Management Matters Management MattersManagement Matters
Practical advice for federal leaders on managing people, processes and projects.

Before Slashing Budgets, Find the Savings


It was a bold move for a government entity. In 2005, the commonwealth of Pennsylvania hired a private company to overhaul the archaic way it buys goods and services. It seemed simple enough, but what was innovative -- and daring -- was a key condition: 30 percent of the contractor’s compensation would come from the savings achieved. No savings, no payment.

Putting such a risk on the contractor paid off handsomely. Among other things, officials combined the buying clout and pricing data of all 89 executive branch agencies and departments to strike better deals. Without cutting a single program or service, Pennsylvania saved more than $140 million, or 21 percent, from its annual $700 million tab for everything from office and cleaning supplies to information technology services and tires. The savings far exceeded projections.

Pennsylvania is not alone. Similar value-based contracts enabled the New York City Board of Education to shave $86 million from its $720 million procurement budget, and state and local agencies are experiencing similar savings.

At a time when the federal government is looking to slash trillions of dollars from its budget to curb the national debt, it’s time for Washington to consider the same approach on a broad scale. Even before the 2011 Budget Control Act was passed, the Defense Department, for example, faced the daunting challenge of cutting $465 billion over the next 10 years. If value-based deals could be struck by the Pentagon and other agencies whose budgets dwarf state and county spending, then the federal government would be much better positioned to achieve significant savings on products and services.

In fiscal 2011, the federal government spent $269 billion on services, excluding research and development. If the government could cut 20 percent of that sum -- the same percentage that state and local governments have been able to achieve -- that would result in savings of $53.8 billion, a significant sum by anyone’s measure.

The federal government already has shifted significantly from its routine contracting practices. For many years, a high percentage of its contracts were cost-plus agreements written in a way that guaranteed contractors a profit beyond simply covering their costs. Under cost-plus contracts, companies had no incentive to reduce spending, so the government began favoring fixed-price contracts, which put more of the risk for overruns on the contractors. But there still was no incentive to save money. So, as agencies focus greater attention on cutting costs, the time has come to take the next step and tie at least some contractor payments to their ability to identify and achieve savings.

This is good for government in several ways. First, it holds contractors accountable and provides a better return on investment if they succeed. If contractors do not succeed, then they don’t get paid.

Value-based deals can change the future of contracting by giving agencies a chance to align their budgets within the confines of tighter fiscal realities. Rather than writing contracts that offer bonuses for a job well done, which is how some agreements are structured, agencies should design value-based deals that are ruthlessly outcome-centric.

The trend is forcing government and industry to forge new partnerships: Vendors are betting that their work will achieve maximum results, and agencies are reducing the risk of costly failures at taxpayers’ expense.

Two years ago, President Obama declared: “It's time to fundamentally change the way that we do business in Washington. To help build a new foundation for the 21st century, we need to reform our government so that it is more efficient, more transparent and more creative. That will demand new thinking and a new sense of responsibility for every dollar that is spent.”

The states are the laboratories in which government innovations can be tested and, if successful, adopted in Washington. Value-based contracting is one of those pilots ready for prime time -- and desperately needed -- at the federal level.

John Goodman is a managing director and Stephen Pimpo is a senior executive of supply chain and operations in Accenture’s U.S. defense and intelligence agency business.

Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Sponsored by Brocade

    Best of 2016 Federal Forum eBook

    Earlier this summer, Federal and tech industry leaders convened to talk security, machine learning, network modernization, DevOps, and much more at the 2016 Federal Forum. This eBook includes a useful summary highlighting the best content shared at the 2016 Federal Forum to help agencies modernize their network infrastructure.

  • Sponsored by CDW-G

    GBC Flash Poll Series: Merger & Acquisitions

    Download this GBC Flash Poll to learn more about federal perspectives on the impact of industry consolidation.

  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

  • Sponsored by Aquilent

    A DevOps Roadmap for the Federal Government

    This GBC Report discusses how DevOps is steadily gaining traction among some of government's leading IT developers and agencies.

  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

  • Sponsored by CDW-G

    Joint Enterprise Licensing Agreements

    Read this eBook to learn how defense agencies can achieve savings and efficiencies with an Enterprise Software Agreement.

  • Sponsored by Cloudera

    Government Forum Content Library

    Get all the essential resources needed for effective technology strategies in the federal landscape.


When you download a report, your information may be shared with the underwriters of that document.