Demystifying the negotiation of flexible formats—October 2013 edition

The spectrum for negotiation in the public sector may be wider than you think

November 26, 2013
by By Rosslyn Young

The last few years have seen more and more public sector organizations move towards using flexible, non-Contract A procurement formats. When designed properly these types of solicitation documents—referred to by many titles within the industry, such as non-binding RFPs; non-Contract A RFPs; negotiated RFPs; dialogue RFPs—are designed to avoid the restrictions created by Contract A and to facilitate transparent contract award discussions with suppliers.

While these flexible formats are being adopted by an increasing number of institutions, some public sector purchasing entities hesitate to move away from the inflexible, but familiar world of Contract A because they view negotiations as a complicated, time-consuming, resource-heavy process. This article will briefly walk through the spectrum of flexible formats with a view to illustrating that not all non-Contract A procurement formats require a complex negotiation process to award a contract.

The simplest non-Contract A format is a non-binding request for quotation, which is best-suited for purchasing goods or simple services where the most relevant factor for selecting a respondent is the price. The difference between this format and the traditional RFQ is that the latter requires fixed irrevocable bids, while the former simply requires the submission of a clear pricing offer for evaluation and award. While these non-binding RFQs typically do not contemplate an active negotiation phase for contract finalization—hence why they are best-suited to straight-forward purchases—they do safely allow for minor pre-award contract adjustments without incurring the risk of bid repair challenges common under Contract A.

Moving up the spectrum of complexity, the negotiated RFP provides the most bandwidth for a wide variety of projects. The major difference between a non-binding RFQ and a negotiated RFP is that the latter expressly contemplates a transparent negotiation phase with the top-ranked proponent or proponents. However, the scope of the negotiation phase can vary greatly depending on the nature of the project.

Not all negotiated procurement processes require a multi-day, board-room centered affair. In fact, most negotiated RFPs can be conducted with minimal fanfare. The “negotiation” can be as simple as a teleconference with the selected proponent to discuss the finalization of the pro-forma agreement and the post-award roll out of the project. The transparent negotiation phase also enables commercially reasonable adjustments and clarifications to the legal terms and conditions contained in the form of agreement so that the awarded contract is better tailored to fit the purchase in question.

At the other end of the spectrum, the negotiated RFP can also be used for complex, high-value, enterprise-wide procurement projects with many stakeholders. It can be conducted solely with the top-ranked proponent with negotiations allowed with the second-ranked proponent only if the purchasing institution cannot come to terms with the top ranked proponent (also known as the consecutive negotiation model) or, where appropriate, can also include a dialogue with multiple short-listed finalists who are then permitted to submit a best-and-final-offer (BAFO) (also called the concurrent negotiation model). In order to be effective when used with major projects, it is essential that these more complex negotiation processes be well organized and effectively resourced with appropriate professionals.

While the implementation of flexible formats may requires a cultural shift in the operating norms of some public sector organizations, moving away from Contract A does not require a complex negotiation prior to making every contract award. The following steps are key to ensuring a successful and efficient transition to flexible formats:

  • Mandating appropriate planning, including format selection, for procurement projects to ensure an informed choice of the most appropriate flexible format;
  • Providing staff with the necessary training to be able to effect meaningful, informed interactions with vendors at all levels of negotiations; and
  • Understanding the organization’s purchasing needs in order to effectively develop policies and procedures around every stage of the procurement process, including contract finalization.

Public sector organizations that want to increase their efficiency and flexibility and improve their contract award processes should be adding flexible formats to their procurement arsenal. This does not automatically mean that they will be dragged into complex negotiations at every turn. The spectrum of flexible formats includes the right fit for getting to yes for all procurement projects.