Matthew Fleharty

Representative Thornberry has introduced a discussion draft of his proposed FY19 acquisition reform efforts.  In it he proposes to separate the definition of "commercial item" into "commercial product" and "commercial service."  The following is the proposed definition of "commercial product" (emphasis added below):

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§ 103. Commercial product

In this subtitle, the term ‘commercial product’ means any of the following:

‘‘(1) A product, other than real property, that— ‘‘(A) is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes; and ‘‘(B) has been sold, leased, or licensed, or offered for sale, lease, or license, to the general public.  

‘‘(2) A product that— ‘‘(A) evolved from a product described in paragraph (1) through advances in technology or performance; and ‘‘(B) is not yet available in the commercial marketplace but will be available in the commercial marketplace in time to satisfy the delivery requirements under a Federal Government solicitation.

‘‘(3) A product that would satisfy the criteria in paragraph (1) or (2) were it not for— ‘‘(A) modifications of a type customarily available in the commercial marketplace; or ‘‘(B) minor modifications made to meet Federal Government requirements.

‘‘(4) A product that— ‘‘(A) is produced in response to a Federal Government drawing or specification; and ‘‘(B) is ordinarily produced using customer drawings or specifications for the general public using the same workforce, plant, or equipment.

‘‘(5) Any combination of products meeting the requirements of paragraph (1), (2), (3), or (4) that are of a type customarily combined and sold in combination to the general public.

‘‘(6) A product, or combination of products, referred to in paragraphs (1) through (5), even though the product, or combination of products, is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor.

‘‘(7) A nondevelopmental item if the procuring agency determines, in accordance with conditions in the Federal Acquisition Regulation, that— ‘‘(A) the product was developed exclusively at private expense; and ‘‘(B) has been sold in substantial quantities, on a competitive basis, to multiple State and local governments or to multiple foreign governments.

I'm curious to hear others' interpretations of the meaning of paragraph 4 (in bold above).  Thanks in advance to anyone willing to share her/his thoughts.

On 4/24/2018 at 6:15 PM, Vern Edwards said:

Don't think in terms of regulations! Think in terms of concepts and principles. FAR 12.208 has nothing to do with what I've been trying to tell you, and there is no logical connection between what it says and the conclusion that you reached. Close your damned FAR and THINK!

I'm reading Steven Kelman's (former OFPP Administrator) book "Unleashing Change" about his procurement reforms in the mid 1990s and this comment reminded me of some of his remarks in the second chapter (emphasis added):

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...the most important problem with rules was not what they contained but what they left out.  Nothing in the rules prohibited people from looking for better ways to do business in areas the rules did not address.  Most rules involved processes people needed to follow...No rule admonished "Get a good deal for the government," if for no other reason than that such a "rule" would provide insufficient guidance and hence would not fill the role rules are supposed to fill.  Furthermore, when rules regulate most parts of a person's job, it is natural to conclude that the job consists only in following the rules.  So a rule-based system sent a signal to focus on process rather than results.  Put another way, a rule-based system, by delineating minimally acceptable behavior, easily slides into delineation of maximum performance...An organization cannot put blinders on its personnel and then expect peripheral vision.

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.

3 hours ago, ContractingCowboi said:

I think you've finally gotten through to me... I was going to say "what about quality assurance plans?" But then I saw FAR 12.208 -- Contracts for commercial items shall rely on contractors’ existing quality assurance systems as a substitute for Government inspection and testing before tender for acceptance unless customary market practices for the commercial item being acquired include in-process inspection.

The more I think of it, you're right -- price/past performance will tell you a lot more than some plan or approach.

Success!  Now spread the goodness to your colleagues 

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 

30 minutes ago, ContractingCowboi said:

This is true. So, what if you included in the solicitation that all terms offered in the quote/proposal shall be binding and incorporated into the PWS. Any terms such as "We will do X, Y, and Z" should then be binding, no? So while they may have a flashy proposal-writing team, the flashy terms they propose should then be binding. 

Vern made a comment on a different thread last week that I thought all contracting professionals should read and think about:

"You don't get "guarantees" with contracts.  You only get promises and there is no guarantee that you can enforce them, not even in court."

One of the biggest problems with an acquisition system that takes to long is that it robs the Government of the ultimate incentive for good performance: future work.  If we had an acquisition system that was fast, it would be easier for the Government to cut loose a poor performing contractor and move on to someone else - that would create a persistent incentive to perform well.  Simplified acquisitions could have that, but everyone over-complicates them by executing FAR Part 15 Source Selections instead of using FAR 13.5 or (pertinent to this discussion) assuming that we need to evaluate technical proposals in order to make sure we get a competent contractor (which lengthens the acquisition planning and evaluation processes).  It's unnecessary and it's created a vicious cycle that we can't break out of (because most of our training is OJT most people just do what was done last time and find reasons to explain why after the fact).

Here's a challenge for you - try what Vern and I and others are advocating for just once and see what happens - I think you'll be pleasantly surprised.

And check your PMs.

41 minutes ago, ContractingCowboi said:

Fair point. But if I'm going to sign my name to something, I want to make sure the contractor knows what they're doing. Because once they are awarded a contract, in my opinion, they are a reflection of me and my team.

Well you're not convinced by Vern's framer example, so let's try this:  There is an entire business segment dedicated to writing proposals for companies seeking Government contracts (Google "Government Contract Proposal Writing Services").  The information you're "evaluating" in the technical narratives may not even be from that company and yet you're relying on it to assess whether the contractor knows what they're doing...

41 minutes ago, ContractingCowboi said:

I'm curious to know what you think would be better data to look to determine a contractor could perform rather than a technical narrative? 

You should re-read FAR 9.104-1, there is a wealth of criteria there to consider when it comes to responsibility that a Contracting Officer can consider in order to avoid being bamboozled without needing a technical narrative:

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To be determined responsible, a prospective contractor must --

(a) Have adequate financial resources to perform the contract, or the ability to obtain them (see 9.104-3(a));

(b) Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments;

(c) Have a satisfactory performance record (see 9.104-3(b) and Subpart 42.15). A prospective contractor shall not be determined responsible or nonresponsible solely on the basis of a lack of relevant performance history, except as provided in 9.104-2;

(d) Have a satisfactory record of integrity and business ethics (for example, see Subpart 42.15);

(e) Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them (including, as appropriate, such elements as production control procedures, property control systems, quality assurance measures, and safety programs applicable to materials to be produced or services to be performed by the prospective contractor and subcontractors). (See 9.104-3 (a).)

(f) Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them (see 9.104-3(a)); and

(g) Be otherwise qualified and eligible to receive an award under applicable laws and regulations (see also inverted domestic corporation prohibition at 9.108).

Keep SAP Simple.

16 minutes ago, ContractingCowboi said:

A 3-5 page blurb of how the contractor intends to meet our needs isn't overly burdensome, as long as you keep it simple.

The problem with that approach is that you likely end up in what Vern's coined an "essay contest" because that "3-5 page blurb" probably contains zero promises.  Useful evaluation factors are those that either evaluate the promises of an offeror or their capabilities.  A "3-5 page blurb" of what an offeror could do is not a promise and does not demonstrate their capabilities (it only demonstrates what they think they are capable of...but most likely it merely parrots the SOW/PWS).

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.

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.

@FrankJon I saw you edited your initial post about having an objective to reach a win-lose outcome - that was the language I took exception to (hence why I bolded it).  I’m not going to chase a moving or non-existent target here.

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.

1 hour ago, Don Mansfield said:

I've become a believer in AI, too, after reading Supercrunchers by Ian Ayres. I would like to see the use of a nonhuman source selection authority in my lifetime. 

Did the book just talk about AI's ability to compute/make decisions or did it also include any worthwhile discussions of AI's ability to learn?  I'm more familiar with the former than the latter so if you give it a solid recommendation I'm going to put it on my reading list.

29 minutes ago, C Culham said:

Let me add that you have confused your process.  You state "SAP" but then in your 212-1 provision state LPTA and reference FAR Part 15.   SAP is contained in FAR Part 13, FAR Part 15 is Negotiated Procurement.  

That's a great catch by Carl - if you are protested, you might be held to the more strict standards of FAR Part 15 instead of FAR Part 13.  I won't rehash the issue here, but see Vern's second post on the following thread:

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.

3 minutes ago, FrankJon said:

Positional Bargaining: How negotiating is traditionally thought of. Entering a negotiation with your idea of a "win" and fighting for it. Because it can often lead to conflict, and the objective is a win-lose outcome, it's better left for one-off transactions.

Emphasis added: what is this "win-lose outcome" you speak of?  Why would a party willingly enter into an exchange in which they lose (absent something coercing or compelling them to do so)?

2 minutes ago, Don Mansfield said:

Yes. You have a 25% chance of winning your case at the COFC, and a 25% chance of winning your case at the CAFC. I'm saving conditional probabilities for a future problem.

25% or 20%?

And apparently I'm the one who lives in Lala Land...

30 minutes ago, PepeTheFrog said:

Fixed it to reflect PepeTheFrog's position, rather than your various straw men to burn at the stake. 

Strawman? Please - if anyone is guilty of using strawmen here it's you by (a) re-characterizing @here_2_help's clear statement that one should lie during negotiations and (b) trying to lump in issues like withholding information into my initial objection.  If I mis-characterized your argument, I apologize, but as I stated in my previous post, yours was all over the place to begin with (clearly a slippery frog like yourself doesn't like being pinned down and was able to wiggle out).

30 minutes ago, PepeTheFrog said:

Matthew, professionals understand their profession, including the beautiful and the ugly parts. PepeTheFrog, like here_2_help, is pointing out the ugly parts.

PepeTheFrog maintains his defense of @here_2_help as getting criticized for speaking frankly about reality, instead of spinning into a moral fervor. 

Wake up, frogs! People lie, misrepresent, bluff, and do all sorts of shady things during negotiations. Worst of all: Lying works sometimes! That doesn't mean it's morally good. Stop clutching pearls. 

@here_2_helpdidn't point out that lies happen - he said he would willing do so and advised a member of this forum to make the argument regardless of whether or not it was true.  Take a moment and re-read his post:

23 hours ago, here_2_help said:

1. It doesn't matter whether my argument holds water since we are negotiating. Any argument that gets the other side to hesitate, to blink, to lose confidence, is a valid argument.

That's not a case of "this is what happens in the real world so watch out."  That's clearly "this is what I would do."  So yes, this becomes a moral issue when a member of the forum is advising others to engage in outright deception.

If you truly believe those that deceive others should pay a high price, so should those that encourage others to do it.  So Pepe, show us you actually believe what you say and condemn what @here_2_help actually said...not what you mistranslated it into.

Mathematically:

Probability of winning at agency: 20%

Probability of winning at GAO conditional on losing at Agency: 20% * (1 - 20%) = 16%

Probability of winning at COFC conditional on losing at Agency and GAO: 20% * (1 - 20% - 16%) = 12.8%

Probability of winning at CAFC conditional on losing at Agency, GAO, and COFC: 20% * (1 - 20% - 16% - 12.8%) = 10.24%

Combined probability of winning: 20% + 16% + 12.8% + 10.24% = 59.04%

@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.

5 hours ago, PepeTheFrog said:

@here_2_help is getting heat for making an accurate observation and holding a realistic, sober viewpoint that reflects reality and human nature (and human evolutionary psychology). Language helps us communicate. Language also helps us deceive. Don't shoot the messenger.

Negotiation almost always involves some deception or "misrepresenting facts." PepeTheFrog thought this was a forum for contracting professionals, not naive Puritans. PepeTheFrog smells some (exclusively) federal employees who have never been subjected to reality. 

If it doesn't, why are some people better at negotiating than others? Think about what makes someone a strong negotiator. Here are some:

*bluffing (lying, misrepresentation) 

*knowing what to say (hiding information)

*knowing what not to say (hiding information)

*appealing to the interests of the other party (deceiving someone to think their interests coincide with yours)

*using emotions, psychological weaknesses, cognitive biases, to persuade (Cialdini's Influence has a solid list of these short-circuits)

*"I don't have the authority" (misrepresentation)

*"That's the best I can do" (misrepresentation if not an outright lie)

*"That's too steep" (misrepresentation if not an outright lie)

Those are just a few. They all involve "misrepresenting the facts" or deception. 

Sure, laws (e.g. fraud, False Claims Act) proscribe going "too far" in misrepresenting the facts, and that's vital to having efficient and transparent markets. But misrepresentation is a fundamental part of negotiation. It's best to minimize misrepresentation and deception through (a) habituation by institutions like juries, common law, rule of law, insurance markets, (b) cultural and therefore genetic reinforcement through making truth-telling a heroic act that is rewarded by material goods (e.g. science and technology), and (c) steep penalties for "crossing the red line" of misrepresentation or deception (e.g. the common law of fraud). But up to that red line... 

Is PepeTheFrog incorrect? (Spare PepeTheFrog nonsense about morality.)

 

Honestly, I don’t even know what your position is because you’re constantly hedging in your remarks...at one point you advocate for misrepresentation based on some realist view of negotiations, then you pivot to arguing that some forms of misrepresentation are improper by referring to a red line and stating “it’s best to minimize misrepresentation and deception.”  So which is it?  Apparently I don’t even need to write a response because you’re effectively arguing against yourself!

When I tried to inquire about a specific instance of misrepresentation to discuss, you were unwilling to take a position...but you persisted in asking if you are incorrect.  Well, if your position is misrepresentation is an effective and permissible practice in negotiations, then I say yes, you are absolutely incorrect (see next paragraph).  As for your final remark to “spare PepeTheFrog nonsense about morality,” that makes it near impossible to properly have a discussion about the concept of “negotiating in good faith” which is as much a moral/ethical issue as it is a practical one.

But since you only want to address this concept in terms of real world applicability, I’ll bite.  What is actually “naive” is to think that there are no negative real world implications to the strategy or tactics/practices you advocate.  Apparently frogs are only concerned with the short term (which isn’t surprising since your life expectancy is only 10-12 years), but I approach negotiations with the long term in mind (as should others negotiating Government contracts because these are often 5+ year deals).  Unless the negotiation is a one time transaction with no future interaction (aka buying a car could be an example) the resulting deal is only one outcome of the negotiation, another outcome, arguably a more important one, is the relationship between the negotiating parties.  At some point, your “misrepresentation” scheme is going to fail (it’s a matter of basic probabilities that with each subsequent misrepresentation you will inevitably be caught - surely you’ve read NNT’s latest book so you should know this - moreover, with an experienced, well prepared negotiator it’s highly likely misrepresentation will fail sooner rather than later).  So when you do get caught, then what?  You’ve lost all credibility, you’ve damaged the relationship with the other party, and you’ve potentially exposed yourself to penalties or litigatation depending on the severity of the misrepresentation.  Those aren’t risks worth taking, particularly when there are equally (I’d even argue more) effective ways to negotiate.  Ultimately, good contract management requires a good relationship between the parties and your tactics risk poisoning the ultimate outcome (remember, the contract is not the ultimate outcome, it merely embodies the promises of the parties to reach some defined outcome(s)...they still have to work with one another for some period of time to reach that end state).

Vern’s right: any competent party should/would make you pay a heavy price if you’re caught employing these tactics you think are better and stronger.  Do yourself a favor and stop assuming those you disagree with are incompetent, soy milk drinking, non-deadlifting, unprofessional federal employees (after reading NNT’s books I now know where you get most of your jibes from...maybe you should change your moniker to PepeTheParrot).  This pessimism disguised as realism may sound cute when written on these forums, but this isn’t effective or good advice for contracting professionals.

Pepe, 

Before I respond further, let me ask you this: do you support the specific “misrepresentation” H2H deemed appropriate on this thread?

20 minutes ago, here_2_help said:

Perhaps I simply don't agree with your characterization that, if I made such an argument, I would be "misrepresenting the facts." Facts and judgments are two different things. In any case, enjoy your moral superiority.

Well you could have said that, but you didn't (and still haven't by saying "perhaps").  You instead hid behind a fallacious argument by appealing to (what you assert is) common practice by the Government.  Re-read what you argued and explain how your counter argument is equally valid under a cost-reimbursement environment as it is in a fixed price environment.  When Vern pointed out that your argument is not applicable in both of those situations, you posted what I consider an egregious negotiation philosophy.  Now you're pivoting again.  Are you going to defend your original position or admit its flaws?  It's okay to do the latter, I've done it plenty of times on these forums and felt no shame whatsoever.  After all, we're all here to learn (so let's learn the right things).

2 minutes ago, here_2_help said:

You're hilarious. Government negotiators do it routinely.

Didn't your mother teach you that two wrongs don't make a right?

I personally hope no one heeds your advice on what constitutes proper behavior at the negotiating table - I think if you took some time to reflect on what you stated, you'd realize its inappropriate.  If you do come to that realization, you should retract that statement.  If you don't, it will just serve as a piece of information about who you are and how you operate.