A new idea for encouraging vendors to help agencies save money

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.

Ever since the Great Recession hit, I have been writing pretty steadily that contracting professionals should be using our skills in structuring contracts to help the government save money.

The realization that some very tight budget years will be descending on us in the near future has begun to make this an even more popular theme. I recently participated in a panel discussion on making the procurement process more efficient at the big annual Washington conference of the National Contract Management Association. I presented five ideas, and I will discuss one of them in this column because, to my knowledge, it has never been tried and thus needs more explanation. In my next column, I will discuss the other four ideas.

Here is the setup: For any major contract or task order, the government should issue a draft request for proposals to solicit input from potential bidders, which is often done already. As part of the draft RFP, the government should be required to ask potential bidders to suggest ways in which the solicitation could be changed to save the government money during contract performance, with minimal — or ideally no — sacrifice in quality. Companies would be free to make whatever suggestions for cost-saving changes they choose or to make none. The suggestions should contain at least a brief justification or explanation of why the change was suggested and some sense of the kind of savings that might occur.

So far, nothing unusual about this.

Here’s the new part: For each suggestion incorporated into the final RFP, a vendor would receive bonus evaluation points. The specific number of points and the total maximum evaluation score would be announced at the beginning of the process. Alternatively, if parts of proposals are rated green, yellow or red, the government would announce how many accepted ideas would correspond to a green score, how many to yellow and how many — presumably zero — for red. If several firms made the same suggestion and it was accepted, all would receive the points.

The approach would be aimed at rooting out contract requirements that add a lot of cost for a marginal benefit. It is a well-known principle that it often costs as much to raise a performance level from 95 percent to 98 percent, for example, as it costs to bring performance from zero to 95 percent. The last increment of performance is often very expensive.

I would hope vendors could offer a lot of suggestions, given their experience of what it costs to achieve certain performance levels. I also believe their ingenuity would produce many kinds of ideas that we can’t even imagine.

Granted, it is possible to do this without using evaluation points as a carrot. During the panel discussion when I presented the idea, Claire Grady, the Coast Guard’s senior procurement executive, said that after three rounds of one-on-one communication with industry about specifications for a new fleet of vessels, the projected cost per vessel was brought down by between $30 million and $50 million per ship, which is expected to yield total program savings of close to $1 billion.

Nevertheless, I think the bonus points would make the approach much more attractive to industry and get them engaged in pre-proposal efforts to bring costs down.

Somebody want to try this?