One of the most satisfying projects I'm involved with these days is the George Cronin Award for Procurement Excellence, a national award for innovation presented by the National Association of State Procurement Officials. I saw a very insightful statement about negotiation in the 2016 application by the State of Wisconsin. Their award-winning negotiation training had this on one of its training slides:
"Negotiation starts when . . . the first contact is made between the parties . . . likely months before anyone talks to procurement."
When I wrote Seeing Excellence: Learning from Great Procurement Teams, two latecomers to the chapter on lateral leadership were negotiation and persuasion. Procurement and project teams negotiate contracts with suppliers, resources with using agencies, and various issues with other stakeholders. The Wisconsin team understands the importance of teams having this skill.
The Bargaining Landscape
All negotiations have a basic structure. There typically is an opening. Parties exchange counteroffers. The prospect for agreement is framed by a bargaining range, usually defined by overlap between the "can live with" options (or reservation prices if you prefer) of the parties. Through the movement of their respective positions, they eventually converge on one that becomes the agreement or the "close." Sometimes the area of potential bargaining is called the zone of potential agreement (ZOPA).
One Face: Traditional Negotiations
First introduced in 1981 by Roger Fisher and William Ury, the central premise of Getting to Yes is that through integrative (win-win) interest-based negotiation, parties usually can find a negotiated outcome that satisfies the interests of both. This view of negotiation is opposite to what sometimes is characterized as the more adversarial distributed negotiation.
In distributed, or win-lose negotiation, what is gained by one party is lost by the other. Car sales sometimes are characterized as win-lose negotiations: relationships do not matter much, price is the focal point, and the negotiation can be poisoned by mistrust. Integrative negotiation, on the other hand, is an interest-based inquiry to find solutions that benefit both parties. Max Bazerman and Margaret Neale's Negotiating Rationally tied biology to "errors" in negotiations and provides advice for avoiding them. Their research has shown, for example, that when participants in a negotiation have a negative relationship, they are likely to prefer higher risk alternatives. Such is the danger from emotional escalation.
Another Face: Negotiations in Competitive Procurement
Procurement professionals encounter another face, negotiation in the context of competitive procurements. Usually called a request for proposals (RFP), this kind of negotiation has constraints. Equity and fairness to competing suppliers is a public policy that imposes obligations on the public agency's negotiation methods. Although negotiations begin at the time of the first interaction, procurement laws and rules somewhat restrict pre-solicitation communications with suppliers aimed at shaping the request for proposals. After receipt of proposals, communications addressing proposal deficiencies must provide equal opportunity for proposal revisions. And in many states, fairness limits the amount of post-award negotiation of material terms and conditions with the successful offeror immediately after award of the contract.
But the RFP or competitive proposal process is a negotiation nonetheless. The opening/counter/closing convergence of positions illustrated in the ZOPA figure often is limited, with a supplier given only one or two opportunities to submit and revise an offer. The government's (buyer's) “positions” and best alternative to negotiated agreement (BATNA) are bounded by the evaluation criteria and basis for competitive award published in the RFP.
The federal government brought traditional negotiation closer to the competitive sealed proposal process in 1997. Federal Acquisition Circular 97-02 rewrote the Federal Acquisition Regulation section on source selection, including subpart 15.306 on information exchanges after receipt of proposals. Notably, the term "bargaining" was added to the regulation.
Negotiations are exchanges, in either a competitive or sole source environment, between the Government and offerors, that are undertaken with the intent of allowing the offeror to revise its proposal. These negotiations may include bargaining. Bargaining includes persuasion, alteration of assumptions and positions, give-and-take, and may apply to price, schedule, technical requirements, type of contract, or other terms of a proposed contract. FAR Subpart 15.3.
The American Bar Association Model Procurement Code language for states and local governments, patterned after the federal government's process, invites a comparison:
Discussion with Responsible Offerors and Revisions to Proposals. As provided in the Request for Proposals, and under regulations, discussions may be conducted with responsible offerors who submit proposals determined to be reasonably susceptible of being selected for award for the purpose of clarification to assure full understanding of, and responsiveness to, the solicitation requirements. Offerors shall be accorded fair and equal treatment with respect to any opportunity for discussion and revision of proposals, and such revisions may be permitted after submissions and prior to award for the purpose of obtaining best and final offers. In conducting discussions, there shall be no disclosure of any information derived from proposals submitted by competing offerors. MPC § 3-203(6) (2002)
A version of the ABA Model Procurement Code has been adopted in about half of the states, with similar language in other governments' procurement laws and regulations. What follows here is a look at competitive requests for proposals using the framework of negotiations planning.
Perspectives on Power: The Best Alternative to Negotiated Agreement
Power was not addressed as a separate topic in the first edition of Fisher and Ury's Getting to Yes. Other than the term win-win, perhaps the most enduring concept from Getting to Yes is the BATNA. The best alternative to a negotiated agreement is the plan of action if agreement cannot be reached. Often confused with the “bottom-line” (that requires agreement), the BATNA assumes an abandoned negotiation. Fisher, Ury, and Bruce Patton's second edition of Getting to Yes added a comment about power, choosing to treat it as the sum total of the strength of the BATNA, amount of preparation, how well the respective interests are understood, the quality of the available information, the effectiveness of communication, the nature of the relationship, and the agility at exploiting them all during the process of negotiation. Yet, Fisher, Ury, and Patton counseled: Don't ask 'Who's more powerful?'.
Both sides have a BATNA, but until Getting to Yes there was more emphasis on finding a bottom-line (that required agreement to be effective). Sharpening one's own BATNA, and forecasting the other party’s BATNA, are important parts of planning.
The BATNA is a key part of "power" or leverage. A party tries to improve its BATNA, may even indirectly disclose it to the other side if its BATNA is stronger. A threatened lawsuit represents an inelegant use of a BATNA. On the other hand, implying “other options” will be considered sometimes can be effective.
The RFP process offers a different perspective on BATNA and power. The government starts with more leverage. It defines the requirement in a competitive environment that looks to suppliers like an auction. The government, however, must keep the process fair and requirements reasonable so that industry is interested. Cancellation of solicitations when no one proposes is an alternative, but not a good one. Governments start the RFP process with a need and an expectation that industry will participate.
Of course, suppliers have a BATNA: "no bid." To get the right suppliers interested, the solicitation and requirements have to permit suppliers to differentiate themselves.
Framing the Issues and Interests
Getting to Yes emphasizes the importance of planning. Each party’s interests must be understood regarding the various issues that arise. This planning begins to create the knowledge necessary to make value tradeoffs later as positions evolve. At the bargaining table, displaying sensitivity to other parties’ interests is one way to foster constructive relationships. Be hard on the issues, not the people.
Interests differ for various issues, and in complex negotiations, multi-disciplinary teams often are needed to effectively deal with the range of issues and interests. Complete analysis of interests underlying the issues helps illuminate and educate in a way that permits agility at the bargaining table in identifying opportunities to expand the pie before it is divided. For each issue, negotiating teams identify their own and the other party’s interest. Time, for example, may favor one side or the other.
In an RFP, the solicitation initially frames the issues and interests. Ideally, sound market research has been used to identify supplier interests. While face-to-face negotiations require strategic decisions about what information to disclose and when, the competitive RFP should be transparent regarding the government's interests. The specifications and statement of work define the issues for potential offerors. The RFP's evaluation criteria explicitly disclose the government’s interests using evaluation factors and their relative importance. And one of the overarching, mutual interests in an RFP is achieving a contractual relationship that is unambiguous.
Suppliers competing in this environment can differentiate themselves in well-constructed RFPs. A performance-based RFP discloses a government's desired outcome but not necessarily the details of performance to get there. A supplier that proposes meaningful measures for monitoring performance stands out. Risk is being considered more-and-more in state and local government procurement, and a thoughtful explanation by a supplier of potential risks and how the proposal addresses them differentiates proposals. When use of small business, historically underutilized, and even local businesses in some jurisdictions are evaluated, an offeror's creative use of subcontracting, local distributors, or other ways to support the local economy better addresses the underlying government interests. As sustainable procurement is emphasized more in RFPs, suppliers have opportunities to creatively satisfy interests in ways that are relevant to the evaluation and selection of a contractor.
The exchange of information, however, may be the most notable difference between a traditional negotiation and a competitive RFP. Face-to-face, traditional negotiations—contract disputes are an example—give parties the freedom to strategically plan the exchange of information, even what and when questions are asked. Competitive negotiation in RFPs has those opportunities, but they have to align with government interests of fairness.
Communication and Information
Business intelligence, or market research conducted prior to a procurement, may provide information about the other party’s key interests. Sometimes, however, questions at the traditional bargaining table are used to learn the other party’s interests. Some thought must go into developing lines of inquiry for use at the table to gain useful information.
Planning the opening is important, as well as planning how to say “no.” In contentious negotiations, statements can be made that spiral a negotiation out of control—at one extreme—or more commonly cement parties into intransigent positions. William Ury’s Getting Past No offers practical advice for dealing with emotional outbursts, “dirty tricks" (negotiation ploys), fear of agreement, and other impediments to negotiations.
In public sector RFPs, the opportunities for communication are constrained. The information exchange during market research is limited amid concerns about not favoring one supplier over another. Published requests for information, however, may be used to inform industry of a government agency's expected requirements and sourcing strategy. RFIs seek industry comments about the planned approach.
The supplier's opportunity to ask questions during the solicitation is limited as well. Sometimes a pre-proposal conference is used. Usually, a question and answer period is provided before proposals are due. The agency then publishes answers in an RFP amendment. The best practice by governments is to not reveal the questioner's identity, but there are strategic considerations anyway for suppliers. Will the nature of the question reveal the source anyway? Will the question disclose a competitive advantage and help other suppliers develop better proposals?
While communication planning is important in all negotiations, suppliers need to understand the public procurement context of negotiations in competitive RFPs. The information exchanges can lead to proposal revisions, but the goal of making the process fair to all suppliers includes constraints that are different from traditional face-to-face negotiations.
The “Dance of Negotiations”
The seminal work credited with moving research into the modern phase was Howard Raiffa's The Art & Science of Negotiation. A colleague of Roger Fisher and William Ury in the Harvard Negotiation Project, he adopted their concept of BATNA and used the phrase “dance of negotiations” to describe the movement of positions of the parties.
The steps of the “dance” perhaps represent the greatest difference between traditional negotiation and competitive RFPs. Negotiators are advised generally to move slowly toward commitment. In public sector RFP, the process dictates it. The dance of negotiation often involves at most an initial and one revised offer by the supplier. (Not all governments permit a revision.)
Planning in a traditional negotiation involves developing questions to probe the interests of the other party. In an RFP, the government’s interests are uniquely transparent. The government buyer discloses evaluation criteria, even their relative importance in terms of technical approach, management capability, past experience and demonstrated capabilities, and cost. The government agency’s instructions about proposal preparation may not leave a lot of room for addressing other standards for agreement or arguments designed to persuade the government customer.
But there are value tradeoffs at play similar to those in positional bargaining. Opening positions, for example, typically are advanced early in a traditional negotiation. An “aspire to” option is the most favorable position that can be advocated legitimately and often is used as the opening position. Parties plan an “objective” that represents a reasonable, desired outcome that will fully meet expectations. The “can live with” option is sometimes used instead of the bottom-line or reservation price. It practically serves as a trigger to reevaluate the wisdom of agreement. The available options and possible zone of agreement are defined in part by the strength of the BATNA. "Bottom-lines” are rejected by Fisher and Ury in favor of a more amorphous “resistance point," the negotiating option or position that represents the point at which a party is disinterested in whether agreement is reached or not.
The range of options is further dependent on the perceived standards of agreement, like fair and reasonable pricing, and existing constraints such as legal requirements. In a competitive RFP, the submitted proposal may be based on the “aspire to” option, with value tradeoffs planned as the RFP process proceeds.
But a supplier may not get a chance to revise an offer. Some state laws do not permit it for traditional RFPs. For those that do, after proposal opening the dance of negotiations is choreographed. Governments often reserve the right to award on initial proposals. A supplier that submits an opening proposal with a lower, undisclosed reservation price may not get an opportunity to revise the proposal. And even if negotiations are held, sometimes a proposal does not make it through the competitive range down-select. So an offeror can find itself holding a more attractive offer without an opportunity to let the government agency even know it exists.
Once a supplier gets through the competitive range decision, and opportunities for information exchange are afforded, there can be a phase where the dance of negotiations functionally looks like a more traditional negotiation. The best and final offer (BAFO) opportunity is a supplier's proposal revision that works like a counteroffer. And while governments don’t make counteroffers in the classic sense in RFP negotiations/discussions, there are information exchanges that serve a similar purpose. Under a common discussion framework, governments furnish notices of deficiencies or significant weaknesses that signal where their interests and the possible value tradeoffs may be. Even in oral presentations, those government “positions” can be implied through the dialogue, and the communications may suggest where value tradeoffs may be prudent in a proposal revision (the BAFO). Of course, the RFP evaluation factors always remain the touchstone for the proposal strategy.
But, admittedly, the government communications are limited by the competitive process and legal constraints. The information exchanges may not favor one offeror over another. Historically, the term “technical leveling” referred to disparate efforts to help only one offeror improve its proposal. Nor may the government reveal to a competitor an offeror’s technical solution, unique or innovative approaches, or any information that would compromise an offeror’s intellectual property (“technical transfusion"). These limits on exchanges preserve the fairness and integrity of the process, ensuring that suppliers are competing based on their own strengths and weaknesses.
Relationships, Emotions, Persuasion, and Influence
Perhaps the other significant difference in a competitive RFP is the role of relationships and emotion. Over the past 20 years, behavioral science, derived from social psychology, has contributed more to negotiation science, as has the science of influence and persuasion.
Raiffa's colleagues, Roger Fisher and William Ury in Getting to Yes, forecasted the emergence of behavioral science's influence on negotiation research. They advised negotiators to spend as much time on the relationship as on the substantive issues. After Getting to Yes, Roger Fisher and co-author Daniel Shapiro, a psychiatrist, wrote Beyond Reason: Using Emotions as You Negotiate. They explored the emotional dimension of negotiation.
Other than in RFP oral presentations, where emotions have been known to influence behavior, the strict dance moves of negotiations in competitive RFPs constrain aberrant behavior. In a competitive RFP, the communication largely is limited in terms of the method and timing. And the opportunity for use of "dirty tricks" like lying—and the other party's need to plan responses—is of less concern. Federal and state laws levy civil and criminal penalties for misrepresentations.
There may be one important exception to the discounted role of emotion. Bazerman and Neale wrote about the "winner's curse," the tendency to question the negotiation outcome (and perhaps the commitment), especially if the other party rapidly accepts an opening proposal or a party learns that it's "winning" proposal was vastly different from others. In procurement, the analogy is an unreasonably low bid that "won," but the commitment evaporated because the contractor couldn't financially make it work. Or the relationship became poisoned by the questionable use of change orders to exploit every identifiable ambiguity in the contract. So public procurement has its version of the "winner's curse" at times.
There also is recent, re-emerging behavioral science that may have more direct relevance to both competitive RFPs and traditional negotiations. The science of influence and persuasion was researched and popularized by Professor Robert Cialdini in Influence: The Psychology of Persuasion.
The central tenets of persuasion were born out of compliance research and are well known to fundraisers and salespersons making the "ask." They include: reciprocity; social proof (people like to conform to what others do; consider the tip jar); liking (we are influenced by those we like); authority; scarcity ("the offer expires today"); and consistency (why fundraisers ask for just the $5 donation and then come back for more later). In Bargaining for Advantage, G. Richard Shell directly tied Cialdini's research to negotiations.
In a competitive RFP, one sees these concepts at work. The authority principle helps influence market participation when a government issues a well-constructed, obviously well-informed RFP. A supplier who authoritatively addresses the requirements in a way that shows their understanding of the requirements and the soundness of the approach has a leg up on the competition. Or when an RFP invites considerations of risk, a proposal that goes beyond the boilerplate recitation of risk management planning to application in the context of the government’s requirement is on more solid ground. Shared certifications among supplier and government personnel like those from the National Contract Management Association can tickle the fancy of the liking principle. Thanking an unsuccessful offeror for participating and offering to debrief can be an elegant recognition of the value of reciprocity. And a well-constructed contractor kick-off meeting, coupled with a practical, contractual issue-elevation process, uses consistency (promoting a sustainable, collaborative outlook) and builds a relationship at the heart of a successful contract.
I am the first to recognize that influence and persuasion strategies can have split personalities. Some still view them as manipulative; frankly, I do too when I look at the fundraising emails on my mobile device. But when a supplier asks, "Why won't you agree to our limitation of liability clause? Everyone else has," I realize there is a scientific basis for use of that tactic to influence me! There is science behind these concepts, and understanding them is important for both the government and supplier.
Did the Two Faces Beget a Third?
I've been using and teaching these faces for over 25 years. A third face who's a bit featureless—at least to governments—is maturing. PIPS (Performance Information Procurement System) is an innovative sourcing strategy developed by the Performance Based Studies Research Group at Arizona State University. PIPS leverages supplier expertise to identify project risks and develop the specific approach to the work. The PIPS process reduces RFPs and proposals to dozens of pages instead of hundreds. Agile methodologies grew out of large information technology implementation failures and the recognition that the historical method of planning, procuring, and contracting wasn't working in IT. Agile puts rapid iteration, project learning and collaboration at its core, challenging historical procurement and contracting processes. The University of Tennessee has developed a collaborative relationship-approach branded as Vested®, developed from a collaboration with, among others, the United States Air Force. While Fisher and Ury counseled negotiators to work equally on the relationship and the substance, Vested and its negotiation approach squarely makes the relationship the substance. In fact, the title of Chapter Two of Nyden, Vitasek, and Frydlinger's Getting to We, the mindset of Vested, is: Trust.
Is this a generational evolution? Trust is becoming part of contracts but more fundamentally part of the culture of the relationship. These approaches beg certain questions for negotiators. Why hide the reservation price instead of sharing savings? Why can't there be open-book pricing? As Getting to We advises, why can't BATNAs be shared? The authors acknowledge that some may think Getting to We is naïve, but we're seeing the face of trust and collaborative negotiation in surprisingly successful projects.
I'm still trying to get a clearer look at this emerging face. Still, the other two faces will remain part of the negotiation family. Negotiations in public procurement can look like a traditional model. Sole source contracting, negotiated contract amendments, and claims and disputes all fit that model. And count me among those who believe that public procurement professionals must learn positional and distributed bargaining. Hard bargaining and “dirty tricks” still are out there in the marketplace.
But public procurement professionals should see competitive RFPs and proposals as negotiations as well. They involve sophisticated interests and opportunities for communication in the context of overarching objectives of fairness and equity. The research, information exchanges, and communications share a role with other planning considerations in more traditional negotiations. And while the dance of negotiations in the competitive RFP process has well-defined steps that constrain the free-flowing art a little, the process still a negotiation. And one that begs for team planning.
Keep one face towards the skills one needs in traditional negotiation settings. Keep another looking at the value proposition in competitive solicitations and the negotiation opportunities they provide. But be ready to introduce yourself to the emerging third, more trusting face the other two have begot.
About the author
Richard Pennington, J.D., LL.M., CPPO is general counsel to NASPO ValuePoint. He is the author of Seeing Excellence: Learning from Great Procurement Teams(www.seeingexcellence.com). Click here for a two-page negotiating planning worksheet (and example) that is based on the Getting to Yes model.
References (by date of publication)
Roger Fisher, William Ury, & Bruce Patton, Getting to Yes: Negotiating Agreement Without Giving In, 2nd ed. (Penguin Books, 1991) (the monumental book that coined the term "BATNA")
Howard Raiffa, The Art and Science of Negotiation (Belnap Press, 1985) (a colleague of Roger Fisher & William Ury at the Harvard Negotiation Project, Raiffa is widely credited with moving negotiation into the current phase of prescriptive research of how negotiators “should” act)
William Ury, Getting Past No: Negotiating in Difficult Situations (Bantam Books, 1991) (uses the framework of Getting to Yes, offers a practical framework for dealing with difficult negotiations and "dirty tricks"; one of the better books to supplement Getting to Yes with advice on what to do "at the table")
Max Bazerman & Margaret Neale, Negotiating Rationally (Macmillan, 1992) (identifies "errors" in negotiations and advice for avoiding them: anchoring errors, overconfidence, irrational escalation, the mythical fixed-pie, framing, unavailability of information, and the "winner's curse")
Roger Fisher & Daniel Shapiro, Beyond Reason: Using Emotions As You Negotiate(New York: Penguin Books, 2005) (promotes avoidance of emotional issues but adds practical "at the table" dimensions for dealing with emotion: appreciation, autonomy, affiliation, status/roles)
G. Richard Shell, Bargaining for Advantage (Penguin Books, 2006) (a good overall synthesis with particular strengths in: distinguishing between types of negotiations and their strategies; discussing practical approaches to concessions; emphasizing the importance of closing and commitments; comprehensively treating leverage and power; covering “dirty tricks” and responses from the perspective of ethics; and integrating the broader subject of influence/compliance theory into the negotiations framework)
Robert B. Cialdini, Influence: The Psychology of Persuasion (HarperCollins, 2007) (A classic: Professor Cialdini identified the “weapons of influence”: reciprocation; commitment and consistency; social proof; liking; authority; and scarcity)
Jeanette Nyden, Kate Vitasek, & David Frydlinger, Getting to We: Negotiating Agreements for Highly Collaborative Relationships (Pallgrave MacMillan, 2013) (Getting to We is the mindset underpinning the collaborative-relationship contracting model known as Vested)