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By Steve Kelman

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Acquisition lessons from the private sector

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It is common knowledge that the government buys a lot of services – over $300 billion worth last year – and that it's often an area particularly ripe for improvement. The Government Accountability Office recently issued what I thought was a genuinely helpful report, called, "Leading Commercial Practices Can Help Federal Agencies Increase Savings When Acquiring Services."

The report is about things the government might learn from looking at the practices of large commercial firms in buying services.

The first thing to note is that savings opportunities are far from trivial. Dell achieved 23 percent savings in its services purchases in the first year that it put an emphasis on improving services procurement, and has been saving an additional 10 percent a year since.

Of the many approaches that the large commercial companies practiced in their own operations, two in particular caught my attention.

For one, there was an effort to find out what different divisions of the company were paying for similar services from the same vendors. As in government, when companies first go through this effort, they typically discover wide variations. This becomes low-hanging fruit for strategic sourcing-type negotiations with the company's main services vendors. These companies also typically enforce, with more heft than government agencies do, presumptions that customers will buy off these contracts and get the good pricing the contracts create. This extends the strategic sourcing idea from products into services.

A second lesson from these companies is that "complexity drives cost." Commercial firms try to get better at seeing what the cost drivers are in terms of requirements. That is, what are the things the customer might request that add a lot to the cost without adding much value. They are often willing to accept a "90 percent solution" to keep costs down.

I suggested in a recent blog post that individual contracting professionals, and buying offices, should consider personal pledges to choose a specific contract where the individual or team promises to improve the way they buy during this upcoming fiscal year. A few commenters felt I was suggesting that contracting professionals are not doing a good job already. The fact is, there is overwhelming research supporting the proposition that setting a specific goal increases the chances of reaching it. And in the sequestration environment, just from a mental health perspective, civil servants need to take their destiny in their own hands and not see themselves as passive victims.

My feeling is that, armed with this GAO report, there are some real pledge opportunities throughout the government. Let's go for it.

Posted on Jul 02, 2013 at 1:27 PM


Reader comments

Mon, Jul 8, 2013 Steve Kelman

Al, thanks for your comment. Agree with you 100%. Look, it's going to be hard to get this to happen in all of government. But surely there are program managers and IT folks out there who want to do something about this in their own organization. Let's improve step by step at a time.

Wed, Jul 3, 2013 Al

The chart on page 2 of the link is interesting. I feel the Feds are set up well to "understand cost drivers", does a fair to weak job at the "standardize requirements" and "prequalify suppliers" techniques, and is abysmal at the "leverage scale" techniques. The GSA schedule is a hunting license and not a true leveraging of scale. I wish you all the best of luck in consolidating those requirements- every project manager thinks his requirement is unique and there is a lot of work to do. What do you think, Steven Kelman? Am I way off base here?

Wed, Jul 3, 2013

The criticism of you previous post Steve is the necessity to broaden the scope of your "pledge" to those entities that fall beyond the CO purview. CO's are often gelded when it comes to negotiating with not only the vendor but within their own team. I would suggest that you take the advice of the previous comments and start expanding your commentary to be inclusive of a larger procurement team effort. Often CO's don't drive the bus but are simply the navigators. We have no control over destination...just advise on traffic conditions and potholes. Your two points in this article are spot on. Yes, price sharing would be advantageous, and reasonable expectations regarding cost/benefit would be welcomes. Budgetary practices often don't reward savings, but many COs would welcome a sober assessment and expectations management.

Tue, Jul 2, 2013 Harold Youra

What I don't understand is that government in many cases does not understand how they would benefit from trying to become a 'preferred customer'. It is common in private industry. The more you engage a vendor and try to partner with them, the more they are invested in making the partnership succeeds. The adversarial some CO exhibit, lowers the success factor. It becomes an 'us' vs 'them'. Or better a lose-lose relationship. Maybe one day many government buyers will wise up....

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