By Steve Kelman

Blog archive

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.

For 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 problem.

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.

Obviously, 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


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