Kelman: Contracting is a balancing act

Many people misunderstand the true nature of government/vendor relationships

I recently got a call from a reporter who was writing a story on reverse auctions. I had advocated eliminating the ban on such auctions when I was in government, and I serve on the board of advisers for FedBid, which sells reverse auction services. “Don’t reverse auctions create an adversarial relationship between government and industry by increasing pricing pressure on vendors?” the reporter asked.

I responded by saying there’s no greater advocate of cooperation between agencies and contractors than me, but cooperation doesn’t mean lying down and playing dead. Industry doesn’t interpret cooperation that way, and the government shouldn’t either.

The reporter’s question revealed a common misunderstanding about the nature of interactions between government customers and industry, and it is shared by many people with otherwise opposing views about contracting. In a classic book, “The Manager as Negotiator,” David Lax and James Sebenius argue that every negotiation has elements of creating value and claiming value.

Negotiation can create value by making both parties better off than they would have been without that relationship. Creating value is possible because each party to the negotiation usually has different preferences. A customer might value speedy delivery and a vendor can provide it inexpensively. Likewise, a customer might not value certain bells and whistles that are relatively expensive for the vendor to provide.

In this example, a deal specifying speedy delivery and no bells and whistles creates value compared with the alternative in which the vendor delays delivery but provides the bells and whistles.

Here is another example: If government is clear and consistent about its requirements, it creates value by getting what it wants faster and cheaper — and saves the vendor money and aggravation.

A trusting relationship creates value by making it easier to share information across organizational boundaries. Studies show that trustful relationships increase the odds that a project or program will be successful.

Good vendor performance creates value by satisfying government and enabling the vendor to build a good track record. Creating value is what people mean when they talk about a win-win relationship.

But contract negotiations also involve dividing up the pie, or claiming value. Speedy delivery with no bells and whistles might be better than the alternative. But once the parties agree on that value, they still need to settle on a price.

Many people, including some journalists and politicians, view government/vendor relationships solely on the basis of claiming value. If the vendor makes money, the government must have lost.

In the old days, contracting officials often seemed to think it was better for a contract to fail than for a contractor to make too much profit. That dysfunctional attitude explains the current opposition to share-in-savings contracting.

In addition to creating value, the government/vendor relationship involves claiming value. The government can’t play dead here. Vendors certainly don’t.

As Lax and Sebenius wrote, claiming value often complicates efforts to create value in the first place by inhibiting trust and information sharing. Managing that challenge is what good contracting is all about.

Kelman is professor of public management at Harvard University’s Kennedy School and former administrator of the Office of Federal Procurement Policy. He can be reached at steve_kelman@harvard.edu .

The 2015 Federal 100

Meet 100 women and men who are doing great things in federal IT.

Featured

  • Shutterstock image (by venimo): e-learning concept image, digital content and online webinar icons.

    Can MOOCs make the grade for federal training?

    Massive open online courses can offer specialized IT instruction on a flexible schedule and on the cheap. That may not always mesh with government's preference for structure and certification, however.

  • Shutterstock image (by edel): graduation cap and diploma.

    Cybersecurity: 6 schools with the right stuff

    The federal government craves more cybersecurity professionals. These six schools are helping meet that demand.

  • Rick Holgate

    Holgate to depart ATF

    Former ACT president will take a job with Gartner, follow his spouse to Vienna, Austria.

  • Are VA techies slacking off on Yammer?

    A new IG report cites security and productivity concerns associated with employees' use of the popular online collaboration tool.

  • Shutterstock image: digital fingerprint, cyber crime.

    Exclusive: The OPM breach details you haven't seen

    An official timeline of the Office of Personnel Management breach obtained by FCW pinpoints the hackers’ calibrated extraction of data, and the government's step-by-step response.

  • Stephen Warren

    Deputy CIO Warren exits VA

    The onetime acting CIO at Veterans Affairs will be taking over CIO duties at the Office of the Comptroller of the Currency.

  • Shutterstock image: monitoring factors of healthcare.

    DOD awards massive health records contract

    Leidos, Accenture and Cerner pull off an unexpected win of the multi-billion-dollar Defense Healthcare Management System Modernization contract, beating out the presumptive health-records leader.

  • Sweating the OPM data breach -- Illustration by Dragutin Cvijanovic

    Sweating the stolen data

    Millions of background-check records were compromised, OPM now says. Here's the jaw-dropping range of personal data that was exposed.

  • FCW magazine

    Let's talk about Alliant 2

    The General Services Administration is going to great lengths to gather feedback on its IT services GWAC. Will it make for a better acquisition vehicle?

Reader comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above