How agencies can cut contracting costs

Steve Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy.

All but those living in an isolated cave in some distant mountain are aware that the budget situation for the government for at least the next few years — arguably as far as the eye can see — is going to be very tight. Given the many important missions government performs for people, this creates an imperative to stretch every dollar as far as possible. It is always good to try to save the government money, but never in my memory has this good-government mantra had more bite and urgency.

Some 40 percent of the discretionary federal budget goes to the purchase of goods and services — in other words, contracts. Clearly, contracts are going to get their share of cuts, as the contractor community is very aware. Decisions about how much and what to buy are decisions for agency program folks (and ultimately, of course, for the Office of Management and Budget and Congress).

But contracting people also have an important role in the savings effort, which is to help get more for each dollar spent. Culturally, this should come easy. The contracting culture emphasizes saving money and getting a good deal, and many are drawn to contracting because they like to negotiate.

I have a bunch of ideas for ways contracting folks can help save agencies money through better contracting.

With dollars scarce, we can’t afford to pay for failure as much as we have often been willing to do in the past. 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. (As readers might know, I believe that a strategic step government should take to revitalize past performance is to eliminate the ability of contractors to contest their ratings; it should be enough that they can place their version in the file.)

Reverse auctions are already spreading in the government. Closer to the cutting edge is the use of second-stage reverse auctions on multiple-award strategic sourcing contracts, such as for IT and office supplies, to keep prices competitive and pencils sharpened. (Full disclosure: I am on the board of advisers of FedBid, the leading provider of reverse-auction services to the government.)

Negotiate! Whether because of lack of resources or because of mistaken impressions, the art of bargaining threatens to become a lost one. The provisions introduced in 1997 in Part 15 of the Federal Acquisition Regulation to replace the sterile exchange of written messages that absurdly was called “negotiation” has largely remained a dead letter.

With fewer dollars around, government is in a better bargaining position. Any contractor would take advantage of a good bargaining position — irrespective of the common interests in cooperation with partners — and the government shouldn’t be shy either. However, some people believe either that bargaining slows down the award process or that it is inconsistent with cooperative relations with vendors. In both cases, those mistaken impressions inhibit the spread of the practice.

These are just some ideas. But the real initiative should belong to the individual contracting officer or specialist. Each time a contract is competed or recompeted, the government contracting official should think about one thing he or she could do to get the government a better deal than last time. And supervisors ought to encourage such individual efforts.

In helping agencies save money through better contracting, contracting folks are acting as the business advisers that the best in the profession want them to be and supporting agency missions in tough times.