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We recently completed an STTR Phase I for DARPA on how the DoD can update their profit analysis (alternatives to the Weighted Guidelines) processes to better engage industry and we are sharing our findings.

FINDINGS REPORT: HERE

V/R

Geoff

geoff@federal-foundry.com

PS-We will begin the Phase II of this research shortly and would love thoughts from the community.

FedScout - Findings from DARPA's RAPID STTR (TItle page).jpg

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I don't think that the summary information in the report is conducive to driving a good discussion - but I need to say the following regarding page 8:

I think these sensational quotes are cherry picked to drive your report's narrative/agenda - for example, I know enough current/former Government Contracting Officers who would take considerable exception to some of the "Why Government negotiates" quotes you provided. How many Government Contracting Officers did you talk to and what quotes from those others (if there were any) did you leave out?

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As I read it, the bottom line of the report is that agencies should just dictate fee percentages in their BAAs and R&D RFPs. The cost of negotiating fee is not worth it. Ok, let's test the hypothesis. Conduct a pilot, collect data, and report back. Maybe the hypothesis is correct. Right now all we know is that the contractors  interviewed consider factors other than fee when deciding whether to respond to a solicitation. 

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31 minutes ago, Don Mansfield said:

The cost of negotiating fee is not worth it.

What is the cost of negotiating fee? How long does it take a competent negotiator to do that these days?

A few minutes to a few hours time? Does it take so much time and cost so much  that you have to dumb-down the contracting process even further by  "automating" fee determination?

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37 minutes ago, Vern Edwards said:

A few minutes to a few hours time? Does it take so much time and cost so much  that you have to dumb-down the contracting process even further by  "automating" fee determination?

From our interviews we heard that fee analysis and negotiation:

-Take an average 8 hours

-Delays contract award by one week  

DARPA makes about 200 awards a year so that (200 X 1 week of delay) is about 4 years of delay 

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58 minutes ago, Geoff Orazem said:

From our interviews we heard that fee analysis and negotiation:

-Take an average 8 hours

-Delays contract award by one week  

A week? That's either bull or the people doing the negotiations are numbskulls and shouldn't be working for DARPA. I negotiated some large contracts and mods in my time, and I cannot ever recall being held up for a week just to get a profit agreement.

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Genuinely curious about something. The actual time saved is 8 hours (not sure how that results in a 1-week award delay). Just because you multiply it by 200 doesn't mean that anything was delayed by 4 years, or that you can recover 4 years of something if this is implemented. Each project was delayed by 8 hours (or maybe 1 week). Implementing these recommendations would result in a project starting 8 hours (or maybe 1 week) earlier. 

Sure, 4 years looks impressive, but on an individual project basis, the delay doesn't look that bad. I've had longer delays than that just trying to find the next meeting slot when all parties were available. 

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Hi Fara, 

The break down we heard was:

-4 hours: for the contracting officer to analyze the cost elements in the bidder’s budget, assess them against the weighted factors guidance, and create the government’s perspective on what the reasonable profit/fee should be.
 

-The week of delay: The weighted factors analysis typically produces a 6-8% fee. Proposed profit from bidders tends to be in the 12-15% range. 

The contracting officer and the bidder start negotiating over the fee (emailing back and forth)

When we asked what the average delay directly attributable to the fee negotiation was we typically heard one week. We socialized this number with senior stakeholders and they generally told us that a week felt low but close enough. 
 

The other four hours is the time participating in the negotiations over the course of that week. 
 

I hope that clarifies our thought process

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OK, but expressing the findings as 4 years instead of 1 week certainly makes it sound more dire, doesn't it? That's why I'm always skeptical when I see numbers in the news. If I see a percent, that tells me the actual numbers are low; if I see raw numbers, that tells me the percent is low. They choose whatever will have the bigger impact on the viewer, i.e., a 50% increase sounds far worse than going from 2 to 3. Likewise a 100,000 increase sounds much worse than going from 55.5% to 55.8%.

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It sounds like there is a lot of email back-and-forth with waiting time in between. It also sounds like the negotiators are not dedicated to each negotiation and were working other jobs as well.

It's hard to understand those numbers without information about the type and dollar value of the contracts involved and the number of simultaneous negotiations being handled by each DARPA contracting person.

In the past, DARPA negotiations were not "tough," because in my experience contractors wanted the DARPA funding and looked forward to future business growing out of the DAROA undertakings. They were not looking for big profits. I can only go on my experience negotiating high tech contracts, and a week to negotiate just profit sounds like waaay too long. But you say the interviewees thought that was low.

As for weighted guidelines, I could make those come out any way I liked in an a very short time. With a skilled price analyst at my side we could crank out three of four versions in an hour and have them pocketed and ready at counteroffer time.

Maybe skills at the working lever are not what they once were.

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6 hours ago, Geoff Orazem said:

Don, 

That is the crux of our recommendation and completely agree, the next step is to run a pilot

How are you going to compare the test group to the control group? What are you going to measure?

I think that one thing you have to account for in the test group is the effect a predetermined fee % would have on a contractor's cost estimates. It's possible that cost estimates would become more pessimistic (i.e., higher estimated cost would mean higher fixed fee). The time saved by foregoing fee negotiation may be spent on negotiating estimated costs.

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  • 1 month later...

I don't think you can characterize something that is a necessary part of one's job as a "delay." Negotiating fee is part of a contracting officer's job. If that is a delay, then everything a contracting officer does is a "delay." 

I would want be careful in making generalizations based only on my experience, but negotiating fee for R&D is often pretty easy. You do a weighted guidelines (and as Vern points out, you can make those say whatever you want), propose that as a counter offer and then meet somewhere in the middle. Maybe you get a little more than you wanted or vice versa. Again, my experience only, but a lot of people involved in R&D are involved much more for the R&D than they are for the profit. The really big payoffs for R&D projects isn't the profit on one particular contract, it's the possibility of commercialization and/or future sales to the government. You gonna walk away from a deal for 0.5% on profit? Unlikely for either party. As a result, you can typically negotiate fee fairly quickly. Maybe it takes a week because you're working on a bunch of other stuff too, but I wouldn't call that a "delay" either.

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