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Strategies for Successful Project Negotiations — Part 3: Government Negotiations
October 26, 2020
An area of architecture and engineering (A/E) firm contract negotiations that can be especially challenging for those unfamiliar with it is government negotiations. If your firm is pursuing government work, there are some potential pitfalls you really need to be aware of.
Small/Mid-Sized A/E Firms and Government Work
Most large government A/E contracts go to large A/E firms. That said, there are a number of programs through which projects are set aside for other businesses that meet specific criteria, so small and mid-sized firms can definitely get a slice of the government pie.
However, smaller firms tend to be the least prepared for negotiating with government entities. The government has a very structured process for reaching agreement on contracts, and if you aren’t familiar with it, there are some unique aspects of this type of negotiation that can trip you up.
Understanding How Government Entities Negotiate: FAR
Government procurement regulations are tightly defined, and government negotiators are charged with protecting the public dollar. So, there are very rigid rules that have to be followed by any firm looking to get government work, including how you can negotiate your contracts and fees.
The first step you should take if you’re pursuing a government project is to learn as much as you can about the applicable rules and regulations for the job you want. Fortunately, everything about how the government deals with contractors is published in what are called the Federal Acquisition Regulations or FAR.
The federal government follows this set of rules to the letter. State and local governments tend to follow FAR, but often add their own twists. However, any changes they make in terms of how the regulations are applied must be published.
So, it’s important to understand that government negotiations, and the government employees who participate in them, only have so much leeway. There are a whole host of boundaries and procedures and limits to what the entities and individuals can do.
A Highly Compartmentalized Approach to Business
You need to be aware that the government has full-time, professional negotiators on staff, but you’ll only interact with them during negotiations. They don’t touch base later for any reason and there’s no ongoing relationship. Similarly, the government project manager for a project doesn’t cross the boundaries of their role and participate in the negotiations in any way. It’s a very compartmentalized approach to business.
Consequently, the notion of striving for a win-win result in negotiations isn’t really important with government entities. You won’t be dealing with this person again, so taking steps to strengthen your relationship with them provides no long-term advantage. The negotiator is focused on one thing and one thing only: making sure the contract complies with all applicable rules and regulations.
But this can be to your advantage to some degree, in that the negotiator isn’t looking to get the work done for the lowest possible fee. In fact, they aren’t allowed to go after that type of win-lose result. They have to reach an agreement that pays fees commensurate with the work performed, and they have to do so while adhering to all the clearly defined rules. So, again… It’s critical that you know the rules.
"If you understand the negotiating process and what motivates government negotiators, you can tap into a steady stream of projects from a client that will always need more work."
Government Work and Invoicing
Another place where fairly inflexible government rules come into play is invoicing. Government entities require A/E firms to follow very detailed invoicing procedures that include extensive substantiation of fees billed. In short, you have to send invoices that clearly prove that the government is only paying for what it agreed to and nothing else.
This is true even if you’ve negotiated a lump sum contract, which the government is increasingly accepting of. You still have to substantiate your costs. This isn’t a “lump sum contract” in the way that most firms think of that term, so it’s important not to be caught off guard by what seems to be a contradiction but is actually clearly spelled out in FAR.
Fee Limits and Margins
The government has pretty well-defined limits on what an A/E firm can charge for different types of work. “Basic” work, as you might expect, has the smallest amount of markup. Specialty or niche work allows for the highest amount of markup.
This factors into negotiations because if you feel you provide specialty work and are hoping to have the negotiator agree, you have to provide proof of your assertion. If the negotiator deems your services “generic” and the contract is written that way, there’s no coming back later and saying, “We think we provide unique, specialized services in certain areas of the project, including X, Y, and Z, so we’d like an increase.” Your attempt to clarify will, in all likelihood, be looked at as you simply trying to get more money out of the project, and your request will be denied.
Instead, you need to do a great deal of research and preparation in advance, so you’re ready to request the fees you feel you deserve during the negotiation process and back up your belief. You can be sure the negotiator has done their homework on your firm, the services you’ve provided in the past, the fees you’ve charged, etc.
Good Work Ensures More Work: Not True With the Government
While the government is supposed to award projects to A/E service providers based on merit, most firms who’ve dealt with the government will say they’re skeptical about that. We’ve often had firms tell us, “We didn’t get that project because it wasn’t our turn.”
The belief is that the government intentionally spreads its money around in order to keep an adequate pool of firms happy and engaged. It’s not our place to speculate on that opinion, but it’s something to keep in mind. Even so, we advocate going into every government negotiation with the intent of achieving a win-win result.
Along the same lines, you should also know that while your firm may have an innate desire to do the highest quality work (and to be compensated accordingly), the government is often looking simply for “good enough.” There are exceptions for showpieces like federal courthouses, of course, but most of the time the requirement is for “standard quality” work. Consequently, if you go into negotiations angling for a fee that aligns with your portfolio of outstanding work, you’re likely to be disappointed.
The Negotiator/Government Project Manager Handoff
No project is ever fully and completely defined in the negotiation process. There are variables that simply can’t be foreseen or accounted for that don’t come to light until the project is underway. Consequently, government contacts are no less subject to the need for changes in scope than contracts in the private sector. However, the negotiator has no framework for dealing with the possibility of contract modifications, so they simply hand off the project to the government project manager.
That person has no idea what was discussed in the negotiations, and the negotiator has moved on to their next task and isn’t eager to be pulled back into this one. As a result, the project manager is now essentially “winging it” with the firm, as they try to figure out how to address the change in scope and fee. A particularly thorny issue can arise if something about the project requires input from a subconsultant whose services weren’t a part of the negotiated contract.
The takeaway here? The government expects A/E firms to anticipate everything that could possibly happen on a job and be prepared to address it in the negotiation process. That’s unrealistic, of course, but it’s an expectation that you should be aware of!
Keys to Success in Government Contract Negotiations
The government - at its many levels - is enormous, and many A/E firms do well working only for these entities. However, to succeed, you have t ounderstand the negotiating process and the regulations that govern it, understand what motivates government negotiators and project managers, and, in general, be aware of potential pitfalls. If you do those things, you can tap into a very stead stream of projects from a client that will always need more work.
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