Competition: More is not merrier

There is a view out there among some observers of government procurement — particularly in Congress, the legal community and so-called “watchdog” groups — that if competition in contracting is good (which it generally is), then the more bidders, the better. This view underlies opposition to contract vehicles such as multiple-award task order contracts or competitions under the General Services Administration schedules, which limit competion to a small, pre-selected pool of vendors.

Defenders of these streamlined vehicles generally cite two key reasons. One is that having a smaller number of bidders allows much quicker contract award and that they economize on scarce contracting officer time. Before the widespread use of these vehicles, it typically took nine months or more to award even a modestly sized contract for services, and often one or two years for large contracts. Now such contracts can be awarded in several months. Some pooh-pooh the value of speed, implying it reflects some version of attention-deficit disorder among government officials. In fact, however, if the government missions that the contracts support are important, then we should be urgent about getting these missions accomplished as quickly as possible.

The other key supporting reason is that, in a world where contracting resources are really limited, it makes a lot more sense to prioritize placing those resources into better contract management rather than the minutiae of source selection.

However, there is a third reason to reject the view that more bidders are always better. I recently came across, in the July 11 issue of The Economist, a report, entitled “Psyched Out.” It detailed interesting research on the effect of increasing the number of competitors in a race or problem-solving contest. It turns out that when individuals know there is a larger number of competitors, their performance is lower than when they know they have fewer. Apparently, when there are too many competitors, people think their chances of winning are less, so they don’t put as much effort in. 

(Yes, I am just now getting around to reading the July 11 issue, but that’s another story! — typically for me, I can read an old issue and still enjoy about 80 percent of the contents.)

This finding corresponds with a view one sometimes hears among IT vendors, that they will not participate in a competition with too many bidders, because the chances their bid and proposal efforts will result in contract award go down.

The administration is seeking “greater competition” in contracting. I am inclined to think they are tilting at what is more or less a non-problem, but at a minimum, we need to hope that the administration’s efforts don’t make things worse.

Posted by Steve Kelman on Jul 23, 2009 at 1:28 PM