Chapter 5 Establishing Prenegotiation Objectives

After you have gathered your data, the next step for you and your team is to combine what you have learned from the data with the customer’s needs to establish your priorities for the negotiation. You need to develop a systematic, efficient way to start turning this information into a sound negotiation plan. Establishing priorities will help you do this; priorities will help you channel your team’s efforts toward what’s really important.

Remember, negotiation consists of give and take. So what’s your customer willing to give? What’s their number one priority? Number two? What are the “gotta-haves”? The “nice-to-haves”? You need to establish a pecking order of priorities for your negotiation. Knowing your priorities is essential to establishing your negotiation plan and will serve as a guide and center of focus when your plan comes face-to-face with the confusion and shifting positions a negotiation can cause.

Some of your priorities may be dictated to you. Other priorities may be constrained by things like time, available dollars, contract type, law, sheer number of issues, and the demands of your upper management and those of your customer. Your own experience (or lack thereof) as well as that of your team members may also constrain what you can focus on as priorities. However, there are usually many issues that you and your team still have a good bit of control over. All this affects what’s important to you and where these issues rank in importance to each other. And this, in turn, affects how you will plan your negotiation.

FOCUS ON YOUR CUSTOMER’S NEEDS

The identification of priorities (of your needs) is truly a true team effort, but the folks with the biggest stake are obviously your customers. They’re the ones who have the need. They’re the ones who will have to live with the result of the negotiation. Because they have the biggest stake in the outcome, they should have the lead role in identifying priorities for the negotiation.

So, the first step in identifying priorities is to find out your customer’s needs. Only they can tell you the importance of quality, timeliness (the schedule), cost, and risk, and what they consider to be most important, second important, and so on. You’ve already spent time analyzing their requirements document—and that gave you insight into their needs—but now it’s time to talk to them to understand their true needs. Identifying your customer’s needs should be the focus of your second meeting.

A common CO mistake is to assume your customer’s priorities are the same as yours. Traditionally, COs are known to zero in like a laser beam on price and treat it as if it’s the only issue, or at least the overriding issue. Hey, we’re trained to do that stuff and it’s always more comfortable to focus on doing what you’re trained for, right? The problem, of course, is that your customer may have other priorities, and some may be more important than price.

For example, you may find that your customer isn’t as concerned about price as he or she is about the maintainability of an item. Or they might be willing to pay a higher price if they can get a specific delivery date or some sort of extended warranty. As the team leader, you must make sure to allow the team to develop its own priorities, not just uphold yours.

Your job is not to establish the priorities, but to guide the team in establishing their own priorities in an efficient, effective way. Obviously, you’ll want your team to focus more on the high-priority items—what’s most important to your customer. You want your team to spend most of their precious time concentrating on the really big issues and not get bogged down in the muck of trivial issues. It’s better to be well prepared for a few big issues than to be somewhat prepared for all possible issues.

Here’s where your abilities to lead start to become important. Will your own team members disagree on priorities? You bet, and this may happen frequently. Your customer’s organization is not one huge monolith; it’s made up of people, each with a different take on what’s important and what would be the best outcome for their organization (or sometimes for themselves). Your job as team leader is to pull them together and referee disputes.

You’ve got to squash the internal sniping and provide the team with a framework to enable consensual decision making. In fact, presiding over this internal give-and-take may very well be your first opportunity to practice the art of negotiation! Some of my most difficult negotiations weren’t with contractors, but with members of my own team.

DETERMINE “MUST” POINTS VERSUS “GIVE” POINTS

You and your team have already analyzed and evaluated the contractor’s proposal from all angles: technical, cost, price, and business terms and conditions. This analysis resulted in a list of issues (weaknesses, deficiencies, questions, and so on) that you’ll need to address with the contractor during the negotiation.

Your next step is to lead the team in arranging these issues in a list from most important to least important. To do this you will use the customer priorities you helped the team establish earlier. When this exercise is done, you will have a prioritized list of issues you want to discuss during negotiations.

After the list is created and agreed to (which, by the way, is not always an amicable process), you then need to draw a line somewhere near the middle of the list. Here comes the hard part: Everyone must agree where the line goes. (Be prepared; this can really get contentious.) Label all the issues above that line “must” points. Label all those below the line “give” points.

“Must” points are those issues that must go your way—in other words, objectives that must be met or an agreement may not be reached. “Give” points, on the other hand, are issues that would be great to have, but not getting them won’t derail the negotiation. You’ll still negotiate for the “give” points (they are important), but they need not be insisted on in total. You’re willing to give on them a little to reach a final agreement. “Must” points are your “gotta-haves”; they should be the concrete needs of the government. “Give” points are your “nice-to-haves”; they usually reflect the wants of your customer.

After all the issues are labeled, ask your team for a few additional “give” points and add them to the bottom of the list. Price, by the way, should always be below the line as a “give” point. It almost always changes as a result of the give-and-take of negotiation. Both sides usually incorporate some flexibility in price, and both sides expect some fluctuation. In addition, tradeoffs on other issues are usually made against price.

Now that you have your “musts” and “gives”—arrayed in priority order for all team members to see—the team will start to gel in common support of the plan that’s evolving. You’re slowly helping them create focus out of confusion, a plan out of the stacks of paperwork they had to wade through, and they can now see the rough sketch of a roadmap to get them where they want to go. You’ve also created something that’s absolutely essential to every negotiation: flexibility. Creating this prioritized list, enhanced with those few extra “gives” you threw in, provides you with tradeoff opportunities when you get to the negotiation table.

You now have “give” points to use as bargaining chips, begrudgingly giving in on them and trading them to achieve your “must” points. This is why you should always have plenty of “give” points handy. In fact, you should have many more “give” points than “must” points.

Don’t feel the least bit guilty about creating and adding “give” points to your list that you know you’re going to use to trade away later. You’re not the only one preparing for the negotiations. The other side is busy doing the same thing, arranging their own list of “musts” and “gives.” Neither side, of course, knows the other side’s “must” points and “give” points. As the dance of negotiation starts, the opportunities for both sides to trade positions will form the essence of the give-and-take of negotiation.

There are two things you must remember as you establish your “must” and “give” points. First, you are the team leader. If your team disagrees on how to label a particular issue (“must” or “give”) and they “lock up” over the issue, you must break the deadlock. You make the decision. Second, never forget your duty as a government representative to be fair and reasonable to both sides. Make sure your “give” points are legitimate goals of the team (just not as important as the “must” points) and not something contrived that you absolutely don’t want in the first place. Creating totally false “give” points, and arguing for them in the negotiation just to trade them off later, can be considered negotiating in bad faith.

After you have established and ranked your negotiation priorities, and then decided on your “must” and “give” points, you’re now ready to finalize your prenegotiation objectives by establishing your acceptable negotiation range for each issue.

FINALIZE YOUR PRENEGOTIATION OBJECTIVES

FAR 15.406-1 requires the CO to establish prenegotiation objectives before any negotiation that includes pricing actions. You should tailor the scope, depth, and amount of time you spend on establishing these objectives to the complexity, importance, and dollar value of your situation. Always check your agency’s supplements; your agency may have a particular way they want you to establish these objectives, and possibly even a format or a checklist they want you to use. In all cases, these objectives must be in writing.

These prenegotiation objectives are your initial negotiation position for each issue and are based on your analysis of the contractor’s proposal, your customer’s needs, and a review of all the other data your team has gathered. As you’ve seen, you come up with these objectives as a team—and that in itself may take some internal negotiation!

For each significant issue you’ll be negotiating (each issue you labeled as a “must” or “give” point), you must now establish three positions: a minimum (MIN) position, a target (TGT) position, and a maximum (MAX) position. Because you’re the buyer, your MIN position should be your best-case scenario (in other words, if everything worked out exactly like you want it to). Your TGT position is your estimation of the most likely result based on the give-and-take of negotiation. This position is not all you hoped for, but it’s about what you expected, and you can live with it. It’s usually around the midpoint between your MIN and MAX positions.

Your MAX position is the worst-case scenario. This is the point at which either your customer’s true needs (not just wants) cannot be supported (delivery, quality, cost, and so on) or the point at which you, the CO, can no longer determine the price to be fair and reasonable for what you’re getting. Basically, your MAX position is your point of maximum hurt, your walk-away point.

You’ll need not only to identify these three positions for each issue, but to be able to defend each position with facts. If you’ve done your homework during the data-gathering and analysis stage, this should be a snap.

By creating these three positions, you have now defined the amount and degree of your flexibility on each issue. You have, in essence, created an acceptable range to allow concessions and movement during negotiations. The FAR calls this bargaining, and it’s an essential part of true negotiations.

Now, I know what you’re thinking. There are some issues that are simple “gotta-haves.” True, there may be some issues you have little or no flexibility on at all. In that case, why not build in some flexibility? Remember your “must” and “give” points? Why not tie some of your “give” points to one of those inflexible “must” points? This packaging together of “must’ and “give” points into a single negotiable issue will give you greater flexibility and a better chance to end the negotiation with everyone seeing it as a win–win situation. (We’ll talk about this in-depth later when we discuss the tactic of coupling.)

Remember, the other side doesn’t know what your “must” and “give” points are, and they will have no clue you have packaged two of them together. They’ll just see the package deal as a single issue. Never get so bogged down on individual issues that you lose sight of the big picture. You now have a better chance of getting your inflexible “must” point because you gave something in return.

While you and your team are going through the process of establishing your MIN, TGT, and MAX positions for your issues, guess what the other side will be doing? Yep. Exactly the same thing. So when the negotiation starts, each side will have established MIN, TGT, and MAX positions for each issue, but neither side will know the other side’s positions. Hopefully, somewhere between your MIN and their MAX, your goals will intersect.

It’s precisely here—where your range of flexibility intersects with theirs—that the possibility for the give-and-take of negotiations occurs, and the possibility of an agreement exists. This is called the zone of potential agreement. Rarely will your ranges and the contractor’s ranges not intersect between these MIN and MAX positions. The essence of negotiations, then, is to try to find out the positions of the other side while not revealing to them what your positions are. Both sides are doing this at the same time, and that’s negotiating!

When you ask most average folks to define the term negotiation, they’ll define it in terms of an event—when two sides sit across the table from each other. They’ll say it starts at a certain hour on a certain day and ends when an agreement is reached. We know better! We know negotiation is a process, not an event, and the majority of it takes place before the actual sit-down meeting. The meeting, what most people think of as negotiation, is simply the culmination of a long process.

During this meeting (the actual negotiation event), both sides go to great lengths to conceal their true positions, interests, needs, and priorities. In fact, a trained negotiator will make it extremely hard for you to discover things such as their deadlines, costs, positions, and so forth, during the actual negotiation event. Your best chance of getting as much of this crucial information as you can about the other side is before you’re sitting across the table from them.

Remember, information builds knowledge, knowledge builds power, and power helps you succeed in negotiations. The next chapter shows you how to build your knowledge about the other side beforehand—how to research the other party.