More Thoughts on New Contracting Models for Government Acquisition

The significant challenges associated with federal acquisition policies are well documented.  Many  problems with government acquisition are related to contract management, often mentioned as a core competence for federal contract officers to be proficient in.  Some of the biggest opportunities in this space include the application of incentives for contractor performance, cost-reimbursement contracts approved by the GSA, and Office of Federal Procurement Policy approaches that spend money wisely to eliminate waste and abuse of taxpayer dollars.  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 (see Steve Kelman’s blog).

But many of the problems that exist in contracting approaches have to do with the rules of contracting.  As Kelman notes in a position paper written in 1995, “the fundamental problem with the current system is that it insufficiently recognizes contract administration as …a management function, and that too many program or technical contract administrators are wannabe doers dealt the short straw by being given contract administration duties” (Kelman, 1995).  Prior research has identified some of the major issues that exist in the contract officer community, including a high level of rules, hierarchical signoffs, objectified decision-making, and others (Nagle, 1992).  Proponents for change are calling for new approaches granting greater discretion to participants to make decisions they believe are sensible and thereby become “smart buyers”.   Ellen Chou’s recent research also suggestions that challenge the common view that contracts with more specific contract terms are better than those with less specific ones.  Rather than acting as a safeguard, contracts may actually damage relationships. The presence of a contract led people to anticipate more contentious interactions, which then led to a reduction in their actual cooperative behavior. Chou’s research also found that contracts that included sanctions led to poor team performance.

One of the most important developments in the field of supply management is the application of strategic sourcing tools.  Three of the most important tools are discussed here, and their application to government acquisition environments are discussed.

–        The first of these, Total Cost of Ownership, is an analytical approach that includes not just the price of the product or service, the but additional cost of maintenance, useful life, energy usage, quality, responsiveness, delivery performance and other parameters that are critical to stakeholders.  Early results from a recent analysis of surveys received from suppliers to a major government agency we conducted found that TCO was not being adopted.  For example, one supplier cited a situation where an energy-efficient light source could save the agency facility thousands in energy bills, but required that they pay a higher price for each unit relative to the old technology.

–        Supplier performance scorecards are another tool providing a structured method to score various performance elements based on the internal user’s priorities (of which price may be a component, but is not 100% of the consideration).   In a recent study of supplier responses to the government acquisition process, we found examples where a supplier’s performance had to be re-assessed every time a new contract offiver was assigned, as there was no prior record of that supplier’s performance.  The other problem here is mentioned by Kelman.  The big problem with the current Federal Acquisition Regulation (FAR) language is that it allows a contractor to appeal a past-performance rating one level above where it was made. In my view, this appeal right has been devastating for the honesty of past-performance ratings, and therefore for the ability of past-performance to be a differentiator in contract awards. For past-performance to work in choosing contractors, the government needs to be able to observe differentiation between better performers, who should be rewarded with new contracts, and poorer ones, who shouldn’t.

–        Finally, Supplier Councils are a component of Supplier Relationship Mangaement used for years in private industry as an innovative way  to include the “voice of the supplier”, drive innovative ideas for cost savings, new technology, total cost reduction, productivity improvements, and better delivery and service for stakeholders.  These approaches align well with the call for government to improve communication with vendors to tap into functional expertise for developing requirements for work, providing these inputs drive improved value for core stakeholders.