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 .

FCW in Print

In the latest issue: Looking back on three decades of big stories in federal IT.

Featured

  • FCW @ 30 GPS

    FCW @ 30

    Since 1986, FCW has covered it all -- the major contracts, the disruptive technologies, the picayune scandals and the many, many people who make federal IT function. Here's a look back at six of the most significant stories.

  • Shutterstock image.

    A 'minibus' appropriations package could be in the cards

    A short-term funding bill is expected by Sept. 30 to keep the federal government operating through early December, but after that the options get more complicated.

  • Defense Secretary Ash Carter speaks at the TechCrunch Disrupt conference in San Francisco

    DOD launches new tech hub in Austin

    The DOD is opening a new Defense Innovation Unit Experimental office in Austin, Texas, while Congress debates legislation that could defund DIUx.

  • Shutterstock image.

    Merged IT modernization bill punts on funding

    A House panel approved a new IT modernization bill that appears poised to pass, but key funding questions are left for appropriators.

  • General Frost

    Army wants cyber capability everywhere

    The Army's cyber director said cyber, electronic warfare and information operations must be integrated into warfighters' doctrine and training.

  • Rising Star 2013

    Meet the 2016 Rising Stars

    FCW honors 30 early-career leaders in federal IT.

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

More from 1105 Public Sector Media Group