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Fee on Negotiated Changes


Zag2009

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It depends on what you define as "lose," but even with asymmetrical information or deception, absent coercion (or something similar), people do not generally enter into transactions that make them worse off.  @PepeTheFrog and @FrankJon seem to define "lose" as getting even a marginally smaller portion of the pie or not as much of the pie as they should have under an environment with 100% transparency.  I don't think that is a proper definition of "losing" in a negotiation.

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Guest PepeTheFrog

What does a hostage negotiation look like without any deception (full transparency, full symmetry of information)?

Isn't it just a stand-down order? "You have 10 seconds to do X or our snipers will ventilate you." It's an exchange of information, a communication. 

 

(a) What does a contract negotiation look like without any deception (full transparency, full symmetry of information)?

 

(b) What does a contract negotiation look like with some deception (less than full transparency, asymmetry of information)?

 

What's the difference between (a) and (b)? 

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1 hour ago, PepeTheFrog said:

How and why did the "losing" party sign the deal? 

They were persuaded, deceived, to enter into an exchange which they thought was more beneficial than it actually was...they were out-negotiated. Deceived.

 

1 hour ago, Matthew Fleharty said:

@PepeTheFrog and @FrankJon seem to define "lose" as getting even a marginally smaller portion of the pie or not as much of the pie as they should have under an environment with 100% transparency.  I don't think that is a proper definition of "losing" in a negotiation.

 

In November 2015, I impulsively bought a turkey frier for about $120. The turkey was pretty good, but the oil was expensive and the hulking unit took up a lot of space in my closet when it wasn't being used 10 months out of the year. (Plus, my girlfriend has this thing about saving my arteries.) After a failed and expensive attempt with it in November 2016, the girlfriend ordered it out of the apartment. I posted it to Craigslist for $80. I knew this probably was higher than FMV (there were pools of grease that I simply could not sop up entirely), but I wanted to see if anyone would bite. I had no interest in the well being of a faceless, prospective buyer who I would never see again. I simply wanted to maximize my gain and minimize my remorse.

Having received little interest in the frier several days before Thanksgiving 2017, a woman offered me $40 for it. This was significantly less than I wanted, and I felt slightly below FMV. I was disappointed with the offer. But, knowing that my window of opportunity to evict the monstrosity and recoup some costs before another year passed (over which time the value could have dropped more) was rapidly closing, I reluctantly agreed.  

I was not deceived, but I did feel like I had "lost" the transaction. These sorts of transactions in which one party has leverage over another - from bazaars to car dealerships to homes - happen all the time. One can simultaneously agree to a deal for one reason and be disappointed with the terms for another.

I define a negotiating loss as a feeling that the other side got the better deal at your expense. That might be a result of deception, leverage, error, lack of fortitude, or I'm sure many other reasons. 

 

 

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If losing is defined by a feeling, I'd posit that the losing feeling is likely the result of not properly understanding one's BATNA (if one did, they wouldn't feel like a loser after reaching a negotiated agreement).  I stand by my point that absent coercion (or something similar) people do not generally enter into transactions that make them worse off.

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1 minute ago, Matthew Fleharty said:

If losing is defined by a feeling, I'd posit that the losing feeling is likely the result of not properly understanding one's BATNA (if one did, they wouldn't feel like a loser after reaching a negotiated agreement).  I stand by my point that absent coercion (or something similar) people do not generally enter into transactions that make them worse off.

You're taking a very narrow view of negotiation outcomes, interests, and emotions. To feel like a loser doesn't necessarily mean being "worse off" financially. If you're a company doing business with the Government, and you're in desperate need of liquidity, and the Government CO, knowing this fact upon reviewing D&B, counters with an offer just above cost, how do you feel? On the one hand, you're alive. On the other hand, you're working for peanuts because the government (unjustly?) exploited its leverage.

Coming full circle, the point of my first post in this thread is that you would generally want to avoid this sort of win-at-all-costs "positional bargaining" when seeking to establish a long-term relationship. In a short-term relationship, there is much less risk to doing it. (Again, this does not consider the moral aspect.) 

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Yes. It is probably more accurate to state that with Positional Bargaining the objective is to win at all costs. The other side losing can be a natural consequence, since the parties are not concerned with each others' interests.

2 hours ago, Matthew Fleharty said:

I'd posit that the losing feeling is likely the result of not properly understanding one's BATNA

By the way, a BATNA is a feature of Principled Negotiation, not Positional Bargaining, where you'll traditionally see a bottom line instead.

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6 hours ago, Vern Edwards said:

According to the principles of deductive logic, [what H2Help wrote] is not true. But if you are arguing a point, I don't mind if you choose your premises in order to construct an argument that supports the conclusion you want me to accept. That's an acceptable tactic. I do mind if you knowingly use false premises and assert that they're true. That's lying.

I don't condone lying. I do condone attempting to undermine the confidence of the other side of the table by making arguments that may not be entirely valid if somebody examines my premises carefully. In my experience, very few negotiators do that.

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13 hours ago, Matthew Fleharty said:

@here_2_help

(I’m going to call it what it is now instead of this “misrepresentation of facts” because you’re using my kindness with language to pivot) Yesterday you advocated for outright misrepresenting facts lying about paying loan interest costs in order to win a negotiation on fee.  This behavior you cite (and probably plenty you don’t cite) has clearly jaded you to the point where you think such behavior is permissible (others think it is strategically valuable).  If that isn’t a case in point I don’t know what is.

As for your examples, maybe #1 fits the bill of this discussion (and if #1 happened without any price paid for such a tactic then maybe these non-government officials aren’t as amazing as you allege); however, you’re stretching quite far on #2-4 (situations where we may not be dealing with facts or the facts are in dispute).  Moreover, you’re not responding to the specific argument at hand. I never said all short term interests are outweighed by long term interests; my argument is specifically in regards to knowingly misrepresenting facts lying.  You don’t seem inclined to engage in that discussion nor recant your previous recommendation and I won’t persist any further.  I think such behavior by anyone, the Government or the contractor, is unethical, counter productive, and inexcusable.

I feel your contempt burning me through the screen. I'm sorry I disappointed you.

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Guest Vern Edwards
11 hours ago, Matthew Fleharty said:

what is this "win-lose outcome" you speak of? 

@Matthew Fleharty 

Here's a win-lose outcome scenario. First, read the Differing Site Conditions clause, FAR 52.236-2 (APR 1984).

Here are the facts:

A subcontractor working at a remote site under a firm-fixed-price government construction contract discovers a Type I differing site condition. However, the sub is behind schedule, and since there is no government inspector on site, it takes some photos and makes some notes and keeps working in order to save time, thereby disturbing the condition without first giving written notice as required by clause paragraph (a).

Two days later the sub gives the COR written notification of the differing site condition. The sub then submits a $250,000 request for equitable adjustment (REA) to the prime, who forwards it to the COR. The COR, concerned because REAs are threatening to take the project over budget, forwards it to the CO with the recommendation to deny the claim pursuant to clause paragraph (c). He sees the contractor's failure to comply with the notification requirement as an opportunity to save money.

The contractor asks the CO to extend the written notification time prescribed in paragraph (c). FAR provides no guidance on granting or denying the discretionary extension. The nature and extent of the differing site condition are clear from the contractor's photos, notes, and other evidence. The parties go back and forth on the issue of an extension. The CO ultimately denies the contractor's request. The CO says: "The clause is clear. Your sub knew the rules and ignored them. I won't extend the time for notification. I'm gonna play by the rules of the game." The CO is taking advantage of the clause to save money.

The CO sees his position as a "win" for the government. If the CO grated the extension the COR would see it as an instance of the CO failing to "back him up" and thus a "lose." The contractor sees it as a lose for itself that's based on a "mere technicality."

I'm not taking a position on who is right. I'm merely using the scenario as an example of one in which the parties see the outcome as win-lose.

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Thanks Vern.  I understand that win-lose outcomes can and do occur - I made that comment to take exception to the characterization of positional bargaining as a situation where someone has the objective to pursue a win-lose outcome because I don’t think that generally people intentionally try to pursue such an outcome.  @FrankJon clearly didn’t intend to say that and edited his post to remove that statement.

EDIT: Maybe that scenario would make for a good topic in the new debate forums Bob created.

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Matthew, I think that many people quite often practice a win-lose approach for various reasons in their daily lives. This includes personal and business relations, and in any type of negotiations.

Such behavior may be a reaction or even a habit, as a defense due to something else going on in their lives. 

Attending Stephen Covey’s “The 7 Habits of Highly Effective People” in 1989 was a huge eye opener and life changing for me.

While each habit builds upon and works together with the other, the ideas of “win-win” and “win-win or no deal” stand out to me. They are highly successful life habits - when I don’t forget to apply them in daily life, including my personal and contractual relationships.

Covey taught that “Win-Lose” behavior will ultimately lead to Lose-Lose results, not only in business but also in personal relationships. 

I reccomend that everyone read the book and attend the Course, if at all possible.

By the way, such behavior is based upon  moral, ethical and honest dealings with others. 

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1 minute ago, joel hoffman said:

Matthew, I think that many people quite often practice a win-lose approach for various reasons in their daily lives. This includes personal and business relations, and in any type of negotiations.

There is a difference between deliberately pursuing a win-lose approach as one's objective end state and ending up in a win-lose situation because of naivety.  I suppose that is the distinction I was trying to get at.  I don't think that on average people behave in an exploitative manner - there are people and markets that do, but I think they are the exception, not the rule.

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Matthew, Win-Lose behavior can be mutual in relationships and/or negotiations. “It takes two to have an argument”, as they say. I’ve seen some marriages with such behavior dissolve with a lot of de-programming necessary afterwards.  

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Guest Vern Edwards

I think win-lose thinking and behavior is perfectly natural in market situations in which exchanges are entirely transactional: there is no past, there is no future, there is only the present. The classic case is a sale in which the parties haggle over nothing but the purchase price and do not expect to ever see each other again. The more money the buyer pays, the less money the buyer will have and the more the seller will have. It's a zero sum game every. But such thinking and behavior becomes problematic when the exchange is relational, and there will the exchange will take the form of an ongoing relationship between the parties.

The classic discussion of this can be found in "The Many Futures of Contracts" by Ian R. Macneil, which appeared in Southern California Law Review, 1974 (47 S.Cal. L. Rev. 691, 1973 - 74). The article was the foundation of the relational theory of contract.

Many things have been said here, but much of the debate has been prompted by careless expression, such as "misrepresentation of fact" and saying that government negotiators do it "routinely." When Matthew said it was a euphemism for lying, some people back-peddled off a tough stance, because that's not what they meant by the term. They were referring to deceptive behavior, like saying that they could not pay more because they did not have enough money, a more sophisticated version of the old market game of reacting to a seller's price by saying, "What do you think I am, a rich man?" or "But I have a poor, sick mother at home to take care of" or pretending to walk away. Something like the legendary care salesman's tactic of saying, "Let me go talk to my boss," only to come back and say that the boss wouldn't go for it, but how about....? And see the "haggling" episode in "Monty Python's Life of Brian."

I know here_2_help personally, and I do not believe that he advocated lying. Reading some of his posts of late and having discussed some cases with him, I think that he has become somewhat embittered by some of his experiences with the government. On the basis of my knowledge of him, I say he is a very upright and trustworthy person.

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3 hours ago, kevlar51 said:

if only there were some sort of statute about truth in negotiation...

Granted, but it doesn't apply to many types of negotiations. For example, it is not applicable to the negotiation of final indirect cost rates subsequent to a DCAA audit report that questions certain contractor costs, even if the aggregate total of the questioned costs is in excess of $2 million.

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Guest Vern Edwards

Hypothetical:

You're in a firm-fixed-price contract negotiation. You've been going back and forth with the other side: offer-counteroffer. Then the other side submits a counteroffer that you believe to be based on a false assumption that works in your favor. They don't say that they made the assumption, and they don't ask you a single question about the matter, but you can tell based on the content of the counteroffer.

Do you tell them that you think they made a false assumption?

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Guest Vern Edwards
On 4/19/2018 at 12:36 PM, PepeTheFrog said:

What does a hostage negotiation look like without any deception (full transparency, full symmetry of information)?

Not analogous to a contract negotiation. Irrelevant to the discussion.

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10 minutes ago, Vern Edwards said:

Hypothetical:

You're in a firm-fixed-price contract negotiation. You've been going back and forth with the other side: offer-counteroffer. Then the other side submits a counteroffer that you believe to be based on a false assumption that works in your favor. They don't say that they made the assumption, and they don't ask you a single question about the matter, but you can tell based on the content of the counteroffer.

Do you tell them that you think they made a false assumption?

On the Government side, I certainly would for a few reasons:

Philosophically, I think Contracting Officers should be objective arbiters of the process.  Sure they must safeguard the interests of the United States and be good stewards of the taxpayers' dollars, but I often say that I've never read anywhere in the FAR a directive to "save as much money as possible" (particularly at another party's expense).  Instead, the FAR says a CO's responsibility is to award contracts at fair and reasonable prices (which with lingering false assumptions can one accurately determine that amount?) and to conduct business with integrity, fairness, and openness.  I think addressing the false assumption is behavior consistent with both of those charges.

Negotiation wise, by raising that issue (assuming it isn't the only lingering one since the scenario does say "you've been going back and forth") I think you'll likely gain a considerable amount of credibility with the other party that could help propel what might be an intractable negotiation towards closure.

Lastly, if not acted on, unexpressed assumptions inevitably rear their ugly heads during contract performance and that could have two implications: (1) the differing expectations during contract performance could jeopardize successful and smooth performance & (2) if it's apparent or becomes apparent that you knew about it and said nothing, that's going to damage the relationship (the implications of which have already been discussed enough on this thread).

On the Contractor side, I'd like to say I would as well - hopefully, I'd be able to sell the positive long term benefits to my boss so that I could keep my job ^_^

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Speaking of contract negotiations and hostage negotiations, here is a book from a man who has done both and discusses the similarities:

Never Split the Difference

Regarding making a deal involving false assumptions: if you value a relationship, and/or want to actively manage the risk you should clarify the situation. Did the assumption involve an ambiguity in our offer? If yes, what type?

A lot of what we do is clearing up ambiguities. I'd rather have a meeting of the minds than strike a deal that involves a false assumption. Accepting their assumption (counteroffer) involves an assumption on our part and may lead to the disputes process and a third party's version of principles for contract interpretation.

It would be interesting to know if the counter-offeror's false assumption was reasonable and what that changes, if anything. For example, could it be argued that no contract exists?

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On 4/18/2018 at 3:34 PM, Zag2009 said:

...since the work is complete, the risk no longer exists.

There is a certain perverse logic in play here - Government delays the negotiation, and in so doing achieves a lower fee !  I'm assuming at this point you are asking for actual costs plus fee/profit?  As suggested, if I were you, I would focus the negotiation on the portion of fee that is supposed to compensate for that risk component.

 

On 4/18/2018 at 4:23 PM, PepeTheFrog said:

Is PepeTheFrog incorrect?

Yes, 'pepe' is incorrect. Good negotiators don't have to lie, and good negotiators don't let their emotions sway their judgement (think of LCDR Data. He was incapable of lying, because lying is an emotion-based response to avoid embrrassment,  consequence, etc.).

As a practical matter, I simply don't know how you could even have a strategy based on misrepresentation.  How would that work in the PNM?  Would you actually add a 'misrepresentation' cost element, which detailed the upper and lower bounds of what you are going to misrepresent?

The negotiator's job isn't to get the Best Price in The History Of The World; it's to achieve  a fair and reasonable price.  Ralph Nash sums it up nicely in his writings on Good Faith and Fair Dealing on the part of the Government.  Those F-35s ain't going to build themselves after all.

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On 4/20/2018 at 3:45 PM, Vern Edwards said:

Do you tell them that you think they made a false assumption?

I would say 'yes', as doing otherwise would not result in a fair and reasonable outcome.  A false assumption may also indicate an ambiguity in the requirements.

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47 minutes ago, REA'n Maker said:

There is a certain perverse logic in play here - Government delays the negotiation, and in so doing achieves a lower fee !  I'm assuming at this point you are asking for actual costs plus fee/profit?  As suggested, if I were you, I would focus the negotiation on the portion of fee that is supposed to compensate for that risk component.

Emphasis added - that's an assumption, not a fact of the OP's scenario.

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