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US Government Heading In The Wrong Direction

October 14, 2009

It was heartening when earlier this year President Obama acknowledged the key role of contract management in delivering successful acquisition and project outcomes. As apart of that acknowledgement, he announced a contract reform initiative.

Now, the indications of where that reform may be headed are deeply worrying. They appear to be headed in completely the wrong direction.

  1. I am told that the word ‘relationship’ has been almost banned by those leading this work. They take the view that a large part of the problem has been that ‘relationships are too cosy’ between Federal acquisition staff and suppliers. That may be true and it is certainly legitimate to question the way that relationships have been formed and run. But it is fundamentallly wrong to beleive that relationships do not matter and that they should be fully arm’s length. What is needed is good relationship segmentation adn the implementation of approrpiiate contracts and contract management techniques. Cutting communication and limiting information flows is fundamentally the wrong way to go; what is needed is rigor and discipline in the way they are managed.
  2. I am also told that the new mantra is to go with fixed price contracts and let suppliers suffer if they fail to deliver. The idea is to pass yet more risk to the supplier. Once again, history should tell those behind such an idea that it simply does not work. Critical projects require competent, collaborative management, not adversarial relationships. The real answer here is to introduce improved economic governance through high quality contract management. Maybe the real problem is a lack of the necessary skills.
  3. A key goal is to save money, though part of this is of course to ensure that projects succeed. As IACCM research has shown (eg the joint study with Rand Corporation in 2008) risk averse public procurement policies and rigid approaches to contracting cost Government (and the taxpayer) dear. The study revealed that such approaches lead to price escalations of 28%. That represents a massive potential for saving – and a much more intelligent approach to its realization.
  4. It is said that the Obama initiative has been translated into ‘no more outsourcing’ – and in fact reversing some exisiting initiatives. Again, not a smart move. The Government should be looking at ways to consolidate services and to break down the separations between government departments. The fact that existing contract processes have not always been appropriately skilled to manage outsourced relationships is more likely the real problem. Bringing things back in house will not fix the problem and is likely to add further to costs.
  5. Apparently the Government will hire thousands more contract managers. Unless they think again about the role of these staff and the training they need to flourish in a 21st century economy, this too is unlikely to bring relief to the problems.

I hope that the stories I am hearing are not true. But if the above ideas are even being considered, it is time to think again. Our world has changed. Contracting must be used as a tool to drive quality outcomes. Contracting can only be effective if it supports required relationships. Those relationships must deliver economic benefit to both sides and must be based on a reasonable sharing of risk. And supporting this new world, there must be appropriately skilled individuals who understand ethics, who have imagination, who are ready to innovate and who recognize the critical role of  information flows and proactive risk management.

One Comment
  1. Kenn Quick permalink

    Tim: There’s a bit of data at the web blog– http://transition2008.wordpress.com/2009/03/05/obama-priority-contract-reform/ where Allan Burman, former OMB administrator of the Office of Federal Procurement Policy testified on the contracting community’s ability to help implement the Recovery Act. He clearly defined the challenge: “I would particularly like to call the Committee’s attention to the need for agencies to be fully prepared to define requirements and desired results early in the planning process, and to have sufficient and well-qualified acquisition resources [i.e., people!] in place to manage the procurements in an timely and effective manner.” What’s not clear is how contracting officers will handle a record amount of new spending under the Recovery Act, with stricter requirements than existing contracts, and then comply with new OMB guidance to review all existing contracts to determine their usefulness!

    To your “worries”-

    1. Acquisition professionals know and respect the implicit value of relationships and the correlation of their relationships to their successes as buyers and sellers of goods and services. Although not personally experiencing those issues with government agencies nor my clients, perhaps from the “top down” the message is to abandon relationships but from the “bottom up”, I continue to observe journeyman contracting professionals nurturing and expanding their “rolodex” of colleagues and friends. Collegiality, friendship, respect and trust is how we learn and grow in the profession.

    2. Many agencies are convinced (few have substantiated) that fixed price agreements (definite or indefinite quantity) reduce administrative and management life cycle costs when compared to incentive fee or performance based contracts. Not convinced here. Failing to deliver would prompt show cause, cure letter/notice, and finally, the somewhat punitive threat of liquidated damages. Collectively, and subsequent to such a sequential and protracted process, a company can still not deliver, then perhaps they should be burdened with the disciplinary actions of non-performance. I do agree that governence and sound management practices on “both sides of the line of scrimmage” is the way to go. And yes, the lack of necessary skills is a challenge at most agencies/levels.

    3. Companies are going to be constantly challenged to stay competitive and “optimize the risk to price” model, authenticate a sound EVMS, and interact and present agencies with analytical and objective data that clearly illustrates (not just at the senior or policy making level, but at all levels) the “error(s) of their ways”. Associations and professional affiliations, much more persuasive than individuals or individual companies, are needed to stand tall and deliver the message—and prospective solution(s).

    4. Outsourcing-many contracting personnel and agencies are not well trained nor experienced on how to create, implement, and/or optimize “best value” outsourcing. Requirements and funding are dynamic, the system and the processes, on any given day, are not. Here is perhaps where performance and incentive fee contracts are prospectively good solutions for outsourcing contracts. Absent the experience and staff to administer and manage–well, its back to fixed price solutions.

    5. Our modern day acquisition vocation–as history will corroborate, demands that we as contracting professionals remain committed, determined, dynamic, and focused. We can assist our new colleagues and friends as they explore their yet to be charted world and help them sort out that they’ll need to be a bit of the acountant, administrator, attorney/barrister, counsler, finance expert, negotiator, technical “guru” and, on any given day, “jack of all trades”. We can and will continue to rise to each challenge; and we are all better for doing so as a recognized association and international team of well trained, experienced, and committed professionals. Here again is where the IACCM and IACCM membership can bring a great deal of assistance and support.

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