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Contracting Reform in the Government Set to Save Billions

March 8, 2013

IACCM member Edward Willey drew my attention to a report from the The Center for American Progress which comments that “the US Government is getting more aggressive on cost savings through improved contracting”.

For those who have not worked in this area, Edward points out that it’s important to understand that purchasing is devolved to the various government agencies. In other words, if the Department of the Interior needs to acquire specialized commercial products, it willl buy those (through a competitive bid process, usually) on its own, based largely on its own criteria, even if a sister agency is purchasing substantially the same goods from the same vendor for a lower price. For too long, inter-agency cooperation has been the exception, not the norm. As the article highlights, computing resources, especially data systems, have been a key area of redundancy and overcapacity. The decentralized model notably led to reduced efficiency and negotiating power, which when combined with the non-bid contract trend has probably resulted in many, many billions of dollars in waste.

Edward asked what comparative data there is regarding similar trends in other countries. Here are my thoughts – but reader cometns and knowledge on this would be most welcome.

First, it is worth observing that the potential for cost saving is of course bi-lateral. In other words, greater consolidation of spend and more consistency in buying should yield incremental savings on price. But while this appears often to be the focus and force behind consolidation, it probably represents just the tip of the iceberg in terms of actual benefits. For both buyer and seller, consolidation of spend can also offer major operational efficiencies. It needs less resources for its negotiation and management; there is far less diversity of support; there are less vendors to manage, fewer customer interfaces. Our research suggests that efficiency savings alone can represent up to 10% of the total cost.

Second, in terms of trends, procurement consolidation is certainly an area that has gained some attention, especially in Northern Europe, though in my experience so far rather limited action. Departmental turf in Government remains very strong; it is, after all, at the heart of politics and history tells us that politicians are often much more diligent in fighting for their own power and prestige than they are in fighting for the public good. In some other countries, public employment appears to remain core to Government policy so far from seeking efficiency, they maintain inefficiency as a way to keep down the level of unemployment. Hence the scale of action is far below where it should be.

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