It is time for continuous improvement

This past winter, the press published numerous reports that said the Defense Department paid higher prices than in the past for solesource aerospace spare parts, which were classified as commercial items and bought without certified cost data, pursuant to recent procurement reforms [FCW, April 13

This past winter, the press published numerous reports that said the Defense Department paid higher prices than in the past for sole-source aerospace spare parts, which were classified as commercial items and bought without certified cost data, pursuant to recent procurement reforms [FCW, April 13 and May 18]. One of the commitments DOD made to Congress after the stories broke was to train contracting professionals buying sole-source commercial spare parts how to obtain a good deal for the government without receiving certified cost data. DOD moved quickly to honor that commitment by showing a live satellite broadcast nationwide in late June, and it plans to follow up with in-depth training this fall.

Just as important, DOD's response has broader significance for future information technology procurement reform in particular and government re-invention in general. After a burst of change in the procurement system, we are now working to make the changes part of everyday business and to undertake course corrections to take account of unintended problems some changes have caused.

To be sure, government has not accomplished all the needed changes. DOD still seeks to move toward greater use of "price-based" contracting, which would be a significant change, and new contracting techniques, such as due diligence and share-in-savings, have barely begun to get under way. But the point remains: A crucial feature of the current period is learning from both failures and successes, tweaking the changes of the past few years to take account of shortcomings and training people where necessary on how best to use the new techniques. In private industry, this process is known as "continuous improvement." It is normal. The only causes for alarm would be if people reacted to problems either by putting their heads in the sand or by returning to the old ways of business at the first sign of difficulty.

The DOD satellite broadcast, "The Price We Pay," should be Exhibit One for any government organization in an environment of continuous improvement. The broadcast was divided into several parts. After introductions from DOD top leadership and statements from front-line troops explaining how important spare parts were to accomplishing their jobs, the broadcast started with a dramatization, performed by actors, of a real sole-source, spare-parts buying scenario. The actors, playing government contracting professionals, confronted the worries about paying a good price without certified cost data and learned about and tried various techniques for landing a good deal.

The broadcast then segued into a panel moderated by DOD acquisition reform chief Stan Soloway and several government and industry panelists. This portion included a series of videos that featured government and industry folks offering tips on how to obtain a good deal. Chester Karrass, a negotiation guru whose ads adorn many airline magazines— who apparently appeared for free, except for a plug for his World Wide Web site at the end of the broadcast— had one of the more interesting video presentations.

Karrass emphasized the importance of not being rushed in a negotiation and for contractors to explain their argument during the negotiation for price, such as, "I can't justify this price to a taxpayer." He also stressed saying the magic words when appropriate, in particular, "This price is no good," and the importance of understanding your sources of negotiating leverage, for example, the company's desire to please a customer and the sales quotas a salesperson needs to meet.

Bruce Leinster of IBM Corp. also gave an interesting video presentation. Leinster, as did a number of the panelists, emphasized the importance of past performance. The vendor who exploits a sole-source relationship should be punished by the government customer when competitive situations arise.

The broadcast also featured a number of phone-in questions from viewers.

There were many things to like about the broadcast. First, the broadcast centered on a Big-Picture message: "Get the best value for DOD and for the taxpayer." It also told viewers that "information is power" and gave them the important message that "our purpose is to empower you." The broadcast also showed Defense Secretary William Cohen assuring the work force that DOD would not reflexively punish individuals for honest mistakes. The broadcast said "If we make mistakes along the way, we need to train, not blame."

Furthermore, the broadcast featured gobs of practical advice, including negotiating techniques and the use of past performance that buyers can use beyond sole-source spares procurement. The broadcast was nicely paced, with good production values. (My wife, watching a video of the broadcast with me at home, was impressed by the technical quality and the energy level.) I confess, however, that I found some of the skit to be wooden; the writing does not threaten to replace Shakespeare.

The broadcast was developed after consultation with academic experts and practitioners who helped develop the learning points DOD wanted to communicate during the broadcast. For future course material, DOD plans to collaborate with the National Contract Management Association, a group for public- and private-sector professionals involved in government contracting, and with the National Association of Purchasing Managers, which represents purchasing professionals working for commercial firms.

For future training, DOD will adapt best commercial training practices, which suggest that the most valuable training is conducted at work sites with teams of employees rather than the traditional practice of sending a few people off site. The traditional approach usually creates a situation in which attendees come back to the office enthusiastic but discover that nobody else has a clue about, or much interest in, the latest and greatest lessons they have learned.The Defense Logistics Agency, which frequently buys sole-source commercial spare parts as well as competitive commercial items, will launch more in-depth team training this fall at its major buying sites in Columbus, Ohio; Philadelphia; and Richmond, Va.

For sole-source spare parts bought without receiving traditional cost data, DOD, frankly, still has a way to go to answer the question that one of the actors posed in the skit: "What's in this for the government?"

Eliminating these requirements for commercial buys is designed to help the government obtain access either to commercial firms or to cutting-edge commercial technology that otherwise would not be available to the government.None of this would seem to be the case for spare parts that were sold earlier to the government. In these circumstances, the best the government buyer, trained in the techniques DOD provides, is likely to be able to pay is a price that was the same as previous purchases, using the certified cost data, not a better price.

One answer to that question may be that, while changing to a more sensible contracting approach, some baby will inevitably be thrown out with the bath water. Perhaps there's a better answer. Whatever it is, DOD needs to communicate it better.

But that's a quibble. The big picture is good news. DOD is gearing up well to work in the post-procurement reform era, during which government moves into a crucial period of continuous improvement.

Kelman was the administrator of the Office of Federal Procurement Policy from 1993 to 1997. He is now Weatherhead Professor of Public Management at Harvard's Kennedy School of Government.

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