Promising Practices

Steven Kelman | December 23, 2016 | 0 Comments

Memo to the President: Performance and Results in Procurement

Flickr user Erich Ferdinand

The federal government spends on the order of $450 billion a year buying goods and services—about 40 percent of federal discretionary spending. Following are three recommendations for improving the performance and results of the procurement system.

Develop more information about contract performance

The government, not to mention the general public, has remarkably little information about how well the procurement system is performing. Getting generalized information about performance creates insurmountable apples-to-oranges problems. Federal agencies buy a myriad of products and services, creating endless permutations of possible performance indicators. It is thus impossible to develop any global measure of overall performance.

But even if perfect information is impossible, improving the performance information the system produces should be a priority, both to promote transparency for the public and to aid performance improvement efforts inside government. A first step would be to begin to disclose information to the public about prices the government pays for commonly purchased commodity products and services.

Because there are issues with making the information understandable and with contractor opposition to price disclosure, government should start small, with the disclosure of prices for a few easy-to-understand items. These could include airline tickets bought through the GSA City Pair Program, small package delivery services, and even the Defense Logistics Agency’s purchase of chicken parts. In addition, because of allegations in the 1980s that the government was paying $600 to buy hammers, there’s symbolic value in disclosing prices for the most commonly bought hammers (which in fact are a tiny fraction of the alleged $600 price).

A different opportunity for performance information disclosure involves the many information technology contracts and task orders that include service level agreements for non-price service features such as system uptime, response speed and user satisfaction. Such information is currently not readily available either inside government or to the public.

Pivot to the post-award stage

The contracting lifecycle is divided into pre-award (acquisition strategy, requirements definition, source selection) and post-award stages. Traditionally, government has devoted much of its time to the pre-award process. In contrast, the post-award stage has received relatively scant attention, low visibility and often insufficient resources. Yet it is there that the acquisition rubber meets the performance road, where contractors perform well or poorly.

The next administration, at the highest procurement leadership level, should announce and help execute—not as a one-time proclamation but over a period of years—a pivot from time and resources spent on pre-award activities into post-award contract management. The Chief Acquisition Officers Council should adopt improvement of post-award management as a theme and develop initiatives of its own.

Currently, the status of contracting officers representatives (those in charge of day-to-day post-award performance monitoring) often reflects the low standing of post-award management. Many CORs spend only a fraction of their time on actual COR responsibilities, giving the job a devastating “other duties as assigned” character.

The role of the COR in government contracting needs to be significantly upgraded. COR responsibilities should be concentrated in a smaller number of CORs working full time or most of the time on COR responsibilities, preferably through the whole procurement cycle. Generally, CORs should report to an appropriate program official. COR training currently heavily focuses on formal job duties and regulatory requirements. It needs to shift to a focus on management and leadership skills. Agencies should establish ways for CORs to share experiences and best practices, and to get advice from other CORs.

Expand forms of contracting that pay for success

Traditional government contracting for services pays either for the efforts the contractor puts into the work (“level of effort”) or, less commonly, a fixed price for satisfying the specifications in a contract. The former creates clear problems for the government, because incentives for the contractor to achieve a certain result for less money are lacking. In level of effort contracting, contractors are paid even if they accomplish nothing. These kinds of contracts are commonly signed when the risk is high the contractor will fail to solve the problem the government has set out. There are, however, alternatives to level of effort contracting for risky projects. They fall under the collective rubric of “pay for success.”

The most promising of these is challenges and contests, the most important innovation in procurement practice during the last eight years and perhaps the last few decades. The basic idea of a challenge is that an agency advertises to the public a problem it wants to solve. The government announces a prize, or multiple prizes. It then may choose one winner (the first to solve the problem) or several. Government pays only for success: if there are no winners, the government pays nothing. Anyone who chooses can enter the contest with a solution.

Participation does not require that the entrant be knowledgeable about the procurement system. Indeed, experience both with challenges organized by the federal government and by private-sector firms shows that a large number of participants are not typical contractors, but rather “garage” players, often quite young.

A second form of pay for success is payment per transaction (“pay by the drink”) contracts. The government runs many systems (in such areas as financial management, human resources and procurement) that process large numbers of transactions. The conventional method to procure such systems is to pay for development, and then have either the government or a contractor process the transactions. An alternative method would be for the government to contract with one vendor both for developing the system and running it for some period of years.

This becomes pay for success contracting if the contractor receives no upfront payment, or only a minimal fixed price that does not cover system development costs, and is paid, on a pre-negotiated per-transaction basis, only when the system is actually up and running.

This article is part of a series of Memos to the President, highlighting advice from leading academics and practitioners in public administration for the incoming president and his team. The series was developed by the National Academy of Public Administration, the American Society of Public Administration and George Mason University’s Schar School of Policy and Government. Click here for more information and links to the full set of memos.

Photo: Flickr user Erich Ferdinand

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