The new way to win
- By Steve Kelman
- Feb 20, 2000
An important trend is brewing in the competition for big systems design
contracts, and it deserves more attention: Vendors are starting to use commitments
to performance and results to win government business.
This is great news for the government and for taxpayers.
Computer Sciences Corp. recently was awarded a contract worth several
hundred million dollars to modernize the Army's antiquated logistics system.
Billions of dollars of potential savings for the Army hang on the success
of an effort to apply commercial best practices to logistics.
But the big news is how CSC beat out its competition. The Army asked bidders
to propose performance metrics, and responses included supply availability,
logistics response times, inventory turns and satisfaction of logistics
system users. Vendors also bid how much of their payment they were willing
to put at risk for not attaining performance goals and suggested performance
bonuses for exceeding goals.
The performance measures and performance risk/bonus numbers were one
of the major subjects of negotiations between the bidders and the Army's
Communications and Electronics Command, the innovative Army buying center
running the acquisition. A crucial factor in CSC's win was its willingness
to tie an aggressive portion of its payment to attaining or exceeding the
metrics. (These factors could be considered because 1997 changes to Federal
Acquisition Regulation Part 15 allows the government to negotiate for better
performance, even when a bidder has met the minimum requirements of the
Word is that CSC's aggressive stance stems from having been stung by
a loss last summer to Andersen Consulting. By committing to specific performance
improvements, Andersen snagged an Education Department contract for modernizing
college student loan processing.
It seems that some vendors believe performance commitments and a willingness
to tie payment to performance is a strategy for winning government business.
If the trend spreads, it will be the most significant change yet to emerge
from procurement reform. Awarding contracts faster and with less hassle
is good, particularly in the rapidly changing IT marketplace. But structuring
the business relationship between the government and vendors to reward good
performance is a home run.
The new way to win contracts has two implications for the government
and one for industry:
* Government: Take advantage of this new trend. Put performance metrics
in your solicitations or ask bidders to propose them. Negotiate around metrics,
and around rewards and penalties tied to those metrics.
* Government: Hold the winner's feet to the fire. Some vendors may bid
unattainable commitments to win business, hoping the government will relent
if they fail. Check past performance of bidders in a performance commitment
* Industry, a new world may be dawning. Prepare to perform, or don't play.
— 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.