Negotiating Price in Competitive Acquisitions

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2 Negotiating Price in Competitive Acquisitions Breakout Session #: G01 Presented by: Janie L Maddox Date: July 26 Time: 9:45 1

3 Before we begin, where are we? 1. Proposals have been evaluated Evaluation Notices (Ens) written about offeror s proposal Deficiencies/significant weakness/weaknesses identified Per solicitation-sow requirements 2. Proposals ranked 3. Decision to Award Without Discussions or Not made 4. Competitive Range determined (most highly rated proposals) 5. Commencement of Competitive Discussions with competitive range offerors Discussions tailored to each offeror s proposal and must be conducted by the CO with each offeror in the competitive range 2

4 Negotiations and Discussions Defined Negotiation-FAR 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 Thus the term, Competitive Negotiations Discussions-FAR When negotiations are conducted in a competitive acquisition, they take place after establishment of the competitive range and are called discussions. 3

5 Types of Exchanges Clarifications Communications Negotiations = Discussions IF award without discussions, offerors may be given opportunity to clarify certain aspects of proposals or to resolve minor or clerical errors Government must have stated, in solicitation, its intent to award without discussions IF a competitive range is to be established Limited to adverse past performance to which an offeror has not yet responded and/or offerors whose inclusion or exclusion in competitive range is uncertain Used to enhance Government understanding but NOT to correct or revise proposal WHEN competitive range is established Intended to allow offerors to revise proposals Deficiencies, significant weaknesses, and adverse past performance (to which an offeror has not yet responded) information must be discussed Other issues that could enhance materially proposal s potential for award CO not required to address every area where proposal could be improved 4

6 Competitive Discussions Any oral or written communication with an offeror during a competitive negotiation which is used to advise the offeror of deficiencies in their proposal so the offeror is given an opportunity to revise, correct, or modify their proposal Purpose: To Ensure A Meeting Of The Minds 5

7 Objective of Competitive Discussions The primary objective of discussions is to maximize the Government's ability to obtain best value, based on the requirement and the evaluation factors set forth in the solicitation 6 6

8 Bargaining Differences in Competitive Discussions Increased bargaining power Instead of one source multiple sources Competition between offerors Unfavorable consequences Unrealistically low offers (buy-in) Buyer s temptation to break the rules Use of unsavory methods, e.g. collusion or otherwise illicitly obtaining information Desired outcome: Not reach final agreement PERSUADE OFFEROR to submit an improved Proposal Revision (BAFO) 7

9 Venues for Discussions Written- Telephone Live in person Live through Webex etc. Best Practices Live discussions 8

10 Role of CO During Discussions Controls all discussions Advises the offeror of deficiencies concerning technical or cost issues, or any other term or condition Attempts to resolve any technical uncertainties Resolve any suspected mistakes Treat all offerors fairly, not necessarily equally All offerors should have access to same information Identify suspected pricing deficiencies Over-estimates Mistakes (under-estimates) Provide each offeror the opportunity to revise proposal 9

11 Discussion Requirements Discussions must be meaningful Discussions need not spoon feed, but must lead offeror into areas requiring improvement Discussion need not cover areas which cannot be improved (e.g. past performance/socio-economic) Discussion not required for every area where a proposal could be improved. 10

12 Meaningful Discussions: The CO must: Discuss both deficiencies and significant weaknesses (as a minimum)* Deficiencies--matters which render a proposal unacceptable for award Significant Weaknesses--matters which materially undermine the offeror s opportunity to receive the award Discuss adverse PP info not known to offeror FAR (d)(3) (*Weaknesses do not need to be discussed) 11

13 Deficiency Narrative Example Reference to RFP Requirement Management of Subs: Your proposal indicates there will be two subcontractors but there is no plan for management of the subcontractors was addressed. Without this information it is unknown how the prime contractor will properly execute the tasks of the contract. What and Why Discussed 12

14 Meaningful Discussions The CO may: Negotiate with offerors for increased performance beyond minimums Point out proposal variations from RFP for possible improvement by the offeror Suggest to offerors that have exceeded any minimums that their proposals would be more competitive if the excesses were removed and the offered price decreased Discuss potential tradeoffs FAR (d)(4) 13

15 Price Position in Competitive Discussions CO may point out any indicators the proposed price is too high or too low by revealing the reasons for believing the offeror s pricing is deficient (both over and under), for example: Market research-market/catalog Prices Past procurements-historical Prices Independent Govt. Estimate A Cost Estimating Relationship s Predictions of Price CO can reach some informal agreement about price and persuade offerors to improve prices in proposal revision But, CANNOT discuss other offerors prices 14

16 Summary of What Can be Discussed Point out proposal variations from RFP Discuss potential tradeoffs Reach informal agreements Persuade the offeror to improve pricing/performance in the proposal revision Point to indicators that price is too high or too low 15

17 Disclosure of information about other offers!!!!!! Knowingly furnishing source selection information Technical Transfusion: The disclosure of one offeror s proposal to another in order the other may improve its proposal Auctioning: Promoting rounds of price bidding between offerors Revealing names of PP informants Favoring of one offeror over another thru discussion by conducting prejudicial discussions Misleading the offeror (like in noncompetitive negotiations) Provide suggestions on HOW to correct deficiency-never 16

18 Proposal Revisions (Best and Final Offers) Discussions are concluded by request for Proposal Revisions (Best and Final Offer) Notice to offerors: Discussions are concluded Notice of opportunity to submit proposal revisions (BAFO) Remind Offerors Cost Reimbursement-Proposed costs may be adjusted Fixed Price-Unrealistically Low Prices will be considered performance risk Common cutoff date Format for revision/including how to mark changes 17

19 Case Examples Cygnus Corporation Misleading discussions GAO stated that discussions must be meaningful, equitable, and not misleading Metcalf Const. Co. Discussions cannot be meaningful unless they lead a firm into those weaknesses, excesses, or deficiencies in its proposal that must be addressed in order for it to have a reasonable chance for contract award Favoring one offer over the other GAO stated that discussions may not engage in conduct that favors one offeror over another A crucial and advantageous piece of information was withheld from some not all-one bidder was advised not to exceed budget ceilings, another bidder was not 18

20 Nextant Case Study Nextant protested contract award to Deloitte Consulting under an Agency for International Development contract for establishing a financing advisory network in Asia Nexant argues that the agency engaged in misleading discussions 19 19

21 Nextant Case Study The RFP had five mandatory tasks and one optional task. Task 1 requires the contractor to provide analytical and consultative support focused on Southeast Asian Nations. Optional task 6 permits the agency to authorize country-specific support from any country and were not limited to the South Asian countries. 20

22 Nextant Case Study AID s Discussion Question: Please clarify your overall understanding of Optional Task 6. Nexant s response: Nextant would expand financial advisory activities in up to 4 South Asian countries, should funding be made available. Nexant already has a presence in three of the South Asian countries identified in the solicitation: India, Maldives and Sri Lanka. 21

23 Nextant Case Study After evaluating initial proposals, AID assigned Nexant s proposal a weakness for misunderstanding the geographic scope, as well as the nature of the tasks outlined in the solicitation. Nexant failed to understand that Optional Task 6 is designed to support focused country-level activities in any country, not just countries in South Asia. Nexant did not provide any creative ideas on leveraging sufficient resources and partnerships. 22

24 Nextant Case Study Nexant argues that AID s discussion question was misleading because it did not afford it an opportunity to address the agency s actual concerns regarding this weakness. The proposal weakness concerned: apparent failure to understand that optional task 6 was intended for any country, apparent failure to provide any creative ideas for leveraging resources and partnerships to engage South Asian countries as part of the overall program. Denied or Sustained? 23

25 Nextant Case Study- Sustained GAO ruled that the discussion question: did not adequately convey to Nexant the nature of the first concern and failed to advise the protester of the agency s second concern, which was Nexant s apparent failure to provide creative ideas for leveraging resources and partnerships to engage South Asian countries as part of the overall program. Bottom Line: Nexant was prejudiced by the agency s misleading discussions in this area and GAO sustained the protest. 24

26 Nextant Case Study Full text of the case is available at Case citation: Nextant, Inc. B January 30,

27 Metropolitan Interpreters Case Study Metropolitan Interpreters and Translators, Inc., protests the award of a contract to All World Language Consultants, Inc., by the United States Department of Justice, Drug Enforcement Administration (DEA) for linguist services. Metropolitan asserts that the agency s discussions were unequal as compared to the agency s discussions with other offerors, misleading, and not meaningful 26

28 Metropolitan Interpreters Case Study Factor 1: Staffing Plan Recruitment Retention Training Factor 2: Management Organization Concept of Operations Business Strategies Factor 3: Quality Control Factor 4: Corporate Experience Factor 5: Past Performance Factor 6: Price Ratings: exceptional, very good, acceptable, or unacceptable 27

29 Metropolitan Interpreters Case Study Metropolitan s proposal evaluation: numerous strengths, two weaknesses, and no risks All World s proposal evaluation: numerous strengths, numerous weaknesses and no risks 28

30 Metropolitan Interpreters Case Study The agency sent a letter to Metropolitan with a set of discussions points and questions: Pricing for numerous labor categories was high and that its overall pricing also was high. Are these the best rates that you can offer linguists? In order to develop and maintain an infra-structure of quality linguists, it is imperative that linguists be paid commensurate with their professional status. 29

31 Metropolitan Interpreters Case Study Metropolitan contends that discussions were unequal because competitors received more extensive and detailed discussions than the protester. None of Metropolitan s discussion questions concerned Metropolitan s technical proposal. Metropolitan had no weaknesses under any of the technical evaluation factors 30

32 Metropolitan Interpreters Case Study Factors: Metropolitan All World Staffing Plan Exceptional Very Good Recruitment Exceptional Exceptional Retention Exceptional Very Good Training Exceptional Very Good Management Plan Exceptional Very Good Organization Exceptional Very Good Concept Operations Exceptional Acceptable Business Strategies Exceptional Very Good Quality Control Exceptional Very Good Corp Experience Exceptional Exceptional Past Performance Low Risk Medium Risk Overall Rating Exceptional Very Good 31

33 Metropolitan Interpreters Case Study DEA concluded: Metropolitan s very slight technical advantage-- embodied in one subfactor--is not worth the almost $35 million price premium over the life of the contract. It is not in the Government s (DEA) best interests to pay a price premium unless the technical benefits conferred by the premium offeror are enormous, or the lower-priced Offeror is not able to perform the work. Denied or Sustained? 32

34 Metropolitan Interpreters Case Study Since the agency didn t identify any technical weaknesses, GAO saw no merit in their argument that discussions were unequal. Metropolitan could have increased its linguist compensation rates while decreasing the profit and/or overhead elements of the rates offered to the government to make pricing more competitive. protest is denied 33

35 Metropolitan Interpreters Case Study Full text of the case available at Case Citation Metropolitan Interpreters and Translators, Inc. B May 31,

36 QUESTIONS? Can you tell an offeror that their proposed cost is higher relative to the other offerors for the procurement? 35

37 Contact Information Janie L Maddox Naval Postgraduate School jlmaddox@nps.edu 36

38 Thank You!