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23 hours ago, Matthew Fleharty said:

If you find a way to establish trust and teamwork in your negotiations, when you discuss the topic of profit percentage won't matter.

Being clear about each party’s mission and purpose is a great place to start. Fundamentally, parties team to improve their ability to get what they want (fulfill their mission and purpose). Having a clear understanding of mission and purpose can reveal the overlap where teams can come together. For example, the negotiation game where each party wants all the shrimp, but if you talk you’ll find out one party actually needs the shells and the other needs the meat.

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23 hours ago, joel hoffman said:

do you mean ‘decrement the prime’s profit on its (sole source) subcontract costs’ (not the commercial item suppliers’ costs)?

Yes.

23 hours ago, joel hoffman said:

Why can’t you now issue it as a change order with notice to proceed, including an NTE obligation based upon some percentage of your estimate, with a definitization schedule, limit on amount of payment before definitization m, etc., etc.?

I have little experience with this.  Can you provide good examples, with specifics about how the negotiations played out (especially the profit negotiations)?

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54 minutes ago, WifWaf said:

Yes.

I have little experience with this.  Can you provide good examples, with specifics about how the negotiations played out (especially the profit negotiations)?

Yes but am awaiting an epidural procedure this morning at the outpatient surgery center. Can’t focus on this right now.

But please clarify - are you asking how to issue an undefinitized change order? Thanks. I’m sure that somebody can answer that if it takes me some hours or a day or so to do it myself.

I remember our KO at the beginning of the Chemical Weapons Demilitarization Program saying that we were not going to issue undefinitized change orders - only pre-priced and pre-negotiated schedule adjustments. That lasted until the first change- with 500 or so drawing changes and wads of spec changes… He issued them like candy thereafter.

P.S., our prime contractors were Raytheon, Westinghouse and Bechtel, whose contract admin policies and procedures had vastly more red tape than the Government. The delay impacts would have killed the schedule, bust the bank and cause us to violate Chemical Weapons Treaty deadlines.

The USACE uses an authorized modified weighted profit guideline method. The method provides for sliding risk factors for subcontracted work (based on the extent of subcontracting) and amount of work performed prior to negotiations, extent of contractor investment (e.g., whether or not progress payments are provided for), size and length of the work,  for example.

However, we first focused upon costs. When the government gets hung up on focusing in on a couple of percentage points of profit and little or no emphasis on cost, you’ve lost your negotiating Effectiveness

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We didn’t have big fights over profit. One must realize that their return on investment could  run something like 35-45% for construction, based upon prompt payment (15 days), reimbursement for stored materials (they aren’t required to prepay suppliers for on-site materials), not prepaying subs (they often pay within the max limit of 10 days after receiving their progress payments from govt), etc., etc. 

When a negotiator occasionally bluffed and said they could make better investments elsewhere than 7-10% profit allowance, I’d simply reply “well why don’t you get into a different line of business then”? They quit arguing.

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  • 2 weeks later...

I do not understand how decrementing profit on a commercial item would be appropriate if the determination of price reasonableness was truly based on a market price.  It seems to me that the buyer is conducting a cost analysis and hoping to arrive at a cost-based price for a commercial item.  Please clarify!!

 

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27 minutes ago, govtacct02 said:

I do not understand how decrementing profit on a commercial item would be appropriate if the determination of price reasonableness was truly based on a market price.  It seems to me that the buyer is conducting a cost analysis and hoping to arrive at a cost-based price.  Please clarify!!

 

Ok, we understood you the first times, govtacct02. 🤪.  The OP was referring to the prime’s  markup  on a  sub’ prices.

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