Kelman: Can we talk?

The theme of the first government/industry Executive Leadership Conference I attended while in government — in 1993 — was, “Can We Talk?” Those words represented a plaintive appeal for escape from the dysfunctional procurement environment of the 1980s. That was when the idea of vendors and government customers cooperating to achieve better results for the government was shunned in favor of relationships that were arms-length — if not adversarial — out of fear that partnership was a recipe for the exploitation of government by rapacious contractors. I recently spent a week in the United Kingdom working on a case we will be using in the classroom at Harvard, a new tri-service human resources system that has been introduced in Britain’s military. The system has succeeded in replacing older service systems, is based on commercial software, was delivered on time and on budget, and is saving taxpayers considerable sums. One of its interesting features is the partnering relationship built up over a number of years and at various levels between the Ministry of Defence and the vendor, EDS. One aspect of the case I explored in my interviews was how this kind of relationship contributed to the project’s success. The answer to this question turned out to be multifaceted, but let me illustrate with one example. The underlying contract for this system divided the work into a number of tasks, each with requirements and priced on an incentive fee basis. The ministry specified the target price, and the contractor was rewarded for under-runs from the target and penalized for overruns. However, as so often happens, problems arose that affected the contractor’s ability to meet the requirements at the target price. When this occurs, the government and contractor often spend time arguing about who caused the problems. If they are determined to be the government’s fault, the contractor gets released from the original target price, and if they are the contractor’s fault, the target price stands and the contractor must absorb losses. What happened in this project? According to both sides, contractor and customer agreed that the most important thing was to keep the project’s schedule — and maintain its momentum — particularly because skeptics who didn’t like the idea of a tri-service system were hoping to see the project stall on its way to an early death. Rather than argue about fault, the contractor agreed to continue working with no assurance about what payment, if any, would be made for the extra work. After the project was completed, customer and contractor sat down to go over all these incidents and try, in as impartial a fashion as possible, to make fair judgments about where the fault for problems lay and how much the contractor would receive for the extra work. The compensation seldom covered the contractor’s costs fully. I find this a fascinating example. Now we are again in an era when organizations such as the Project on Government Oversight believe that partnership is theft. We need a dialogue including government, industry and other voices. I will try to .