with vendors, with resellers, or whether you should be engaging directly with manufacturers. I will tell you this -- in my experience it has been a surprise at times to find out the difference in the quality and level of information you get from the manufacturer and that you get from a reseller. A reseller has certain information but a reseller's business is really to resell. It is not to develop something; it is not to build something. That is the manufacturer's job. When it comes to getting the specifics of how something was built, where the materials come from, how sustainable they are, how green they are, the manufacturers are going to be the best source of information for that.
M: We have another question submitted about statement of work and this viewer says, “If I am getting ready to do a re-compete of my current contract, can I get input for the next statement of work from the incumbent?
AM: The answer to that is, again, it depends. What type of information that you are trying to get from the incumbent -- of course, there are some prohibitions you’ll find in the FAR regarding organizational conflicts of interest and having a vendor prepare your scope of work. There are some hard stops there. If a vendor participates in generating scope of work, they can cross the line to the point where they are not able to compete, or where they have crossed the line into an organizational conflict of interest, which would also bar them from competing for the resulting solicitation. I would say those by themselves though don't stop you from getting information from your incumbent, especially information that is not particular to that solicitation, to the requirement. Information about the market, information about innovations, information about technology, those types of things you're going to be going to your vendor pool to get information on anyways and your incumbent, just by fact of them being the incumbent, doesn't exclude them from that pool. I would say you do want to get information from your incumbent as part of that larger vendor community, just make sure you don't cross the line and lead your vendor into an organizational conflict of interest or generating solicitation in such a way that it will preclude them from competing for the work later on.
M: Alright we have had a lot of vendor engagement questions and we have a negotiations question we can move on to. A viewer has asked, “Should the government have a legal representative on his or her negotiations team?”
AM: Again, this is going to depend. I have worked in agencies where that was a little bit far-fetched, just because there simply wasn't enough counsel to go around. The topics that came up in negotiations were business topics; they were not really legal topics. They weren’t something that counsel was not necessarily needed for in that particular situation. And then there have been some other situations where legal counsel was present on both sides and the discussion went down the road of the legal implications of what was being discussed and what the legal path forward was going to be. It is going to depend on your situation. I would say you probably don't want to have legal representatives at every single negotiation, but it is a possibility depending on what it is you are going to be getting into and again, that conversation should be had with your contracting officer and if the contracting officer can’t answer those questions, I'm sure they're going to be calling counsel and will be asking, hey, shouldn't we have counsel present? Look to the FAR, look to your agency guidance and talk to the contracting officer and decide together whether you think it is going to be a good idea to even ask the question of whether or not you should have counsel at your negotiating table.
M: Another negotiations question we would like to get to. “Should GSA and other agencies schedule pricing being negotiated, even though it is considered ‘fair and reasonable’? How do you negotiate those prices further down?”
AM: The answer to the first question is yes, absolutely. Even though the schedule pricing is out there it is probably not, in a lot of cases, the best price you can possibly get. In some cases it might be, but for the most part, it is going to be extraordinarily valuable for you if you at least ask the question if you can get a better price. I would say you should not exclude schedule pricing from further negotiations, absolutely not. You should always ask the question, whether or not you can get a better price, perhaps there are some bulk or volume discounts you can achieve by going over a certain threshold. Have that conversation with the vendors at that time. Seek discounts whenever you are doing schedule buying. Don't discount the ability to negotiate a better price just because it is the schedule pricing. And then for how to negotiate those prices further down, you're going to have to take a look and see what the market conditions are, what types of products or service you are buying. In some cases there probably aren't opportunities for lower prices or perhaps not as great opportunities. Maybe you can get a slight discount. But have those conversations with the vendor and talk to the negotiation team, do your market research, be prepared when you talk to the vendor, have a good idea of where it is you want to go. Something a lot of people go into negotiations with when it comes to schedules, without thinking about it, is "we just want to get a lower price." That is a good goal. Agencies all need to save money. They’re going to be very, very happy if you get a better price. But where are you going? At the end of the day you still have to end up with a fair and reasonable price and if that schedule prices isn’t fair and reasonable, or you can get a better price that is fair and reasonable, that is where you want to head. You want to negotiate, you want to get better pricing when it comes to schedule contracting, but at the same time, understand where you are going, understand the possible, understand how far that price can go down before it is just unsustainable on the part of the vendor.
M: Great, I think this is a good follow-up question to that. Our viewer has said "my budget is what my budget is. How can I negotiate if the vendor cannot operate within my budget constraints? Is that the time to go back and reevaluate the statement of work?"
AM: This question comes up frequently also about vendor engagement and negotiation. Perhaps it is time to go back and reevaluate the scope of work. Maybe the scope of work itself is written in such a way that it can be pared down to meet your budget. Part of your requirement is the budget, so, you may have on your mind that you are going out to buy whatever the widget is you are going to buy or whatever the services. But if you don't have the money for that it is not realistic to stick to that. Maybe an alternative is in order. Maybe increased competition is in order. There are some things you can do to maneuver around what your requirement is so that you can meet your budget constraints. I would say that your budget is not your negotiation position, although I've seen that mistake made many times as well. You have a finite amount of funding and you need to meet what the requirement is and everything else goes by the wayside -- quality, sustainability, green, maintenance costs down the road, everything went out the window in order to get that purchase made for whatever it is and 6 months later you have a purchase you have made for something you can no longer use. That might be an extreme case, but it absolutely does happen. I've seen it happen several times. The budget shouldn't be the overriding concern. But it is absolutely going to constrain what it is you can purchase, and you should plan accordingly for that in your requirement.
M: Great I think we have time for one last question. One of our viewers has asked, aren't vendors bonded against failure to perform at and agree to price?
AM: This is another one of those questions where the answer is it depends. It depends on the type of contract and it depends on the type of vendor, and I would refer you again to the FAR with regard to bonding. Construction contracts for example have different bonding requirements than service contracts. Those contracts themselves have different bonding requirements based on the type of contract, the type of vendor you're going to be getting. You need to take a look at those. The answer is yes, there are some performance bonds in the contracting. There are some possibilities for putting performance bonds in places where they are not normally required in the FAR, but to navigate that path to figure that out, you are going to have to take a look at the FAR and take a look at your risk. Remember that any time you ask a vendor for something over and above what they are normally providing by way of bonding or anything else -- warranty, level of quality, sustainability, green, whatever -- remember that when you bake those things into your solicitation over a product that normally doesn't have those, you will have to expect to pay more for them. Bonds are a good backstop against failure to perform in a lot of cases. They're not called for in absolutely every situation and remember that when you do include them in those situations, you are going to have to expect to pay more for them.
M: Great. Well, Al we want to thank you so much for this very informative presentation and all of these great questions that our viewers have submitted. To all of our viewers out there, we want to thank you for taking the time to join us today. We hope you found this presentation useful. We hope you can apply the information that Al has shared with you in your next vendor engagement and negotiations. If you have additional questions we were not able to address today, please feel free to continue to submit them. All the materials will be posted on fai.gov and we will do our best to post the questions with answers provided on fai.gov in the coming weeks as well. We want to thank you for joining us. Stay tuned for word of the next Acquisition Seminar presented by the Federal Acquisition Institute. Have a great day.