“All’s fair in love… and GovCon negotiations.”

1. Know what you’re allowed to say to USG and understand the limitations of privity.

  Oftentimes, government members are hesitant about speaking directly with subcontractors because of a concept known as privity. In short, the government has a direct contractual relationship with their prime contractor, which gives them privity of contract. In turn, the prime contractor has a direct contractual relationship with their subcontractor(s), granting them contract privity. No privity exists between the government and a subcontractor, meaning the government cannot negotiate directly with a subcontractor or direct a subcontractor to do something. However, the government can, and should, ask subcontractors questions, so long as they do not specifically violate the privity of contract between the prime and the sub or between the prime and the government.

  However, there is a second piece to consider before you jump into a conversation with the government customer: your teaming agreement or subcontract with the prime. Many primes will write additional requirements beyond the FAR and supplemental flowdowns into their agreements with subs that impose additional restrictions when it comes to speaking with their customers. These can range from “Let us know if USG asks you something” to “Thou shalt not look at USG without prior written permission.” Ideally, you should be aware of these restrictions before you sign up to them. However, if you intend to speak directly with the government customer, which you should, double-check to see what limitations exist concerning customer communications and evaluate any potential risks before engaging.

  Assuming reasonable restrictions, I recommend that you communicate directly with the government on a regular basis concerning how your solution is helping meet their requirements, as well as sharing any technical or programmatic risks that you see from your viewpoint as a supplier to help them assess how their program is doing overall. This will help you and the government get a balanced view of the information provided by the prime contractor, without requiring any unprofessional behavior on your part. If the government attempts to solicit feedback from you on the prime’s performance, be careful. At the end of the day, you are a contractor, just like the prime (i.e., not family), and the government likely cannot and will not step in and save you if you burn a bridge with your prime.

2.  Understand your leverage.

  Determining your negotiating power as the seller is crucial, both in terms of timing and context. In a sole source environment, the seller’s leverage may exceed that of the buyer, but this greatly hinges on the buyer's commitment and the maturity and importance of the requirement. For instance, the leverage varies significantly between dealing with a buyer like the F-22 SPO and a buyer that is acquiring a software license using SBIR Phase III authority in conjunction with End-of-Year fall out funds. In other words, is it a Requirement or is it a requirement?

  The uniqueness and indispensability of what you offer also play pivotal roles in defining your leverage. Consider the following to assess your position:

• Are you the exclusive provider of your product or service? 
• No seriously, are you the ONLY company that offers your product or service?
• How easily can your solution or product be substituted or replaced by competitors or the USG? Do you have a robust IP plan that protects your offering?
• Has the USG fully embraced your solution? Is it critical to their operations, to the extent that its absence would cause a mission or system failure or a significant service gap?
• Is there a time sensitivity associated with the award, driven either by funding availability or mission need?

  These questions can help you assess the amount of leverage you have in your negotiation. Note that no matter how much leverage you have in a particular negotiation, GovCon is a small space, where things may change or cycle. Being professional is always important. Today you may have the upper hand, but tomorrow you may not. 

3. Do your homework.

 Know the rules. Many contractors get their start doing grants or SBIRs/STTRs and become accustomed to how friendly those offices are and how simple those agreements can be. Once you enter the “real world” of government contracts, the view can look very different. If you want to win the big dollars that come with big contracts, you’ve got to take the time to learn the rules (or hire someone to do that for you). 

Know the negotiation. This means doing a lot of reading, to include looking up any references you don’t know and cross-checking documents as required. As I said in my previous post—read the solicitation (if you’re negotiating an award); read the contract (if you’re negotiating a dispute); or read both (if you’re negotiating an ECP/add work modification). You must read the entire document(s) because the other party will use anything they can find to support their position in negotiations, and you are already starting at a disadvantage by being small. Also, most government offices or primes don’t expect smalls to have read everything, so you’ll have the element of surprise, which never hurts! 

  Know your offering. This includes not just the business pitch for your technical solution, but your execution plan as well. Nothing will lose you credibility in a negotiation faster than not being able to explain how your technical solution meets the requirements or how you plan to deliver. You also need to understand your pricing methodology and the numbers behind it, even if it’s only for internal use. Some information may not be included in the first offer, but will be used later in negotiations. Some information will never be shared with the other party.  Regardless, you and your team should know how to walk from the requirements document to the technical proposal to the basis of estimate to the price proposal and back to the contract itself.

4. Use questions to challenge gently and remember that not every question is a challenge.

 It is very common, especially in sole source negotiations, and especially when either the entity relationship is new or a member of either team is new, that the buying party asks for more information than they need or are entitled to. Pushing back can be uncomfortable, so I like to ask questions: "Can you share with me what we can better explain?" "Is this required information that we missed from the RFP?" "Is there an alternative product that would serve the same purpose?" In some cases, a common example being indirect rates for small businesses that are dual-use, my answer is a lightly disguised "No." 

  Pricing in particular can be incredibly difficult when the evaluating party has no competitor solution, historical data, or commercial/published pricing to compare against. It is a very human solution to think that filling your PNM (Price Negotiation Memorandum, for the fortunate that have to ask) with numbers, percentages, graphs, and/or formulas will show that you did your homework and the price really is fair and reasonable. However, keep in mind that the government or prime is only required to show that the price is fair and reasonable, not that it’s the lowest possible price that they can secure. It isn’t in their best interest to put you out of business or turn you away from the federal sector. You don’t have to accept a loss just because the work is for the government, nor are you obligated to provide services 'at-cost.' You can alleviate some of the challenges of this process by doing your homework (as mentioned previously in “know the rules”) and gaining an understanding of how pricing evaluations are conducted in the federal space. It's also beneficial to know how prime contractors and the government determine the fairness and reasonableness of prices and how they are required to document and justify these determinations.

 Don’t be a shrinking violet. If the other party makes an observation, it doesn’t require you to move from your position. "Your rates seem high." Compared to what? "I haven’t seen it done this way before." I guess we’re creative. Likewise, if they ask a question, don’t assume you’ve done something wrong—answer it. If you don’t know, go find out. If in the process of answering or finding an answer, you discover an error in your proposal, own it and fix it.

 And lastly, do not let the other party use time against you. Most of the time in GovCon negotiations, time is a limiting factor for the buying party, and it’s a limiting factor because of poor planning and because being the buying party is hard. This is not your problem. If they ask you to make an adjustment and you need to go check if you can accommodate their request—you can politely ask for some time as a courtesy, but take it. If you need to step outside and make a call, make the call. Negotiations are a team sport, so don’t play at a disadvantage. Also, negotiations can get tense. If you need a minute, take it.

5. Is this the hill you want to die on?

 I've found that those who are good at negotiations (and business) also tend to be competitive and have healthy egos, so at the end of a long negotiation, it can be difficult to step back and assess when and what's worth compromising. As a small business, consider whether what you're asking for is easy or even possible for the other party to accept. If your sticking point involves something that the prime contractor or the government cannot grant, due to legal or policy restrictions, then their answer will not only be 'no,' but you could also create additional frustration for both sides and potentially damage your credibility.

 Two of the most common areas where one or both parties struggle to concede in a negotiation involve budget and terms and conditions:

• Financial Realities—Are you aware of the available budget? If you're requesting a price above the budget, you're making an impossible ask. When negotiating with the government and asking for a price higher than their approved budget, you're making a request that could range from being merely annoying to outright impossible. This depends on several factors: 1) the authority or amount they were granted when they received clearance, 2) the requirements for obtaining a clearance increase, and 3) the time remaining to award the contract before the funding expires or is withdrawn. This situation could also arise when negotiating with a prime contractor. Similarly, if you've requested a price within the overall budget but beyond what the prime allocated for you as a subcontractor, you might need to reassess your options. Consider your relationship with the USG, how much you've exceeded the prime's budget for your offering, and the fairness of the prime or how much effort they are contributing to the overall project versus your contribution. Additionally, evaluate if your request for more funds is driven by desire, necessity to achieve goals and retain investors, or operational requirements. Understanding these elements is a crucial part of your preparation for a negotiation.
• Terms and Conditions—If you're requesting a change to a T&C that is mandated by law, regulation, or policy, it may or may not be within the Buyer's authority to comply. For primes, it is crucial to determine whether the T&C in question is a mandatory flowdown. If it's not, and you want to remove or modify it, be ready for the response, 'It's corporate policy.' Your leverage in the situation will dictate whether you need to assess the risks and timeline to decide what battles are worth fighting. I would also recommend that you consider if there are easier documents to amend. For instance, some T&Cs can be effectively nullified by modifying the scope description or CLIN descriptions, which is often easier than altering a specific clause or provision, as it is usually within the authority of the negotiating team to change such text, whereas T&Cs usually require higher level approvals. In such cases, I recommend consulting legal counsel or an expert. 

 Negotiations were my favorite part of being a Contracting Officer, and I still enjoy them today. They are much more challenging from the Industry side, but you can still be successful if you are prepared, professional, and a little bit brave. What are your top tips for or stories about GovCon negotiations? Leave a comment below!

Be Brave!