Can we radically improve service contract management?
- By Steve Kelman
- Jan 26, 2011
The government spends more than $500 billion each year on contracts — an enormous sum. So deriving savings from better contracting practices is an obvious target for deficit-cutting efforts.
Like the business leaders two centuries ago who dreamed about how rich they would be if they could sell only one of their products to each person in China, it is tempting to make a statement such as, “If we could save only 5 percent from better contracting, that would cut $25 billion from the deficit.”
We all know anecdotally about unnecessary work performed under service contracts and insufficient cost controls, even if the popular belief that the government spends $600 on a hammer is ludicrous.
The problem is not with the claim that better contracting could save 5 percent. The challenge is figuring out how to do that, particularly in service contracting. For commercial products, there are straightforward ways, such as strategic sourcing and reverse auctions. But achieving such savings in services is the public management equivalent of house-to-house fighting in war: It is not a question of grand strategy or magical directives from the top but lots of individual battles down in the trenches.
To help us make progress on that house-to-house fighting, I propose that we provide more resources to the people doing the fighting — the contracting officers and program officials who manage the contracts.
Many contracting professionals believe that providing more contract management employees can pay for itself — perhaps many times over — in cost savings and, ideally, performance improvement. I am inclined to agree, but nobody knows whether that assumption is correct.
How can we determine whether such a claim is true? We can run experiments. And that’s what I propose we do with the idea of providing more resources to contract management.
Let’s choose some number of service contracts — let's say 20, so we have some chance of having a large enough sample from which to draw conclusions. They should not be IT application development contracts, which have special issues that are already the object of scrutiny by the Office of Management and Budget and others.
They should be contracts that cover an ongoing service and have been around for a while, long enough to have established a track record of cost and performance. They should be cost-type contracts. I think an ideal dollar value would be $5 million to $10 million a year — large enough for cost savings to make a difference but not so large that it would become too expensive to provide them with more management resources.
We should experiment by doubling or tripling the level of contract management resources currently provided. With only 20 contracts in the experimental group, it would be difficult to have too many variations on how the additional resources are used or whether resources are doubled, tripled or quadrupled. But we should think about whether there are specific techniques we’d like to test beyond simply providing more people.
We should then follow those experimental contracts for two years and compare what happens to their costs — and satisfaction with contractor performance or performance metrics, if they exist — with 20 similar contracts that receive no additional resources. If costs go down and/or performance goes up on the contracts receiving additional resources, we should use that approach more broadly in the future.
If there is no improvement, we will need to re-examine assumptions about the impact of adding resources and how easy it might be to cut contracting costs through better management.
Obviously, many details of the experiment would still need to be worked out. But if we’re serious about saving money on contracting, it is an experiment worth trying.