DOE contracting: 'If at first you don't succeed...'

In February 1994, at the very beginning of the procurement reform movement and several months before passage of the Federal Acquisition Streamlining Act, the Energy Department issued a report on contract reform that promised drastic changes in how the agency conducted contracting. DOE, the report announced, would move decisively toward performance-based contracting and tie performance goals to positive and negative monetary incentives for contractors.

These new policies were urgently needed. No agency is more dependent on good contractor performance to achieve its missions than DOE. More than 90 percent of DOE's approximate $15 billion budget is applied to contracts, grants and cooperative agreements, making DOE the second-largest procuring agency in government behind the Defense Department. Most contracting dollars fund research at Energy's national labs, such as Sandia and Lawrence Livermore, and nuclear waste cleanup at shut-down weapons production sites, such as those in Hanford, Wash., and Rocky Flats, Colo.

The national labs have produced some great science. But nuclear waste cleanup was proceeding slowly and expensively. Support operations at waste sites and labs— ranging from laundry to secretarial to information technology— were swamps of waste and ate up a surprising portion of cleanup operations' budgets.

In 1997 and 1998, DOE's inspector general published audits of the use of performance incentives at four waste sites during the first two years of DOE's performance-based contracting effort. The reports' basic message was that DOE had been too lenient in establishing incentives. Monetary payments were offered for lackadaisical results. In one case, the IG reported that incentive fees were paid for work performed before the fees were established. The IG also concluded that performance targets were often too vague and not results-oriented enough.

The report dropped on DOE like a lead balloon. The IG did not bother to laud the intention of DOE's efforts nor recognize the efforts had just begun. Shortly after the reports came out, I was at a conference of government and industry folks in the hazardous-waste business, and all were afraid that the IG effort would lead Energy to abort the incentive effort entirely for fear that somewhere, somhow the government might get ripped off. At Hanford, some incentive fees already paid out to the contractor were taken back, although these efforts were apparently under way before the IG reports.

Now the General Accounting Office has issued a follow-up report on how Energy has modified the management of its performance-based contracting since it first began the practice. The report, "Lessons Learned Incorporated Into Performance-Based Incentive Contracts" (GAO/RCED-98-223), makes great reading. Among GAO's findings:

* Incentives are now more specific. At one site, the previous incentive for filling canisters with immobilized waste did not define what it meant to "fill" a canister. Now, the term has been defined. The threshold for earning an incentive fee has been raised from 55 to 150 filled canisters.

* Development of incentives is no longer delegated to a measurement staff, but involves site management. For performance measurement to work, it must move to performance management rather than staying in a staff bureaucracy developing measures just to check a box. DOE is involving a wider range of people, including contracting folks, in developing measures, and measures are now reviewed and approved by senior site management.

* The number of measures has been cut and focused. Focusing on everything means focusing on nothing. At Hanford, the number of measures has been reduced by half, although declines at other sites were less dramatic. In addition, measures and the amount of potential incentive fees are now tied to Energy's Government Performance and Results Act plan, so contract measures are not floating in their own world. Supporting documentation behind the choice of performance targets has improved.

The folks at Energy deserve a round of applause. In response to the IG report, they did not do what many had feared. Instead, they embraced the doctrine of continuous improvement: Learn from your mistakes and figure out how to do it better the next time. Together with DOD's constructive response to IG reports on problems with sole-source commercial spare-parts buys [FCW, May 18 and July 27], this suggests extraordinarily positive news about a revolution in the culture of government. In the old days, one IG report was enough to send civil servants and their bosses scurrying for the hills to avoid anything that created the slightest risk of "scandal." Now, more and more feds react by pulling up their socks and figuring out how to deal with problems while not abandoning necessary change.

If we are going to make government work better and cost less, we need to take to heart the old saying, "If at first you don't succeed, try, try again."

-- Kelman was the administrator of the Office of Federal Procurement Policy from 1993 to 1997. He is now Weatherhead Professor of Public Management at Harvard's Kennedy School of Government.