An Early Interest-Based Approach

Consider the following hypothetical dispute during contract performance:

Hypothetical Dispute

A contractor says that the contracting officer has unreasonably interpreted a specification requirement. This, the contractor claims, is a constructive change to the contract. The contractor fears this will cost thousands of dollars over his bid amount. The contracting officer believes that his interpretation is reasonable, and insists on continued performance.

In this case, three steps in an early negotiation or mediation can help the parties find a creative solution:

Step I – Assessing Interests

Narrowly presented, our hypothetical involves an interpretation of a specification.  The contracting officer and his technical representative believe that their favored interpretation will achieve the necessary performance requirement.  Meeting the performance requirement, therefore, is one narrow agency interest.  The agency, however, has other interests as well:

The contractor has interests too.  Chief among these are making a reasonable profit, receiving a good performance review, retaining bonding capacity, and maintaining cash flow.

Step 2 – Assessing Resources

Assessing resources is the key to finding a creative solution in this hypothetical.  It requires imagination and expansive discussion.  By assessing the actual performance criteria, the parties might find another alternative to the design or an acceptable interpretation that has little or no impact.  The parties also could look to deductive changes to offset cost increases, preserve the contractor’s profit, and stay within the agency’s budget.  For example, they could explore the painting specification.  If they find that a lower grade of paint than what was specified would work just as well, they can apply the savings from a paint change to offset the interpretation issue.

Step 3 –  Finding the Deal

After extensive exploration of the resources, it is a matter of negotiating the best combination to meet everybody’s interests.  At this stage the parties might get competitive as they distribute the resources they have identified.  It is entirely up to them to decide whether settlement is in their best interests, or if further legal action is appropriate.

The type of negotiation described above relies on starting early, when the parties have the maximum flexibility to meet their separate interests.  In fact, in government contracting, it is easy to identify a set of almost universal interests and resources for both an agency and its contractor.  Imagine however, if the contracting officer imposed his interpretation, the contractor performed with excess costs, and the case went to a hearing after performance has ended.  Ideas that could benefit both parties–like changing the paint, or finding a less expensive alternatives–are no longer options.  Instead, one party will win, and the other will lose as a judge decides their fate.

Subpages (3): But We Have a Great Case! | List of Agency Interests and Resources | List of Contractor Interests and Resources