Negotiated Procurement is the method for
selecting a contractor without formal advertising and formal price
competition. The rules and regulations for employing the negotiation method
specify that the selection of a contractor will be made to the best
advantage of the Government, price and other factors considered.
Theoretically, factors other than the lowest bid can play
the major role in the selection process. In practice, however, there is a
regulation requiring the Government to justify the choice of someone other
than the low bidder. This gives the low bidder more of an advantage than the
regulations would lead the casual observer to believe.
In procurement by negotiation, the Department of Defense seeks
to interest a large number of qualified bidders. Negotiation supplants
formal advertising as a procurement method when one, or both, of the
following conditions exist:
(1) the Government and the bidders need to be able to
discuss the procurement, either before or after contractor proposals are
submitted, in order to assure that there is an adequate understanding of
(2) there are some conditions (e.g., highly specialized technology or a
highly classified procurement) that make it necessary to restrict the
number of bidders.
Under current Government procedures for negotiation, the
invitation for bid (IFB) is replaced by the "request for proposal"
(RFP). In the request for proposal, the Government asks interested
contractors to submit proposals outlining
(1) technical and
(2) management approaches for a specific program, and
(3) cost estimates for the work.
When the proposals are received, the Government program
manager and staff, the contracting officer, and other Government personnel
with relevant specialties evaluate the proposals. They then conduct
negotiations with those firms whose offers are considered technically
acceptable and whose estimated costs fall within a reasonable range.
The negotiations involve analysis, investigation,
exploration, and bargaining with respect to costs, profit, performance
requirements, delivery schedules, and provisions for future changes. Rarely,
if ever, does the Government accept contractor proposals without any
In negotiation, unlike formal advertising, the contracting officer may use a
fixed-price, incentive, or cost-reimbursement contract.
Only firm fixed-price contracts are used in formally advertised
The procedures for negotiated procurements are similar in many ways to
formal advertising procedures. Whenever possible, negotiated procurements
are competitive. But unlike formal advertising, the competition in
negotiated procurements may or may not involve price. For example,
contractors may compete to provide the most comprehensive and credible
technical plan for the work to be performed, or the lowest cost estimate
within a range believed to be acceptable to the Government—intending to
negotiate the price to a higher level at a later date.
Proposals made under negotiating procedures are not opened and read in
public, as they are in formal advertising. As in formal advertising,
however, the terms of each proposal are recorded, and each proposal is
evaluated against the requirements of the RFP.
It is simply not practical for many Government procurements to be conducted
through formal advertising. Contracts for research and development programs,
for example, normally are awarded through negotiation because the Government
wants to evaluate contractors' technical capabilities, technical approaches,
and management ability, as well as costs.
Procurement by negotiation allows the
Department of Defense to select the contractor who seems best prepared to
meet all the requirements of the program, and to meet them on the terms most
satisfactory to the Government. Furthermore, negotiation enables the
Government to be relatively flexible. For example, vital skills, or a
wartime production base, consisting of one, two, or more contractors in
essential fields (e.g., aircraft, missiles, or ammunition), may be developed
and maintained through so-called educational orders designed to assist
contractors in developing the capabilities to produce an item.
Nonetheless, by law, negotiation is intended to be the
exception rather than the rule in defense procurement.
A procurement may be accomplished through negotiation only if the
procurement falls into one of the following 17 categories:
A national emergency;
Purchases not in excess of $2,500;
Personal or professional services;
Services of educational institutions;
Purchases outside the United States;
Medicines or medical supplies;
Supplies purchased for authorized resale;
Perishable or nonperishable subsistence supplies;
Supplies or services for which it is impractical to
secure competition by formal advertising;
Experimental, developmental, or research work;
Technical equipment requiring standardization and
interchangeability of parts;
Technical or specialized supplies requiring substantial
initial investment or extended period of preparation for manufacture;
Negotiation after advertising;
Purchases in the interest of national defense or
Procurement otherwise authorized by law, (e.g.,
architectural or engineering services for preparing specifications for
public works, utilities, naval vessels, or aircraft construction.)
Permission to conduct a procurement through negotiation is usually
obtained by a contracting officer submitting written determinations that
justify the exception. The determinations must then be signed by the
contracting officer, the head of the procuring activity, or the
Secretary of a military department, depending on the dollar amount of
the procurement. Prior to World War II virtually all defense procurement
was accomplished by formal advertising.
In every year since the
beginning of the Korean War, more than 80% of all military procurement
dollars have been awarded through negotiation. Almost two-thirds of the
negotiated contracts have been approved under three of the 17
Senior officials in the Office of the Secretary of Defense believe that
rapid changes in world events and available technology will continue to
make negotiation the primary method of defense procurement. At the
present time, the negotiation method is used for most major weapon
systems for which the military services know little more than the
desired performance characteristics.
These often include, for example, aircraft, engines, complex electronic
systems, and missiles.
Proposals from contractors are as much suggestions of how work can be
performed as they are price quotations.
During the 1950s and 1960s, Congress frequently criticized the
Department of Defense for extensive use of negotiated procurements
rather than formal advertising. Defense Department personnel normally
attributed this criticism to political expediency or the failure of
Congress to understand the nature of the procurement process. By 1969,
however, members of Congress had begun to realize the need for
negotiated procurement. In 1969 the House of Representatives' Government
Operations Committee, in considering the establishment of a Commission
on Government Procurement, made the following observations:
The procurement laws call for advertised bidding as the preferred
method, but only ten to twelve percent of the procurement dollars are
spent in this manner.
To justify negotiated bidding, which is the
exception in the laws but the rule in practice, determinations and
findings have to be made in a wide variety of procurement categories
excepted from advertised bidding and frequently these determinations are
routine and relatively meaningless but consume large amounts of time and
Whereas competitive advertised bidding is long established and
continues to be beneficial and should be vigorously pursued, the
Government's interests are not protected by attempting to purchase
through advertised bidding when the conditions or circumstances for such
bidding are inappropriate. It would seem that in view of the large and
continuing volume of Government procurement which has to be negotiated
rather than advertised, new statutory rules can be written to clarify
and strengthen competitive negotiations, and to closely regulate
sole-source negotiations and contracts.
Regardless of whether formal advertising or negotiation is employed, the
stated objective of the procurement process is to encourage efficient
and optimal performance. In the pursuit of this objective, a variety of
procurement plans and innovations have been attempted. Development and
production programs in the late 1950s and early 1960s were often
"concurrent"—overlapping. Concurrency between development and production
programs created such uncertainties that contractors refused to consider
contracts with firm fixed prices. Consequently, cost-reimbursement and
incentive contracts were used to reduce the risks for contractors.