Chapter 28

Contract Negotiations

Wendell C. Lawther

CONTENTS
28.1 Introduction........................................................................................................ 564
28.2 Negotiation during the Solicitation Development and Supplier Selection ........... 565
28.2.1 Planning for Negotiation ...................................................................... 565
28.2.1.1 Potential Changes in Key Management Personnel ............... 566
28.2.1.2 Additional Discussion of How Key Contract Goals
and Objectives Will Be Met ................................................. 566
28.2.1.3 Quality Assurance ............................................................... 566
28.2.1.4 Price/Cost ............................................................................ 566
28.2.1.5 Terms and Conditions ......................................................... 566
28.2.2 Choosing the Negotiation Team .......................................................... 567
28.2.2.1 Project Manager .................................................................. 567
28.2.2.2 Procurement Official ........................................................... 567
28.2.2.3 Technical Experts................................................................ 568
28.2.2.4 Financial Experts ................................................................ 568
28.2.2.5 Legal Experts ...................................................................... 568
28.2.3 Negotiation Approach .......................................................................... 568
28.2.4 Power Relationships during Negotiation .............................................. 569
28.3 Negotiation during the Contract Administration Phase ..................................... 570
28.4 Case Studies Illustrating Negotiation Approaches and Processes ........................ 571
28.4.1 Florida Master Leasing Procurement Approach .................................... 572
28.4.1.1 Negotiation Issues and Results: Cost ................................... 573
28.4.1.2 Negotiation Issues and Results: Space.................................. 574
28.4.1.3 Negotiation Issues and Results: Repair
and Maintenance ................................................................. 574

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 28.4.2 iFlorida Conditions System ................................................................... 574
28.4.2.1 Negotiation Issues and Results ............................................. 575
28.5 Conclusion .......................................................................................................... 576
Notes.............................................................................................................................. 577
References ...................................................................................................................... 577

28.1 Introduction
Negotiations are applied in a variety of settings and experiences. They are valued when agreement
needs to be reached on issues where there is a divergence of opinion among affected parties. The
goal of an effective or successful negotiation should always be a result that is fair, based on objective
standards, and one that is concluded amicably and efficiently.
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As public agencies enter into an increasing number of contracts with private and nonprofit
organizations, negotiation skills have become increasingly important for procurement officials and
program managers. For the purposes of this chapter, these skills include negotiation planning, cre-
ation of the negotiation team, and negotiation approach.
In addition, the advent of information technology (IT) has meant that public agencies are
entering into contracts of increasing complexity and sophistication. This trend has had at least two
profound impacts on contract negotiations: the complexity of negotiation content has increased
and the opportunity for program managers and procurement officials to gain knowledge through
negotiation has greatly expanded.
Government officials should have confidence that the contractor has the requisite skills and
knowledge to produce the contractual identified product or service. For noncomplex items, this
confidence can be based upon past work history, checking with other jurisdictions regarding past
performance, and industry standards. For complex products, those based on IT technology, for
example, it is expected that there will be a degree of customization1 needed for any given contract.
Negotiation can be a process in which the private contractor can educate and convince government
officials that the final product will be acceptable.
For many purchases of services and complex goods, negotiation skills are required throughout
the contact administration process. Traditionally, when making purchases that could be clearly
specified, negotiation was only required during the pre-contract award process. After contracts were
awarded, negotiation was required only when problems needed to be resolved.
Negotiations should take on different approaches depending on contract type, and depending
on the amount and type of information readily available. Depending on several factors, including
the amount of competition created in response to the invitation to bid (ITB) or request for pro-
posal (RFP), the closeness of the ratings for the offeror’s proposals, and the complexity of the final
product or service, a government negotiating team will spend a wide range of time in preparation
and in face-to-face negotiations.
The following discusses negotiation as it should be found in the public procurement cycle. Thai
(2004b) views this cycle as consisting of three phases:

■ Phase one: Strategic procurement planning

■ Phase two: Solicitation development and supplier selection
■ Phase three: Contract administration

For the purposes of this chapter, negotiation occurs primarily in the latter two phases. In
phase two, it is anticipated that negotiations during supplier selection may alter solicitation
© 2008 by Taylor & Francis Group, LLC.
 and shape the final contract. Although negotiation needs and requirements differ in each
phase, the extent to which there is a complete understanding of how solicitation development
and supplier selection affects contract administration will greatly affect negotiation effective-
ness for each phase.
To further illustrate the negotiation approach and process, two case studies are provided that
provide some insights into how negotiation should occur throughout the public procurement pro-
cess. The state of Florida master lease procurement process illustrates the impact of supplier selec-
tion negotiations on a contract administration phase characterized by a high degree of customization.
The iFlorida conditions system procurement illustrates the need to negotiate rules, procedures, and
policies during solicitation development/supplier selection that anticipate the need for highly com-
plex negotiations during contract administration.
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28.2 Negotiation during the Solicitation

Development and Supplier Selection
Historically, there has been the expectation that both buyer and potential contractor will take an
adversarial approach during supplier selection. Harney (1992, p. 118), in referring to service con-
tracting, suggests that “A local government that accepts a proposal without negotiating will almost
certainly pay too much for the service. And failing to challenge restrictive terms and conditions
may mean that the local government is not an equal partner in the final contract.”
The more complex the end product or service, the less this adversarial approach is appropriate
(Ashford, 2004). Increasingly, as governments enter into partnerships with private and nonprofit
organizations, it is recognized that negotiation should occur throughout the life of a given contract.
Managing by relationship (Welch, 2003) involves accepting contractors as equals, and establishing
a relationship that expects frequent interaction and communication concerning both the nature of
the end products or deliverables as well as the delivery process.

28.2.1 Planning for Negotiation

Once responses to an RFP or other solicitation have been evaluated, the next step is to plan for
negotiations that will occur with the top ranked offeror.2 The issues that must be decided during
this phase include the following:

■ Identifying the key issues or questions that need to be resolved during negotiation
■ Choosing the negotiation team
■ Identifying whether negotiation training is required for any team members
■ Identifying weaknesses in knowledge and understanding among team members and other
key agency personnel, as well as ways by which this understanding can be increased before
negotiation

Ideally, the solicitation document should contain goals and objectives that then become evalua-
tion criteria during the offeror rating process. These same criteria should then furnish the basis for
some of the items that appear on a negotiation agenda. For example, negotiation issues should
appear from lower rated items and questions raised by members of the evaluation team that has
rated all responses. There may be aspects of the highest rated offering that were given low marks.
For example, if commitment to women minority enterprises in the offeror response is absent or
unclear, and it was stated in the RFP that this would be a criteria that would be evaluated, then the
© 2008 by Taylor & Francis Group, LLC.
 negotiation team can gain assurances from the offeror that such a commitment will be present.
Issues to be resolved during negotiation include the following.

28.2.1.1 Potential Changes in Key Management Personnel

If the contract is for operations, for example, and specific management personnel—complete with
resumes—are discussed in each offeror response, the highest rated offeror may then state that one
or more of these management personnel will not be able to work on the operations. Proposed
replacement personnel must be reviewed.

28.2.1.2 Additional Discussion of How Key Contract

Goals and Objectives Will Be Met
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The RFP may specify that the winning contractor will have a specified amount of time (e.g., 90
days) to deliver drafts of specific policies (e.g., a procedures manual or training plan). Even though
a brief description of these deliverables may be part of the responses, the negotiation team may have
additional questions about what content is likely to appear in these deliverables.3

28.2.1.3 Quality Assurance

For contracts dealing with service delivery, the processes by which the winning contractor will
ensure the highest quality of services should be discussed. Changes in these processes or in the
required personnel may be negotiated.

28.2.1.4 Price/Cost
For the acquisition of products that can be clearly specified, analyses of the cost of similar products
acquired by other government agencies may result in the need to negotiate the proposed cost as
stated by the winning offeror. Specified aspects of costs, such as the overhead rate, profit margins,
and administrative expenses may be analyzed (Karrass [1998] cited in Thai, 2004a).
Alternatively, there may be industry or marketplace standards. If an agency is negotiating a lease
with a landlord, and remodeling existing space is required, a comparison of the charges for specific
tasks to what other professionals may offer in the local labor market may lead to negotiations
(Lawther, 2007).
Also, to the extent that Harney’s statement is appropriate, the offeror may have artificially bid
the cost too high, expecting that the government agency may wish to negotiate for a more reason-
able cost (Dobler and Burt, 1996).
In contrast, however, it may be very difficult to negotiate price or cost in reference to other simi-
lar purchases or industry standards. To the extent that customization is required, for example, an
IT-based service that is specific to an agency’s needs, comparisons may be impossible. Also, a vendor
may offer software that has been developed for other clients, and charge the agency less because the
expertise gained by past efforts means the present response can be more efficient/cost less.

28.2.1.5 Terms and Conditions

Any changes to delivery timetables, service provision outcomes, or any other term and condition
changes that are raised by the highest rated offeror obviously need to be negotiated. The negotiation

© 2008 by Taylor & Francis Group, LLC.

 team must decide whether there is flexibility in stated timetables or deliverables that allow differ-
ences from what is requested in the RFP. Measures that will judge the performance of the contrac-
tor during contract administration should be identified.
Overall, any aspect of the contract implementation that could cause potential problems during
the contract administration phase should be negotiated before the contract award if possible.

28.2.2 Choosing the Negotiation Team

As indicated above, knowledge and understanding of the contract content is the key to determining
the relative roles and responsibilities of the negotiation team as well as the negotiation content and
strategy. Other factors include previous experience with other acquisitions, understanding of appro-
priate laws or government regulations, and organizational culture and role expectations.
The following roles are representative of who should constitute an ideal team. In many cases,
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consultants accompany public officials filling team roles as discussed below, or consultants can
replace public officials in filling these roles.

28.2.2.1 Project Manager

A key member of the negotiation team is a representative from the user agency. Ideally, this indi-
vidual also should be the agency employee in charge of postcontract award negotiations.4 Of all the
team members, he or she should be the most knowledgeable about the following:

■ Service or system being purchased

■ Needs of the agency personnel who will use the system
■ Any postcontract deliverables and quality assurance processes
■ Potential for change orders

28.2.2.2 Procurement Official

If the focus of contract negotiations is on one division of a large agency, the procurement
official may be the one person on the team that understands what is in the overall best interest of
the agency. If there is an agency business plan or strategic plan, for example, it is the responsibi-
lity of the procurement official to know how negotiations for a specific contract impact on
achieving agency business plan goals and objectives. Furthermore, the procurement official has
the ethical duty to ensure that all negotiations are transparent, fair, and in the public interest
(Thai, 2004b).
In addition, to the extent that there are agencywide policies dealing with contractual issues such
as timing, inspection, incentives/sanctions, etc., it is likely that the procurement official is the only
member of the team that has such knowledge. The official has likely authored the instructions that
accompanied the RFP, and therefore is the most appropriate person to judge whether these instruc-
tions have been followed (Adler, 2007). To the extent that the procurement official has received
appropriate training or experienced past negotiations, he or she is the most appropriate person to
orchestrate negotiation sessions with the contractor.
In terms of the team leader, if the contract is highly complex, the procurement official may not
have sufficient expertise to understand fully all of the negotiation content. Under these conditions,
the project manager along with the procurement official should co-lead negotiations.

© 2008 by Taylor & Francis Group, LLC.

 28.2.2.3 Technical Experts
The more complex the contract, the more technical experts are needed as team members. They may
be software engineers, for example, that have sufficient understanding to validly question some
aspects of the technical proposal. They may play a role in designing a quality assurance program to
adequately test the final product at various stages in the service delivery or product creation process.
They may be able to identify potential implementation challenges and provide information to
improve the project manager’s ability to understand the full impact of the changes a new system
may bring.

28.2.2.4 Financial Experts

If it wishes to negotiate price, the negotiating team must have information on which to base its
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negotiations. To some extent, this information can come from competing proposals.5 Although
specific competing proposals cannot be mentioned in the negotiation, prices mentioned in these
proposals can provide some insights into whether the prices of the top-rated offeror are fair and
reasonable. Information concerning market prices, however, may be best known by financial
experts. If a government is negotiating leases for building space with landlords, for example, knowl-
edge of the price per square foot in a given commercial market would best be conveyed during
negotiations by financial experts, who should become negotiating team members.

28.2.2.5 Legal Experts

To the extent that there are legal issues that have not been thoroughly considered by specifica-
tion writers or by offeror responses, a legal expert should be part of the negotiation team. At a
minimum, this person can discuss potential legally based risks that may be present after the
final product or service is delivered.

28.2.3 Negotiation Approach

The face-to-face negotiation process can be made more effective by choosing an appropriate
approach and employing sound negotiation techniques. Several texts (Dobler and Burt, 1996;
Thai, 2004b) present specific techniques that will not be discussed here. How the negotiating team
approaches the negotiation is essential, however, to successfully reach an acceptable contract.
Principled negotiation, espoused by Fisher and Ury’s now classic text (1991, p. 19; first edition
in 1981), still offers valid insights relevant to negotiation approaches: “A working relationship
where trust, understanding, respect and friendship are built up over time can make each new
negotiation smoother and more efficient.”
Developing a good working relationship with the top-rated offeror is essential, not only for the
effectiveness of a given negotiation session, but also throughout the life of the contractual relation-
ship. Two sides with reputations for being trustworthy will be better able to influence each other,
thereby leading to a more favorable result (Hall, 1993).
There are at least three other reasons for public procurement officials to choose principled nego-
tiation. First, it will be well received by media that often focuses on the process of achieving a goal
rather than the end result. Second, it is an ethical practice whose usage improves the public officials’
reputation for integrity. Finally, it would be a violation of the public trust to knowingly making
artificial demands, a key characteristic of positional or adversarial negotiation (Bingham, 1996).

© 2008 by Taylor & Francis Group, LLC.

 Each side will have differing perceptions concerning how the process will occur as well as what
the other side’s interests are. If there is the perception that the other side wishes to take a hard posi-
tional approach, then the success of the negotiation will depend on dispelling this perception.
Seeking out interests that go beyond simply making more profit (private side) or reducing costs
(government side) will be beneficial. To the extent that the contractor wishes to uphold and improve
his or her reputation to deliver a high-quality product, the government team can discover the extent
to which this motive is important.
It is likely there will be multiple interests in any given negotiation. State and local officials may
wish to provide a service to their citizens, but if the project is funded in part by the federal government,
satisfying its wishes/interests must be a concern as well. A private company will also wish to provide
a high-quality product, and it also may wish to use a specific project to test and develop new ideas
and as a training ground for new employees (Kelman, 1990). To the extent that all sides are clear
in terms of expressing all of their interests, there will be greater focus on viewing the negotiation as
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a joint action, intended to solve a problem/deliver of a product or service.

A win–win outcome, in which some interests on both sides are completely met, is always much
preferable to compromise, in which all interests are only partially met. A brainstorming session
(Fisher and Ury, 1991, p. 63), in which alternatives to meeting a range of interests are identified,
can help achieve this goal. If government officials insist on meeting an overall deadline, perhaps
they can be flexible on other timetable issues, such as the quality assurance process, that can better
meet the needs of the contractor.
Communication problems can be solved by ensuring that all can understand the subject or
content of negotiation. This may not always be true, as project managers and procurement officials
may not understand the technical aspects of a complex negotiation. Although it is not anticipated
that everyone at a negotiating session should understand how to write software, for example, the
issues regarding the proprietary nature of software code, the necessity for quality assurance efforts,
and scope/results of the final product/service should be understood by all.
Ideally, both sides should make an effort to understand not only the other’s positions and inter-
ests, but also to educate the other on the process of service or product creation and on the nature
of the result. Government officials should research available products/services, and come prepared
to ask content-related questions to improve understanding. Private sector representatives should
research the uses and context in which the final product will be implemented, and come prepared
to ask questions about scope and usage that may influence the nature of the final product.
If the contract is to create a complex service or product, there is greater need to establish a
positive relationship that endures throughout the life of the contract. Even though the contract
may not have been awarded yet, the approach taken by all sides should be to identify ways in
which the contractual goal can be best accomplished. Taking hard and fast positions, from which
the government is not willing to alter, may be counterproductive to postcontract award relation-
ships. On the other hand, negotiations are a place to communicate top-rated priorities in terms
of the life of the contract. If the government must have the final product by a certain date, for
example, this information should be made aware during negotiation. To ease contractor concerns
about reaching this goal, some flexibility regarding dates by which part of the product or service
is established can be conveyed.

28.2.4 Power Relationships during Negotiation

From a public procurement viewpoint, it may seem as though government has more power in any
negotiation because it is paying for a service or product. There is the assumption that if negotiations

© 2008 by Taylor & Francis Group, LLC.

 with one contractor are not resolved, there is always another to replace it. This assumption may not
be accurate for a number of reasons. The result is that government officials must consider that they
are not the most powerful in a given negotiation session for several reasons.
First, for some social services, for example, competition may not exist, and sole sourcing is the
reality of a given situation (Van Slyke, 2003). More frequently, contractors who have been short-
listed and rated second or third may not seem to offer anywhere close to the quality of the contrac-
tor rated first and chosen for negotiation: for example, providing the same product at a considerably
higher price or suggesting a service delivery process that may be untested (Lawther, 2003). Finally,
the greater the complexity of the end product or service, the less likely that government officials will
understand the negotiation content enough to reach a settlement that is in the best interest of the
public.
As a result, government officials may act in a manner that is too accommodating to the other
side, feeling that they are under some pressure to reach a settlement. Fisher and Ury’s (1991, p. 103)
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concept of BATNA (best alternative to a negotiated settlement) is invaluable in helping negotia-

tions. They suggest that BATNA development consists of three steps:
(1) Listing actions/efforts that could be taken if there is no negotiated settlement
(2) Thinking through how practical the most attractive alternatives may be
(3) Selecting, tentatively, the one alternative that seems best
Common BATNA’s for public procurement efforts would include issuing a new ITB or RFP.
There would be costs to making this choice, as delays in implementing a service or in implementing
a product or system would negate anticipated efficiency gains. Also, additional review time and the
cost of issuance should be considered.
In many cases, the BATNA is choosing an alternative potential contractor and undergoing a
new set of negotiations. If this is true, then the process of identifying a BATNA will be an essential
part of the negotiation planning, as the criteria by which negotiations with the top-rated offeror are
considered a failure should be developed.

28.3 Negotiation during the Contract Administration Phase

Negotiation during the contract administration phase greatly depends on the complexity of the
product or service as well as the degree of customization required. If an ITB is issued, negotiation
is not required. For services that are routine, such as waste management, negotiation is unlikely
unless there are problems with service delivery.
If in contrast an agency is procuring an IT-based system, one that may require several years to
create and implement, contract administration negotiation should be expected. The product is
likely to have high degrees of complexity and customization. As such, both public and private
managers may not have sufficient knowledge about the nature of the final product as well as the
process needed to create it at the time of contract formation negotiations (Callendar et al., 2004).
Rapidly changing technology may mean that identifying appropriate design criteria, system
requirements, and acceptance standards during contract formation may be difficult. Both the pub-
lic negotiation team and the private contractor should realize that contract administration negotia-
tion will occur. To the extent that changing technology will lead to a higher quality product,
all parties should anticipate and plan for such negotiation. The risk is that increasing awareness of
system capabilities may lead to requests for additional customization that increases the price above

© 2008 by Taylor & Francis Group, LLC.

 the cost of the initial contract. This phenomenon, known as scope creep, is likely to lead to cost
overruns and implementation delays (Brown, 2001).
Ideally, the negotiation team that is created during contract formation still exists during
contract administration, and can deal with issues that require contractual scope change as they
arise. Alternatively, the project manager will involve technical, financial, or legal experts in any
negotiation as needed.
For example, any software or IT-based system will face issues dealing system requirements and
design, and implementation issues. An initial step is identifying system requirements specifications
that would “describe the software architecture, the functional modules, and the high-level data
flows between the functions” (FDOT, 2003, p. 10). To ensure that these specifications meet agency
needs, the user agency could require a quality control (QC) program that would perform tasks such
as clarifying ambiguous requirements and identify and prioritize missing requirements. Similarly,
to the extent that customization requires that the final product interacts with agency legacy systems,
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it should be agreed that any potential delays and unanticipated technical challenges should be
resolved within a specified time period.6
The existence and acceptance of a QC program as well as the resolution of implementation
difficulties can be negotiated during contract formation, but the rules, procedures, and unantici-
pated changes that may occur as the system is being built must be negotiated and resolved during
contract administration. This is true especially if proposed changes result in change orders and
higher costs. The negotiation process can employ the same processes and approaches as are pres-
ent in the contract formation phase, but there may be significant pressure to resolve differences
in shorter time frames.

28.4 Case Studies Illustrating Negotiation

Approaches and Processes
The two case studies discussed below illustrate the issues involved in negotiation during the
solicitation development and supplier selection phase. In both instances, the issues raised in this
phase are present in the contract administration phase. Successful negotiation during the for-
mer phase has produced a more effective outcome, characterized in part by greater clarity of
issues to be resolved during the contract administration phase. In both cases, a principled
approach was taken, as both public agencies and private contractors considered the needs of the
other side, resulting in outcomes that increased the commitment to reach contract goals
successfully.
The first case involves the leasing procurement process undertaken by the state of Florida since
April 2004. This case illustrates the value of negotiating issues during supplier selection that maxi-
mized negotiating flexibility during contract administration. Industry standards, for example,
refurbishing office space, do exist in negotiating leases, but there is a need to permit a high degree
of customization during contract administration.
The second case involves the creation of the iFlorida conditions system, an IT-based system that
provides a highly integrated view of traffic congestion for central Florida, integrating information
from several sources. In this instance, the much greater complexity of the final product required the
identification of policies and procedures during the solicitation development/supplier selection
phase that would guide a much greater interaction among public and private personnel throughout
the contract administration phase.

© 2008 by Taylor & Francis Group, LLC.

 28.4.1 Florida Master Leasing Procurement Approach
Acquiring office space for state of Florida agencies consists of a process that involves the individual
agency, the Florida Department of Management Services (DMS) and the Staubach Company, a private
tenant broker firm. Before a rule change dated April 2004, state agencies were not allowed to negotiate
with private landlords. This lack of negotiation most likely led to unneeded reconstruction and higher
expense. In their response to an agency RFP, landlords provided an estimate of refurbishing costs based
on exactly what agencies requested. Agencies were thus not given an opportunity to consider somewhat
different needs, for example, office space of slightly different configuration, to save funds.
Also, quality of space was not taken into consideration, as much more weight was given to cost
or price. With negotiation permitted, greater flexibility was provided to state agencies to assess
space based on quality and discuss this issue during negotiations. During the supplier selection
phase, negotiations focused on the amount of funds available for refurbishing and on the control
over the distribution of these funds. During the contract administration phase, negotiation was
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decentralized, allowing specific issues to be negotiated between agency and landlord according to
industry standards. This process also gives DMS greater discretion to act as a landlord for all
state agencies, providing greater opportunity to colocate state agency personnel where possible
(Marsiglio, 2004).
The solicitation development phase begins with agencies requesting additional space from
DMS. If no unused space exists, then agencies are permitted to solicit responses from landlords.
Staubach company representatives provide an initial market analysis of all responses, and partici-
pate as a member of the negotiating team after all responses are rated. The following provides a spe-
cific example of this master lease approach.
In July 2004, DMS announced an intent to consolidate 1.5 million square feet of space needs
into government centers, areas containing a relatively short distance among all buildings housing
state employees. After a lengthy solicitation and negotiation process, several leases were signed. One
of the resulting leases, known as the Koger Center Master Lease, included over 570,000 square feet
of office space in nineteen separate buildings for seven different state agencies.
Solicitation for this space resulted in responses from four landlords. As part of the evaluation
process, an outside consultant rated all proposed building space using the BOMA (Building
Owners and Managers Association) approach. Buildings were rated as A, B, C, or D. The ratings
were based on a number of criteria, including the following:

■ Physical inspection
■ Buildings’ age
■ Assessment of original construction and any subsequent refurbishing
■ Any perceived management issues, compared to the market
■ Any amenities such as distance to restaurants, appearance of outside common areas, etc.

This information, along with Staubach provided market analysis, provided additional analysis for
both the response rating and the concurrent negotiation process that occurred with these four
landlords. These negotiations took place during September 27–30, 2004.
The goals discussed in the solicitation document constituted much of the response rating crite-
ria, and served as the basis for negotiations during supplier selection. Issues regarding price described
the intent of the state to include low-cost rental rates, more efficient planning and tenant improve-
ment allowances, and creative mechanisms that will provide immediate financial relief to the state.
Moving costs were also to be considered.

© 2008 by Taylor & Francis Group, LLC.

 To some extent goals overlapped in their intent, further defining potential negotiation
agenda items. Because one of the goals was to create government centers, the closeness of
already existing government-occupied buildings to the proposed space was rated, as well as
space that resulted in the least amount of disruption for state employees. Clearly moving
costs would be higher for building space that was located further from existing occupied
space.
The length of the proposed lease plus the existence of potential lease renewals are issues that
serve the interests of both the public agencies and landlords. The longer the lease, the potentially
lower the rental costs, as the landlord can expect a higher degree of occupancy over a longer time.
Also, the renew option benefits both agencies and landlords. Past State of Florida experience with
leases that did not contain renewal options resulted in less landlord attention paid to maintenance,
for example, during the latter years of the lease. Finally, the longer the length of the lease, the more
the chance that the state needs would change, requiring assurance that the landlord would be will-
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ing to adapt to space needs.

28.4.1.1 Negotiation Issues and Results: Cost

Cost issues included the following:

■ Initial charge per square foot

■ Rate of increase for each year of the leases
■ Any rent payment waivers
■ Amount of the tenant improvement fund
■ Operating and maintenance costs
■ Moving costs

Negotiations depended on the amounts for each category identified by each respondent, as well
as how each issue impacted another. For example, during the negotiations with one offeror, the
Staubach representative identified the market rate of rental increase in the region as approximately
3 percent per year, in contrast to the 4 percent identified by the offeror. The response from the
offeror was a suggestion to lower the rental increase rate to 2 percent, but all increases in operating
costs would be paid by the state. The public negotiating team was not willing to accept this offer,
stating in fairness that all rate increases had to include operating costs, as this issue was identified
in the solicitation document.
Three aspects of the tenant improvement funds proved important:

■ Amount that depended on the perceived need for refurbishing as well as the amount of
occupied space
■ Control over the disbursement of these funds, that is, whether the landlord or agency
personnel would decide when funds would be spent for what purpose
■ Timing and the process by which these funds would be disbursed

In past leasing contracts, without negotiation, the landlord would determine the amount
needed for refurbishing depending upon the agency request. Landlords would also determine when
and how the funds would be spent, as long as agreed upon moving deadlines were met. However,
if there were delays, state agencies were often placed in uncomfortable positions of adjusting plans,
leading in some cases to lower service quality.

© 2008 by Taylor & Francis Group, LLC.

 Results included the following. The time period of the lease was from November 1, 2004 to
October 31, 2019. Up to two five-year renewal periods are allowed. The initial lease rate was
$16.50 per square foot, an amount that rises 3.15 percent per year.
In addition, state agencies do not pay rent for the first 20 months of the lease. A tenant improve-
ment program is funded by a payment of $11 million from the landlord to the state. This fund is
placed into a tax bearing escrow account. Not only does the state gain interest, but it also has the
flexibility to spend these funds in a variety of ways, not all of which must be relevant to
renovation.

28.4.1.2 Negotiation Issues and Results: Space

State agencies may experience changing space needs, with agencies wishing to expand or contract
the space that they occupy. Negotiations resulted in language that addresses the needs of both the
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state and the landlord. If space becomes vacant, two actions are possible. First, DMS promised
to try to fill that space with employees from other state agencies. Second, the state of Florida can
sublet space to private companies. If this occurs, any profit from this subletting is split evenly
between the state and the landlord.

28.4.1.3 Negotiation Issues and Results: Repair and Maintenance

The relationship between the agency and the landlord during contract administration, after space
has been refurbished and is occupied, is governed by a wide range of both specific and general lan-
guage in the contract, as well as by standard industry practices and a desire to maintain a positive
working relationship. A list of maintenance duties for the janitorial staff, for example, specifies how
often cleaning tasks must be performed. This language is common to many leasing contracts, and
allows agencies discretion to improve on industrywide standards if they wish.
In contrast, the responsibilities of the landlord include keeping major aspects of the buildings
in good repair and working order, including structural elements of the building; all mechanical,
electrical, and physical aspects; common areas; the roof; and interior surface. Although this
language does not define these terms, there is the expectation that an agency employee who is
designated the building manager will monitor building conditions and report to the landlord any
aspects that are not acceptable. Because the lease length is considered long term, plus there are
renewal options, there is the expectation that the landlord can reasonably expect the state agen-
cies to remain a tenant, and therefore has an incentive to maintain building conditions to the
satisfaction of the agency.
A much stronger commitment to negotiation, plus the willingness to consider longer term
leases, resulted in a lease contract that contains several advantages to the state of Florida agency
personnel. Greater control of refurbishing amounts and timetables should allow for more satisfac-
tory outcomes and better service quality. Negotiations during the supplier selection phase have
resulted in improved relationships during the contract administration phase, and allowed for maxi-
mum customization to occur.

28.4.2 iFlorida Conditions System

In March 2003, the U.S. Federal Highway Administration (FHWA) chose the Florida Department
of Transportation (FDOT) to deploy the iFlorida conditions system for central Florida. The goal
was to provide a Web-based system that was easily accessible by travelers.7 This was a highly integrated

© 2008 by Taylor & Francis Group, LLC.

 system of information concerning traffic congestion that draws upon several sources, including the
following:

■ Cameras along the major interstate highway in central Florida (I-4)

■ Transponders placed on vehicles that are part of the SunPass system
■ Florida highway patrol computer-aided dispatch system
■ Information from the toll road system under the jurisdiction of the Orlando Orange County
Expressway Authority
■ Specified local roadways from a multicounty area
■ Transit information
■ Weather data

The FDOT District Five, the district with responsibility for serving central Florida, issued a solici-
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tation document on September 30, 2003 (Florida DOT, 2003a). The document contained a quali-
fications questionnaire, composed of questions that were designed to not only determine and
evaluate offerors past performance and management and technical capabilities, but also served as
criteria that influenced negotiations.
The total of 21 questions (Florida DOT, 2003b, p. 1) included the following:

■ Has your firm been a developer or integrator of transportation systems and software systems of the
level and complexity as described [in the appendices] for a period of time of no less than five years?
If yes, how long … and describe the services. Also attach a list of software work references.
■ What software languages and operating systems does your firm have expertise in?
■ Please provide a proposed staffing chart and management plan for the project.
■ Please describe the software development environment and facilities your firm uses to
develop and manage software.
■ Does your firm have a formal, documented process for configuration management of your
products?
■ Does your firm have a formal documented software quality assurance program?
■ How will you test the subsystem software before final acceptance testing?

28.4.2.1 Negotiation Issues and Results

Seven offerors completed the questionnaire and returned it along with their technical and price
proposals. A short list of three offerors was created, leading to negotiations with the top-rated
offeror, Castle Rock Consultants (CRC), on December 8 and 9, 2003. The FDOT team, led by the
general consultant for the project, reviewed the solicitation document and response section by
section. The content of the negotiations raised several issues, allowing the FDOT team to prioritize
and emphasize those topics that were of highest priority.
First, it was clearly stated that CRC was to build upon existing and newly developed agency
Web sites in creating the iFlorida system, rather than creating an entirely new system. This meant
that the contract administration phase would be characterized by extensive communications and
potential negotiations among several data source representatives, for example, those from the
Orlando Orange County Expressway Authority and from the Florida Highway Patrol.
Second, on several occasions, the FDOT team stressed the importance of meeting the stated
May 1, 2005 deadline for final acceptance. FHWA representatives, contributing a significant share
of project costs, insisted on this deadline.

© 2008 by Taylor & Francis Group, LLC.

 More important, several discussions focused on the design and testing schedule for various
components of the system. The key issues centered around the testing and acceptance of each com-
ponent part and the subsequent acceptance of the entire system. CRC favored a more efficient
approach, testing several functional requirements at once. The FDOT team insisted that each
requirement must be tested singly, as one requirement may work in tandem with some of the
others, but may not work when all the requirements are tested as a whole. This negotiation resulted
CRC spending greater time and effort on testing than they had originally proposed.
It was agreed that CRC would test components before FDOT staff also testing the final version.
This redundant testing process meant that CRC may have to adjust its internal testing schedule to
ensure the final deadline was met. Also, it was recognized that creating interfaces to collect data
from the various sources would vary in the amount of time required, as the legacy data systems var-
ied widely in quality, and in some cases were being created concurrently with the iFlorida system.
Another key negotiated issue was the process of problem resolution. CRC agreed to create a log
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identifying when a problem occurred, when it was solved, and what methods were used to solve it.
Periodically, public technical representatives would review this log, categorizing problems as high
priority and low priority and assessing to what extent problems were solved. By implication, not
only did this approach ensure a quality check, but it also allowed for negotiation that would lead to
a satisfactory outcome for both CRC and public agency representatives.
Overall, negotiations conveyed a sense that public managers wished to work closely with CRC,
understanding that some requirements may need to change as the project evolved. It was stated that
as the condition interfaces were created, CRC should identify aspects of the functional requirements
that would be difficult to meet. In response, the FDOT managers would have the opportunity to
change or eliminate the requirement.
The negotiations were deemed a success by the public managers. On the second day of negotia-
tions, CRC provided draft language involving changes that were agreed upon during the first day.
A contract was awarded on January 12, 2004.
The complexity of the final product in this case meant that negotiations during the supplier
selection process also to some extent changed the scope of the solicitation. Negotiations during this
first phase identified some processes and procedures that were intended to govern future interac-
tions and negotiations as more specific parts of the system were created. Although the final product
could be adequately conceptualized by both public agencies and the private contractor before con-
tract award, all recognized that many of the final details would not become apparent until actual
system creation occurred.

28.5 Conclusion
In an era of increasing collaborative public management,7 in which public agencies enter into inter-
organizational relationships that help them better accomplish organizational goals, negotiation
skills are becoming far more necessary than in the past. Many public–private partnerships are based
on relationships that are framed by contracts (Klitgaard and Treverton, 2004). Choosing the best
partner(s) entails using negotiation skills in ways that are applicable to all supplier selection pro-
cesses. What is challenging for many public officials involved in procurement, however, is acting in
ways that effectively represent the public interest while interacting with partners over a much lon-
ger period of time in creating a complex product or service.
The contract administration phase, in many cases, requires the same negotiation skills that for
simple purchases only existed for solicitation development and supplier selection. Problem solving

© 2008 by Taylor & Francis Group, LLC.

 after a contract has been awarded often requires much more flexibility, as final product specifications
are altered and timetables changed due to conditions and requirements that were unknown during
solicitation development. The principled negotiation approach, in which trust, transparency, and
strong adherence to the public trust, remains one that can lead to successful outcomes.

Notes
1. Customization can be defined as the degree to which the service or product must be altered to meet the
unique needs of the client agency for purpose of increasing quality while decreasing price (Rothman, 2004).
2. In some cases, for example, in the state of Florida, using a concurrent form of negotiation means that more
than one offeror may be negotiated within a proscribed timeframe. See Lawther (2003) for more discussion.
3. Even when employing performance-based contracting, there should be some discussion of process to assure
agency personnel that contractors are capable.
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4. This is especially true if the contract is among several public agencies, and one agency will be designated the
lead agency: the one given the most responsibility for postcontract award management.
5. Of course, no auction bidding is permitted. This is in violation of FAR (Federal Acquisition Regulation)
standards, and is viewed as an unethical practice.
6. See Lawther (2006) for more discussion.
7. The January 2007 issue of Public Administration Review contains further discussion of collaborative public
management.

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© 2008 by Taylor & Francis Group, LLC.