By Steve Kelman

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Past performance: A challenge to the Office of Federal Procurement Policy

government industry dialog

Anne Rung is the intelligent, personable administrator of the Office of Federal Procurement Policy, and thus the government's senior procurement policy official. (I held Anne's job during the Clinton administration in the 1990s.) On the job somewhat over a year, she counts among her proudest achievements the innovative digital training effort that I blogged about a while ago, as well as the new policy for IT commodity buys (which I also blogged about) that tweaks the balance between getting volume discounts and giving agency managers the freedom to order exactly what they want.

With this blog post, I would like to propose a signature initiative for Rung for the final year of the Obama administration. I suggest she reverse the failure spiral that has devastated the government's effort to factor in contractor past performance when making new contract awards. The way to do this: Repeal the ability of contractors disappointed with their past performance rating to have the decision reviewed at a higher level in the contracting organization.

If Rung is willing to take this on, it has the potential to be a game changer for government contracting.

Why is it so important for the government to consider contractor past performance in making new contract awards? For a market economy to work, customers must be able to use their buying decisions to reward suppliers who have treated them well in the past (by buying a product or service again) and punishing those who haven't (by looking elsewhere the next time). In our everyday lives, we apply this principle constantly: If a barber or hairdresser cut your hair well the last time, we are notably more likely to return to the same place for a subsequent trim.

Yet until the 1990's, taking contractor past performance into account in making new decisions about whom to give a contract did not factor into federal procurement. The strange idea was that it was "unfair" to reward or punish a contractor for its past performance; ignoring past performance was seen to help assure a "level playing field." However, in 1995 a provision was added to the Federal Acquisition Regulation stating that past performance shall be evaluated in source selections.

I was in the government then, and was hopeful at the time that the new emphasis on past performance might produce a revolution in government procurement, by dramatically increasing incentives for contractors to perform well. Twenty years later, it is fair to say that inclusion of past performance in the system has had some effect on encouraging contractors to perform better -- but there certainly has been no revolution.

That is largely because, when the past performance system was introduced, a provision was included allowing contractors disappointed with their past performance rating to get it reviewed at one level up in the assessing organization. The problem this creates should be apparent. Government officials are very concerned that if they give a contractor a bad rating, they are nominating themselves for spending tens of hours defending their decision to a higher-level official. The easy way out is to give a high rating.

Not surprisingly, this reduces candor: In one discussion of past performance a few years ago at a government-organized event, a number of contracting officials expressed the view that the contractor's ability to get a review of a rating they didn't like hurt honesty in ratings.

The higher-level review thus set in motion a downward spiral for the effectiveness of past performance ratings. Grades are inflated, and there is too little variance. Accordingly, past performance seldom serves as a discriminator in evaluating bidders. Government officials, in turn, see past performance ratings not being used, and they lose interest in seriously contributing to the system. So the quality of contributions continues to decline over time.

In my view, the Federal Acquisition Regulation should be amended to eliminate these rating reviews, though contractors should have the right to put their version into the contract record. At the time the past performance system was initially developed, there was no capacity to put contractor rebuttals online in conjunction with the government's own report card. That capability now exists, which makes it easy for the contractor to have their version of events available to third parties.

Eliminating the higher-level review is not a magic bullet for what ails evaluation of past performance in government, of course. It is often psychologically painful to give bad news. Understaffing and underemphasizing contract management reduces the resources and attention devoted to preparing past performance report cards. And some government officials may believe that saying a contractor performed poorly will reflect badly on them as well.

Still, the government could solve all these other problems, and if the incentives against candor that the current process creates are left untouched, it is unlikely the system would improve much. If, however, ending the higher-level review provision breaks the past performance vicious cycle, that could improve the use of past performance even without other changes. OFPP could then build on that achievement through other improvements in training around past performance and management of the system.

This problem has been festering for 20 years. Interestingly, past performance continues to be a topic that engages government contracting officials: Over the past few years, it has been one of the most frequent issues on the agenda of the Front Line Forum, which is a sounding board for working-level government contracting officials. And in my September post for FCW's "Federal List" issue, I suggested revitalizing the use of past performance in government contracting as one of four priorities for the next 12 months.

Over the past few years, OFPP has paid periodic attention to improving the system, but much of the effort has been concentrated on trying to improve "compliance" with the requirement to get the reports submitted. This is a sort of "eat your broccoli" approach, which hardly engenders enthusiasm about the importance of using past performance in government contracting.

Instead, a change in this regulation should be positioned in a positive, upbeat way as a key part of an effort to reset past performance policy and open the way for a real improvement in vendor performance. Rung and her colleagues could use the regulatory change to inspire those in the workforce who are eager to do a good job, and to signal to them that something new is on the way.

For OFPP to take this issue on would be a bold demonstration of a departure from business as usual and an interest in dramatic improvements in federal contracting.

Anne, go for it!

Posted by Steve Kelman on Dec 10, 2015 at 4:53 AM


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