How contractors can help agencies save money

The Office of Management and Budget has directed agencies to achieve 3.5 percent savings over their baseline spending on contracts for fiscal 2010 and another 3.5 percent for fiscal 2011. Given the deficit, that is a legitimate request. The contracting community should put on its collective thinking cap to see how we can help make this happen. To get the creative juices flowing, here are a few thoughts.

The easiest way to do this would be to do less with less. If a contract supports a low-priority goal, consider canceling it. However, a dishonest way to meet cost-savings targets would be to bring an activity in-house and count only the savings on the contract without adding the cost of the civil servants who will now be performing the activity.

The creative challenges come in figuring out ways to get more bang for the buck, not just to do less with less.

Let’s start with purchases of commodities. Lower prices can be had by using strategic sourcing — that is, by consolidating purchases with select sellers — to get volume discounts. However, the small-business lobby often opposes that approach. Another option is to use reverse auctions, in which vendors bid on product buys. (Full disclosure: I am on the board of advisers of Fedbid.com, a leading provider of reverse-auction services.)

Hotel occupancy is running very low, and discounting is rampant — the average price of a hotel room in New York is down one-third compared to last year — so agencies should be looking for greater discounts on conferences and travel.

And as I have suggested previously in Federal Computer Week (“Beating retail prices,” April 25, 2008), agencies should Google the lowest available online price for commercial products they buy and establish a goal that 95 percent — or even 99 percent — of government prices be lower. When that is not the case, government should find out why and change buying habits accordingly.

New members of the workforce make many of the commodity buys, and we should solicit suggestions for saving cash from the young people buying those items.

Savings on services are more complicated. I bet every agency has recurring requirements that are still bought through cost-reimbursement contracts that, because the requirements are now well understood, could be converted to fixed-price contracts. In other cases, contracts could be split, having a fixed-price core plus time-and-materials line items for unpredictable work.

Contracting folks should be scouring upcoming contract renewals for both kinds of opportunities. Each agency should also pick one or two upcoming high-profile IT services buys for special attention regarding requirements discipline – getting Release 1.0 out without constant requirements changes and evolving requirements afterward.

I am also hopeful the administration will revive the share-in-savings initiative, a big potential cost-saver.

Agencies should involve vendors in these efforts by using draft requests for proposals and other communications to solicit suggestions for changes in agency requirements that would enable significant cost savings without sacrificing much in the way of quality. As an incentive for good suggestions, agencies should give vendors evaluation credit in their proposals for having presented such suggestions earlier.