Federal Acquisition Policies Need Reform
In addition to reshaping the auto industry and overhauling health care, President Barack Obama has taken aim at how the federal government acquires services. And his plans, outlined in a March 4 memo, could spell new opportunities for small entrepreneurial companies.
According to the aforementioned memo, Obama opposes the following three items:
• the continued frequent use of cost reimbursement contracts
• any outsourcing of “inherently” governmental functions
• awards of non-competed contracts.
The failings that Obama seeks to redress are at their heart a matter of risk allocation (in fact, the word “risk” appears in numerous places in the March 4 memo). Consequently, by changing the rules to drive better risk management in contracts, the forthcoming acquisition reforms hold the possibility of opening up the government marketplace to technology and professional services companies in New England.
Slow To Change
The problems with federal government acquisition are as much cultural as they are regulatory. Towns like Boston, Worcester and Providence are home to entrepreneurs and start-ups in high-flying industries like social media and biotech.
For these companies, taking risk is second nature. Washington, on the other hand, is culturally deprived when it comes to risk-taking. Information technology is a good example.
High-profile and costly IT failures at federal agencies led to the passage of the Clinger-Cohen Act in 1996, which specifically required agencies to do a better job of allocating risk between themselves and contractors.
Instead, in the years that followed, the government fell into hiring IT contractors on a time and materials basis, leaving contractors to write statements of work.
The use of contract-based performance measures fell by the wayside, exacerbated by the depletion of contract managers in the federal workforce.
Doing business under fixed-price contracts and basing contractor pay on performance should be the cornerstone of any new Obama acquisition strategy.
By law the government is a highly transparent operation, giving contractors little excuse not to respond to fixed-price or performance-based bids. And the federal government is good business: it has deep pockets, pays well, pays on time, isn’t going to file for bankruptcy, and it provides a cornucopia of cross selling opportunities.
Companies can afford to take on significantly more risk with a customer like Uncle Sam. Effectively managing risk on the government’s part means making good decisions about what to outsource. It also means contractors sizing up bids and making good bid/no bid decisions.
The second prong of successful acquisition reform — opening up the playing field — will likely prove much more difficult for Obama. There is a lot of baggage that goes along with government contracting, such as accounting and security audits and subcontracting plans that are foreign and onerous to the private sector.
Acquisition regulations need to be rewritten to allow contractors to submit alternative proposals and to engage in value trading during negotiations, optimizing risk allocation.
Entrepreneur-minded companies are ideally positioned to respond to acquisition reform. Their value proposition — risk taking rather than familiarity, agility in meeting needs rather than staff augmentation — will win out in truly full and open competition.
Eric Esperne is president of James River Consulting in Medway. He can be reached at eesperne@jamesriverllc.com.
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