Steve Kelman: Competitive procurement

What event recently brought legendary Apple Computer Inc. co-founder Steve Wozniak to the Mojave Desert early one Saturday morning? The Grand Challenge, a contest sponsored by the Defense Advanced Research Projects Agency. He went to watch the competition that pits autonomous land vehicles against one another to see which could win a 250-mile race to Las Vegas through

obstacle-laden terrain. The winner would receive $1 million.

Army officials eventually want to have driverless vehicles available for combat, a sort of terrestrial analogy to the unmanned aerial vehicles the Air Force uses. DARPA's contest was a way to jump-start the development of such a vehicle, which requires significant advances in computing and sensing technologies.

Agency officials should always be on the lookout for innovative ways to pay contractors for results, and not just for showing up. That is why I have been such a fan of share-in-savings contracting. Contests are another way to pay for results that contracting officials should include in their toolboxes.

When officials want a new technology beyond the current state of the art, they typically choose one — or several — firms to research and develop the technology, and then the government pays the firms whether or not the technology succeeds.

DARPA's contest sets up a goal and establishes a prize for the winner, who is the first contestant to meet the goal. Contestants invest their own money in developing the technology. As with share-in-savings, government pays only for success.

In the case of the Grand Challenge, no vehicle made it to Las Vegas, and DARPA will host another contest next year.

Of course, although only a small number of companies get R&D money, contests elicit investments from many more players. Furthermore, traditional R&D players have a strong advantage in traditional procurements, while contests bring out garage-type start-ups.

Similar to other incentive techniques, contests aren't suitable for everything. They should be limited to technological challenges that have not yet been solved.

Government officials need to specify what performance constitutes victory and think about the size of the prize required to entice competitors.

Some contests may be exciting or visible enough that making a profit isn't the first consideration. In the Grand Challenge, some participants invested considerably more than the $1 million prize.

But, as with share-in-savings, government officials must recognize that if industry gets paid only for succeeding, the reward must be greater than it would be with a traditional procurement.

Actually, using contests as a procurement technique isn't new. The Wright brothers responded to a contest the government conducted for a heavier-than-air flying machine meeting certain performance specifications.

Therefore, pursuing this form of innovative contracting is a case of back to the future.

Kelman is a professor of public management at Harvard University's Kennedy School and former administrator of the Office of Federal Procurement Policy. He can be reached at steve_kelman@harvard.edu.