How agencies can cut contracting costs

Steve Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy.

All but those living in an isolated cave in some distant mountain are aware that the budget situation for the government for at least the next few years — arguably as far as the eye can see — is going to be very tight. Given the many important missions government performs for people, this creates an imperative to stretch every dollar as far as possible. It is always good to try to save the government money, but never in my memory has this good-government mantra had more bite and urgency.

Some 40 percent of the discretionary federal budget goes to the purchase of goods and services — in other words, contracts. Clearly, contracts are going to get their share of cuts, as the contractor community is very aware. Decisions about how much and what to buy are decisions for agency program folks (and ultimately, of course, for the Office of Management and Budget and Congress).

But contracting people also have an important role in the savings effort, which is to help get more for each dollar spent. Culturally, this should come easy. The contracting culture emphasizes saving money and getting a good deal, and many are drawn to contracting because they like to negotiate.

I have a bunch of ideas for ways contracting folks can help save agencies money through better contracting.

With dollars scarce, we can’t afford to pay for failure as much as we have often been willing to do in the past. Innovative contracting techniques — such as contests and share-in-savings contracting — need to be emphasized more. In a time of scarce resources, government needs to revitalize the past-performance system to make it possible to separate high-quality contractors from others. (As readers might know, I believe that a strategic step government should take to revitalize past performance is to eliminate the ability of contractors to contest their ratings; it should be enough that they can place their version in the file.)

Reverse auctions are already spreading in the government. Closer to the cutting edge is the use of second-stage reverse auctions on multiple-award strategic sourcing contracts, such as for IT and office supplies, to keep prices competitive and pencils sharpened. (Full disclosure: I am on the board of advisers of FedBid, the leading provider of reverse-auction services to the government.)

Negotiate! Whether because of lack of resources or because of mistaken impressions, the art of bargaining threatens to become a lost one. The provisions introduced in 1997 in Part 15 of the Federal Acquisition Regulation to replace the sterile exchange of written messages that absurdly was called “negotiation” has largely remained a dead letter.

With fewer dollars around, government is in a better bargaining position. Any contractor would take advantage of a good bargaining position — irrespective of the common interests in cooperation with partners — and the government shouldn’t be shy either. However, some people believe either that bargaining slows down the award process or that it is inconsistent with cooperative relations with vendors. In both cases, those mistaken impressions inhibit the spread of the practice.

These are just some ideas. But the real initiative should belong to the individual contracting officer or specialist. Each time a contract is competed or recompeted, the government contracting official should think about one thing he or she could do to get the government a better deal than last time. And supervisors ought to encourage such individual efforts.

In helping agencies save money through better contracting, contracting folks are acting as the business advisers that the best in the profession want them to be and supporting agency missions in tough times.

About the Author

Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy. Connect with him on Twitter: @kelmansteve

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Reader comments

Thu, Aug 11, 2011 Harold

I am normally impressed with Steve Kelman's articles, but find this one totally lacking any value. This seems like a summer rerun of a 'B' rated TV show. If the government needs to save cut costs, let's focus on the right end of the problem -- rewarding successful out comes. In government have way too many failures that were negotiated at a 'good cost'. Look at the FBI's Trilogy or Sentinel programs as great examples of 'sharpening a pencil'. Nothing like a billion dollar failure at lower negotiated costs to prove the point. Government and industry need to focus on successful outcomes and worry less on the cost going in. Let's figure out how to create environments that reward success and penalizes failure for both government and industry. The return on investment would be stellar. When the focus is on cost, it is lunacy to quality outcomes, so we get what we always got. How can we expect that the failure rate of government projects to be lower than the commercial markets when we are only looking for a lower cost going into the project. Let's focus on better planning, getting the best minds on building better IT projects. Let's figure out how to stop scope creep. Let's have greater executive sponsorship from government and industry. Let's focus on training program managers better. Let's shut down failing project quicker and let's stop trying to do things on the cheap. Steve, I am surprised at your lack of out of the box thinking. Being a fan of yours, I expect so much more.

Thu, Aug 11, 2011 dp dc

My disagreement here is that the goal is stated wrong. The contracting staff should not be focused on saving money, but on getting the best solution for the best price, real "best value". Contracting staff and program staff need to work together to identify real requirements and real scope. At the same time, they need to be open to "exceptions". Now, if you make an exception or propose a solution different than the specific one indicated in an RFP, it mostly is considered non-compliant.

Thu, Aug 11, 2011 G Edwards Vienna, VA

In response to the Seller performance comment, companies registered with FedBid are vetted through available Federal resources such as the CCR and the EPLS. Additionally, FedBid employs ongoing monitoring of seller performance to ensure that the end user receives their required goods/services and to maintain the integrity of the marketplace. Together, these measures have consistently resulted in a very low rate of seller issues. Please contact me with any issues that you have encountered so that they can be addressed with both the seller and the buyer. Thank you. Geoff Edwards,

Wed, Aug 10, 2011 Steve Kelman

I would like to thank all the people who have posted ideas. I agree with most, don't agree with a few, but above all think that in this budget environment contracting professionals need seriously to engage the issue of how we can contribute to cost savings. I would urge every 1102 to think of something she or he can do on the next contract they are involved in re-competing to get a better deal for the government this time around. Also, I would be grateful if Mr. Lewis could go into more specifics about what techniques his organization has used and where the big cost savings were -- I bet I'm not the only reader piqued by his comment! Thanks again all! Steve

Wed, Aug 10, 2011 Michael Wheeling, Illinois

While I agree with many of the comments, I would like to offer the following: 1. Severe penalties for cost overruns 2. Tighten rules on sole source contracting 3. Protect whistle blowers. 4. Eliminate social engineering programs through the contracting process (goals for small disadvantaged business; women owned business; historically black colleges and universities, etc.). The contracting process should not be used for social engineering programs. This is a waste of time, effort, and taxpayer dollars. When I started as a GS-5, the only set aside program we had was small business set asides (which should be retained). I retired as a GS-14 contracting officer and can attest to the fact that the set aside programs above took an inordinate amount of time and money away from the actual contracting process. If goals were not met, the contracting officer's performance evaluation would suffer. Regarding cost overruns, almost every major contracting program produces grievous overruns. This must be either eliminated or lackadaisical contractors' feet should be held to the fire in no uncertain terms.

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