The Operator's Manual - An Update of Chapter 5: Contracting

MEMORANDUM FOR THE HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIES
Subject: Contracting

In addition to managing your own workforce, you will be responsible for managing a large contingent of contractors. You will need to ensure that contractor performance is high and that contractors are meeting and hopefully exceeding your agency’s expectations, as set forth in your contracts.

Government today depends greatly on contractors, stemming from several factors: limits on the number of government employees, a difficult process to hire government workers, and the need for government to frequently ramp up quickly to solve immediate problems. Given this history, you will likely find that your agency now has a large contingent of contractors working to support your agency’s operations and mission. As a consequence, you will face a series of challenges.

Align Contracting Practices with Your Agency Goals and Objectives

For the past decade, agencies have had little or no overall contracting strategy for the entire organization. Your first step should be to take a strategic look at contracting and align your agency’s use of contracting and contractors to support your agency’s goals and objectives.

An effective and efficient government requires a strong cadre of government workers supported by a strong cadre of contractors, each in an appropriate role. As part of your strategic assessment of your organization, you will have to work to align roles and responsibilities for both your government employees and your government contractors.

Align Contracting with the Appropriate Number of Government Staff

At the same time that government contracts have gotten more complex and the number of contracts and contractors has grown to a very significant level, the number of government employees to manage contractors has continued to decrease. In some cases, this has created poor contract oversight, which has resulted in ineffective and costly contracts.

There is now agreement that government is severely understaffed in the contracting arena. The shortage of contracting specialists is due to the downsizing of those positions in the 1990s and to the increasing rate of retirement of “baby boom” contract specialists. You should devote your personal attention to the unique issues and problems facing the acquisition profession. This will include program experts and contracting professionals.

There are specific actions that you can take to strengthen the acquisition cadre in your organization:

• Establish sound career ladders for acquisition professionals so that your agency can retain qualified individuals by providing them with career progression.
• Get direct hire authority for your agency so it can recruit and acquire staff in a timely fashion.
• Put in place intern, mentoring, and coaching programs to increase the capability of your acquisition cadre.
• Design recruiting programs to bring in mid-career acquisition specialists from outside of government.
• Offer joint program and contracting staff training programs to promote a collaborative working environment.
• Establish effective succession planning to respond to impending retirements.
• Identify steps that can improve the process after a bid protest, each of which takes time and attention that could otherwise be devoted to the prior action.

Align Contracting with Industry Best Practices

There is little doubt that government will continue to contract many activities in the future and will continue to work closely with contractors and their staffs. Because of this, you must align your contracting activities with industry best practices. The work of government contractors has substantially changed in recent years, as well as the relationship between government and contractors. These changes are, in part, responsible for some of the recent challenges. Government and contractors are moving into new terrain, and both will need to learn how to deal with changing expectations and new relationships.

In recent years, three major shifts have occurred in the government contracting arena. Shifts one and two are clearly related. The “buying” of services (shift one) will require a new partnership relationship (shift two). Shift three reflects technology as an enabler to provide faster, more cost-effective services.

• From buying goods to buying services. While government will continue to buy goods (although it may do it differently, such as purchasing goods via an electronic catalogue), the driving force behind the procurement revolution has been government’s increasing need to buy services. When buying services, it is not easy to specify the height or weight of the desired product or deliverable. There is now increasing recognition that the role of government is changing—from the purchaser of goods to the manager of the providers of goods and services.
• From a “command and control” relationship to a partnership relationship. Buying services is a more complex and uncertain activity than buying goods. While buying goods can indeed be complex, there are many more unknowns when buying services. Complexity and uncertainty will determine the type of relationship and interactions required in managing large contracts in the 21st century. The concept of operating as partners is indeed revolutionary for government. It was not part of the traditional model.
• From a paper-based procurement system to electronic procurement. The third shift is just as profound and significant as the first two. This shift will also significantly alter the way procurement officials operate. While the first two shifts centered on the impact of the shift from buying goods to buying services, electronic procurement will likely have an important impact on government’s ability to buy goods more quickly and efficiently at a reduced cost.

Leverage Alternatives to Traditional Contracting

Over the past four years, the Obama Administration has introduced the concept of “prizes” and “challenges” into the Federal lexicon.  As noted on www.challenge.gov, agencies can use challenges to ask third parties “to identify a solution to a particular problem or reward contestants for accomplishing a particular goal. Prizes often accompany challenges and contests.  Challenges can range from fairly simple (idea suggestions, creation of logos, videos, digital games and mobile applications) to proofs of concept, designs, or finished products that solve the grand challenges of the 21st century.”  You can look to challenges and prizes as another means of leveraging the private sector to get things done quickly and effectively.

Align Your Expectations with Contracting Realities

Finally, it will be crucial for you to align your expectations in this area. While all the areas discussed in this book will be challenging, contracting presents special challenges. Specifically, challenges include:

• Dealing with a cumbersome, process-bound system. For legitimate reasons, there are no “shortcuts” in the world of contracting. You will have to be patient and rely heavily on the advice of your contracting experts. Their job will be to keep your agency procurements moving along while in full compliance with the rules of the system.
• Dealing in a highly contentious area. Over the past decade, the pendulum has continued to swing back and forth from flexibility-driven to rule-tightening contracting reforms. You can expect the pendulum to continue to swing; in recent years, it has been moving toward rule-tightening reforms.

Relevant reports from the IBM Center since 2008:

Challenge.gov: Using Competitions and Awards to Spur Innovation by Kevin C. Desouza (2012)

Kevin C. Desouza’s “Challenge.gov: Using Competitions and Awards to Spur Innovation,” examines the cross-government electronic platform, Challenge.gov, through which agencies can pose problems and challenge the public to provide solutions.

Improving Government Contracting: Lessons from Bid Protests of Department of Defense Source Selections by Steven M. Maser (2012)

Bid pro­tests and source selection processes have received increasd attention in the past few years: a recent GAO study reported a government-wide increase in the number of protests by government contractors.

Professor Maser’s conducted in-depth interviews with mem­bers of the acquisition community, and analyzed  bid pro­tests submitted to the Government Accountability Office (GAO) involving Department of Defense (DoD) agencies between 2001 and 2009.  His work yields nine findings with recommendations for changes that can improve the source selection process.  

Contracted Versus Internal Assembly for Complex Products: From Deepwater to the Acquisition Directorate in the U.S. Coast Guard by Trevor L Brown, Matthew Potoski, and David M Van Slyke (2010)

This report focuses on providing lessons learned from the transition and offers three recommendations for contract management staff, agency executives, and congressional and executive-level policy makers.  A key argument is that the federal government will need to enhance its contracting capabilities (including the number of personnel working on acquisition) to manage the “assembly” of complex products.

In the case of the U. S. Coast Guard, the last several years have been spent on enhancing both the capability and the size of CG-9, the Coast Guard Acquisition Directorate. One lesson from the Coast Guard experience is that federal agencies cannot easily turn the “switch” overnight from an external LSI to moving the LSI role in-house. 

The Challenge of Contracting for Large Complex Projects: A Case Study of the Coast Guard's Deepwater Program by Trevor L Brown, Matthew Potoski, and David M Van Slyke (2008)

When the government buys simple products, like paper clips, they can turn to well-established acquisition strategies and practices and apply them to richly competitive markets. When government agencies buy complex products, like weapon systems, conventional acquisition approaches are often insufficient and markets are more challenging.

This report examines contracting for complex products by reviewing the U.S. Coast Guard's experience with its Deepwater Program. The Deepwater Program was a major "system of systems" acquisition to upgrade and integrate the Coast Guard's sea and air assets (such as boats and airplanes). Based on their analysis of the Coast Guard experience, the authors offer lessons for the future as the government continues to face the challenge of acquiring complex products.

Six Practical Steps to Improve Contracting by Allan V Burman, Ph.D. (2009)

With the passage of the Stimulus Bill, having an effective federal contracting function will be critical to the success of the Bill. While many observers see the current federal contracting system as broken, the seminar participants identified a series of practical steps that can be taken now to begin to fix it.

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Read about our efforts to update the Operator's Manual.

Read our other Operator's Manual Blog,an update of Chapter One: Leadership.

Read our update of Chapter Two: Performance.

Read our update of Chapter Four: Money.

Read our update of Chapter Six: Technology.

Read our update of Chapter Seven: Innovation.

Read our update of Chapter Eight: Collaboration.

Read the original chapters of the Operator's Manual.

Read materials related to Governing in the Next Four Years.