The Lectern: Contracting in a time of mega-deficits and economic downturn
Government contracting has a number of chronic challenges that need
addressing but that can't be fixed overnight. Meanwhile, there is a
chance for our contracting workforce, and the incoming administration,
to score some quick contracting wins that are related to the current
economic and budget situation.
With unprecedented deficits on
tap to pay for preventing the collapse of the financial system and
trying to get the economy moving again, there is low-hanging fruit --
and the chance for our procurement professionals in government to make
a good impression on the new administration -- in something that will
be a priority in this budget environment: finding ways for the
government to save money.
The low-hanging fruit, I think, are in two areas: commercial products and services bought under hourly labor rates.
the first, now is a good opportunity for government to expand its use
of reverse auctions for buying commercial items. (Full disclosure: I
serve on the Board of Advisors of Fedbid, the largest reverse-auction
supplier to the government.) Reverse auctions have an established track
record of delivering savings almost whenever they are tried. And given
the general economy, suppliers bidding in such auctions are likely to
be particularly aggressive (anybody notice the discounting going on
this holiday season at retail stores?). There are other methods for
commercial item cost savings as well, and this is a good opportunity
for the government to improve its price benchmarking against the
commercial retail market, to make sure it is doing consistently better
than the best retail prices and, if not, to take steps to remedy the
For the second, many contractor labor rates for
services are already fixed in existing contracts, but some vehicles,
notably the GSA services schedules, establish ceiling prices but
allow/encourage contractors to offer discounts off those prices. I am
no believer in buying services on price alone, but a commitment to best
value does not mean that the government should be a patsy negotiator.
And the fact is that in this economic environment, with many service
contractors trying to bring employees from their commercial side into
government work (because of downturns in commercial demand), the
government would be foolhardy not aggressively to seek price cuts from
services contractors. Were the shoe on the other foot -- the economy
booming and labor short -- contractors would not hesitate to say they
are unable to discount at all, or to raise labor rates.
these savings will make at best a marginal impact on the deficit -- but
that is the case for most individual cost or program savings
imaginable, given the size of the deficit. However, I think the
procurement community should step up to being among the first to
deliver some cost savings for government.
Posted by Steve Kelman on Dec 16, 2008 at 12:10 PM