Buying Smarts

Procurement offices once were known as the black boxes of government: Managers' requests for goods and services went in, but they didn't come out-at least not for a very long time. Now it's time for managers to start thinking outside the black box. Acquisition reform is transforming relations between program people and their former adversaries in acquisition. The black boxes are emitting a new message: We care.

"When I did research on procurement during the second half of the 1980s, contracting people called program people 'they,'"says Steven Kelman, administrator of the Office of Federal Procurement Policy. "The most common attitude was that program people will try to evade the necessary regulations and controls and waste the government's money if left to their own devices. Now front-line procurement people use the word 'customer' for program people."

Smart managers are latching on to that customer service attitude. They're bringing procurement people into the front end of business planning, not dropping already completed purchase requirements over the transom of the contracting office door. "We're seeing a pendulum swing from: 'All they do is tell you what you can't do,' to 'Lots of times they have good ideas. They give us options and let us know if there's trouble up ahead if we do things a certain way, so let's get them involved,' " says Arlyce Dubbin, director of the Veterans Affairs Department headquarters acquisitions operations and analysis division. Slowly but surely, the view of procurement offices "is going from being a brick wall to a hurdle to a speed bump," says William Gormley, General Services Administration assistant commissioner in the Federal Supply Service acquisition office.

Mastering the basics of purchasing innovations can prepare managers to play the new roles acquisition reform envisions for them in crafting work statements that hold contractors accountable, evaluating contractors' performance, dealing with vendors face-to-face and performing market research. The bottom line is: Managers can use acquisition reform to get exactly what they want faster and with fewer hassles.

Going Commercial

Like all the other elements of government reinvention, acquisition reform seeks to make government act more like the private sector. In the commercial world, companies save time and money by buying commercial goods, not developing unique specifications where available products would suffice.

Now government's going commercial, too. No longer will engineers or program people develop requirements with no idea what the commercial market has available and little concern for cost. The 1994 Federal Acquisition Streamlining Act (FASA), and the 1996 Clinger-Cohen Act (formerly the Federal Acquisition Reform Act and the Information Technology Management Reform Act) cut away rules and reporting requirements to make government buying simpler. Agencies are to do market research and not develop new requirements when commercial items would do. Every new requirement must be vetted to see whether it could be reworked to permit the use of commercial items.

Where government traditionally has kept buyers on a short leash, private firms learned long ago to trust program managers with the freedom to use their knowledge and experience to buy best value products and services. The recent proliferation of purchase cards in government may be the best evidence that Uncle Sam is following industry's lead and loosening his grip.

Fantastic Plastic

In fiscal 1995, 186,000 government employees made more than 4 million purchases worth more than $1.6 billion using the International Merchant Purchase Authorization Card (IMPAC) from Rocky Mountain BankCard System Inc. The cards first became available in 1989, but were used sparingly in the highly cautious acquisition culture. In fiscal 1990, the first full year cards were used, they accounted for 271,000 purchases worth more than $64 million. Usage took off after the National Performance Review began touting the cards in 1993, FASA promoted them and eased their use, and the Federal Acquisition Regulation (FAR) was rewritten to make IMPAC the preferred purchasing vehicle below the $2,500 micropurchase threshold. Card purchases increased 1,500 percent between fiscal 1990 and 1995.

Managers are nearly unanimously delighted with the cards. Top government information resources management officials ranked purchase cards among their favorite acquisition reforms in an Information Technology Association of America survey last fall.

Managers in lower tech specialties also are fans of plastic. "We use [purchase cards] as a way of life now," says Michelle Oppenheimer, Federal Communications Commission human resources director. "We have a supply branch which stocks office supplies, but we might have a need for a particular training course for something not in the regular stock. They could have ordered it and it would take three weeks. We take the credit card and go to Staples."

VA's Dubbin cautions that IMPAC use makes it a bit harder for her acquisitions shop to maintain VA's agencywide database of procurement actions. The database allowed VA to standardize supplies used throughout its health care system aggregating agency demand to get significant price breaks. Contracting officers used the database to convince VA hospital heads how much they could save by using standard products bought from fewer vendors. Purchase cards present two potential problems for VA's standardization effort: They don't show up on the database and they open the door for uninformed hospital staffers to buy non-standardized products thereby losing price and volume advantages.

The Future's in the Cards

Despite risks like those outlined by Dubbin, and the culture change needed to hand off buying authority to non-acquisition staffers, some contracting shops are enthusiastically embracing purchase cards as a means of survival. Budgets are tight and procurement is among the occupational categories targeted for downsizing, so Mark Lumer, head of contracting for the Army Space and Strategic Defense Command, seized upon purchase cards as a way to direct the attention of his dwindling staff to larger acquisitions where they could do the most good.

"Credit cards save us $90 per transaction," Lumer says. "To enforce use of credit cards, no one in the contracting office works on procurements worth $2,500 or less." As a result of Lumer's fervor, his command does more than 80 percent of eligible transactions by purchase card.

GSA is in the midst of renegotiating contracts for the purchase cards as well as government travel and fuel cards; all three contracts expire in November 1998. GSA plans to move from single to multiple contractors on the three deals and to seek bids on a fourth "integrated" card that would provide travel, fuel and purchase services.

To Market, To Market

Another set of acquisition changes pushes procurement and program people to use industry's smarts to drive better contract bargains. Reform legislation is filled with exhortations to get up close and personal with vendors, even before seeking their bids. "If you have a database requirement, you need to learn what kinds of databases are in the market and available so you don't write a requirement that would lead to expensive and risky custom software," Kelman says. "If you need to figure out how to buy elevator maintenance, you talk to the building manager. You do market research to find out, if I decide I need a repair guy on site in an hour, is that reasonable or is the market standard four hours?"

Market research isn't solely the province of procurement people. When program managers contemplate new projects and new requirements, they're expected to tailor their plans according to what's already on the market. That information is available in a variety of places. Many agencies send program managers to industry trade shows and regularly update industry about future needs. Program people also can browse industry and government electronic catalogs via the Internet. The Defense Department's Commercial Advocates Forum collects in one place many of the tools and World Wide Web sites managers need to conduct electronic market research.

Using Industry's Smarts

When you're preparing a purchase, it's also OK to invite vendors to help draft the solicitation for bids. The insights of prospective bidders can help your agency avoid asking for the moon or settling for too little. When seeking bids, your procurement staff can advise promising firms to get in on the action and can caution others that they might not make the grade technologically or on past performance grounds. Vendor proposals also can take new forms. Oral, even video, presentations can replace reams of paper, giving program and procurement people a better feel for vendors' ideas. The Interior Department Minerals Management Service reports it cut contract award time nearly in half by using oral proposals to hire a firm to analyze a change in testing of blowout prevention equipment on offshore oil and gas drilling rigs. Vendors also can provide existing product literature instead of writing detailed technical proposals. They can even let end users, program managers and procurement staff come in and take equipment for a test drive.

"Between 1993 and 1996, there have been major changes in the government's willingness to get industry's input," Kelman says. "It's been useful and valuable because a lot of times private sector folks are very knowledgeable and save us from mistakes in the solicitation." For example, vendor input led the IRS to change its strategy for a Tax Systems Modernization computer acquisition. A vendor analyzed the existing contract and recommended IRS use GSA's multiple award schedules instead. IRS took the suggestion and scrapped its previous strategy. Meetings with vendors also helped the acquisition team tailor its requirements to the marketplace. The revamped process made the contract attractive to more bidders by cutting their bidding costs.

Past Performance

While improved communications with industry can make bidding on government work cheaper, faster and more competitive, the growing emphasis on choosing contractors with top-notch performance records is freeing program managers from the tyranny of the lowest price. In the past, almost every manager had a horror story about a head-on collision with a contracting officer who stubbornly refused to pay more for a name brand product and substituted a lower cost no-name that didn't work.

Traditionally, agencies awarded contracts by analyzing lengthy, detailed technical and management proposals and favored low price over any other factor. Firms skilled in writing proposals often won out over those with better performance records. Since taking the OFPP helm, Kelman has been on a crusade to make sure that performance is given its due in selecting contractors. "When we meet with [government] end users to assess their needs there is a much greater focus on the value of a solution as opposed to finding the cheapest product," says Phil McGovern, marketing staff manager at Lucent Technologies. Today, past performance must be considered in awarding contracts worth more than $1 million.

The growing weight of past performance works to the advantage of program people but requires more of them, too. Managers always have informally tracked which vendors delivered and which were dogs, but the preeminence of price in selecting contractors often rendered this knowledge useless. Program people can say they want performance to count more in a given acquisition and now procurement people, reformed to seek best value, are likely to go along.

But in exchange for getting their experience to count more, managers and end users are expected to help formalize the collection and use of past performance information. OFPP would like each agency to set up a system for capturing performance information on every contract larger than $100,000. Contractors are to be rated on quality, timeliness, cost control, business relations and customer satisfaction. Agency contract and technical offices and end users of products or services will be telephoned, interviewed and/or asked to fill out questionnaires to collect performance data. Gradually, the calls and questionnaires are to give way to report cards on each contract.

Skeptics say collecting the information isn't worth the trouble. Arthur D. Little company did a study for the Defense Department that found that previous attempts to make information collection routine foundered "because the value of the information . . . was not found to offset the cost and administrative burden of collecting, validating and maintaining" it. In December, Kelman suspended the mandatory use of past performance information for contracts worth between $500,000 and $1 million. He said OFPP and agencies need time to work out the type and amount of information needed and to determine whether using past performance data is cost effective for smaller contracts.

Nevertheless, OFPP still is pressing teams evaluating contractor proposals to consider past performance. And not just any old performance will do. What's important is how a bidder performed in critical areas on contracts similar to the one up for bid. Gathering past performance information means being able to rate how contractors do on the job and that means building contracts containing goals and methods for measuring performance. Coming up with performance-based contracts is an art managers and executives are going to have to master.

Performance-Based Contracting

To buy services and products based on top-notch performance, managers will have to become experts on work processes. Whether buying re-engineering services to apply to existing processes, or outsourcing work once done in-house, managers first will have to perform a job analysis, breaking down and re-examining the work already being done and figuring out the outcomes they expect. "Performance-based contracting does require new skills. It's a little pain now versus better performance and lower costs later," Kelman says.

Breaking down work into its constituent parts means taking a second look to make sure all the steps and processes are still needed before paying a contractor to perform them. It's also vital for weeding out broad, imprecise work statements that don't hold contractors accountable. Government used to make up for its poorly defined requirements by micromanaging contractors once they won awards. Now the idea is to closely define outcomes and let contractors figure out how to achieve them. "The program person should be able to rely on the contracting people to help develop a performance-based statement of work, Kelman says. "Contracting people can't tell you how long the grass should be or all the performance dimensions you need, but they should help you go through the questions: How will I know if the contract is a success, and for each element, how would I know if it was done well?"

Most of the performance-based contracts let so far have been for services, though OFPP wants to see the method applied to product deals, as well. Performance-based pacts cover everything from grass cutting and cleaning to aircraft maintenance, operation of the space shuttle and restoration of former nuclear production sites.

Performance-based contracting is worth the trouble for several reasons, according to agencies who use it. For one thing, it saves money by getting better work from contractors. It also cuts contract costs 15 percent, on average, according to OFPP. In addition, performance-based contracting forces managers to answer three key questions about current or prospective programs: Should government be doing it? If so, should we be doing it in this agency and this organization? If so, are we doing it in the most efficient, streamlined way, that is, is our process performance-based? Those questions are at the core of reinvention philosophy, as well as the 1993 Government Performance and Results Act-which requires agencies to craft performance plans-and the Clinger-Cohen Act-which imposes performance measurement on information technology systems.

In response to a January 1996 request by former OMB Director Alice Rivlin to expand performance-based contracting, 20 agencies reported they planned to convert 1,142 contracts worth more than $35 billion over the next three years. OMB budget examiners also are on notice to scrub agency funding requests for evidence of performance-based contracting before approving them.

Insight, Not Oversight

NASA and the Energy Department, are throwing significant time and resources into promoting performance-based contracting. It's a massive change from decades of "cost is no object" contracting for both departments during the Cold War era. "It was a 'moral equivalent of war' environment," says NASA procurement analyst Kenneth Sateriale. "We did level of effort contracting: You'd specify the [academic] degrees of the people you wanted and they'd show up and you'd supervise them." Now that the Cold War is over, these two quasi-Defense agencies are strapped for money and desperate to wring savings from the extensive, expensive networks of contractors they employ. NASA plans to save between $100 and $200 million through 1999 by using performance-based contracting. Energy had awarded $27 billion in performance-based contracts by mid-1996.

NASA Associate Administrator for Procurement Deidre Lee stresses performance-based contracting can improve administration of current contracts, a potential source of savings to NASA which spends about $9 billion of its $10 billion annual procurement budget on existing contracts. "At NASA we have tended to focus on the process rather than stating that the contractor should figure out the best way to achieve excellent results," Lee said in a Jan. 15 interview with the National Contract Management Association. "Industry is pretty darned innovative and can figure out ways to accomplish program excellence. It does no good to talk about giving the contractor initiative and then proceed to manage things on a day-to-day basis as if it were a level of effort arrangement. We maintain our insight into what the contractor is doing, but do not give day-to-day direction."

Energy and NASA aren't afraid to ping non-performing contractors, either. Some of their performance-based contracts contain financial penalties for failure to deliver acceptable performance. Under NASA's space station contract with Boeing, for example, the firm is docked 25 cents for every dollar of cost overrun, but earns 25 cents for every dollar saved.

Everybody's Got a Contract

One of NASA's latest acquisition efforts requires its procurement people to look for ways to ride other organizations' or agencies' contracts instead of initiating new ones. The consolidated contracting initiative acknowledges a growing trend in government: the opening of indefinite-delivery/indefinite-quantity (IDIQ), multiple-award contracts to other agencies. Increasingly, these governmentwide agency contracts (GWACs) have become money-makers for cash-strapped, downsized procurement shops which collect fees from agencies that issue task orders against the large contracts. The contracts offer a way for managers to get goods, especially information technology, faster by avoiding the complicated and lengthy process of open competition and negotiation for contracts.

"For information technology and business process re-engineering services (BPR) buyers there's been a revolution over the last year," Kelman says. "The Defense Information Systems Agency's Defense Enterprise Integration Services (DEIS II) contract, the Treasury Department's Information Technology Omnibus Procurement (ITOP) and the National Institutes of Health's Chief Information Officer Solutions and Partners (CIO-SP) contracts are all GWACs with a huge number of contractors for IT and BPR. Where previously it took six months for a task order for one contractor, now it takes one month and you're considering many contractors. If you buy IT services, these contracts are a major change. They are very fast."

NASA hopes forcing the use of its own and other agencies' existing contracts will eliminate redundant acquisitions, but OFPP, vendors and some agencies' contracting shops are concerned about the spread of the task order contracts. "With the proliferation of these contracts, where a vendor is on six contracts, does the government lose leveraging on buying power by splitting up [its] demand on so many contracts?" Kelman wonders. Vendors aren't sure what they've won for their trouble when they get in on the contracts since quantity of sales can be uncertain. Issuing task orders against existing contracts reduces contracting costs, but deprives contracting office staffers of opportunities to give full rein to their skills-and thereby justify their existence. OFPP will be looking closely at the contracts, Kelman says, to make sure buying power and competition are appropriately balanced.

Blanket Purchasing

By rights, FSS, the agency whose raison d'etre is procurement, should be concerned about the threat to its existence from other agencies' open contracts. Instead, the FSS schedules had a banner year in 1996 and they're seeing a resurgence of interest from both agencies and vendors. Why? Because many restrictive rules are gone and some vendors have been beating the drum for the new, improved schedules. Among the most significant improvements: the schedules no longer are mandatory, they let agencies negotiate lower prices, and there's no more maximum order limitation. "With the changes in the schedules, there's been an explosion of business on our end. We picked up $1 billion in information technology alone last year," says Gormley.

Lately, FSS has taken the fight directly into the IDIQ arena, promoting blanket purchase agreements (BPAs) with its multiple award schedule (MAS) vendors. Agencies can strike blanket agreements with schedule vendors to cover any amount of products or services in any location. They can negotiate price discounts. If a vendor can't meet a complex requirement, the firm can team with other firms on the schedule. BPAs also let agencies get the latest version of technology quickly and easily, Gormley says.

Late last year, for example, the Naval Information Systems Management Center awarded four three-year BPAs worth $90 million for more than 23,000 desktop personal computers and servers. The center chose BPAs to replace its own IDIQ contracts after the Navy's Tactical Advanced Computer Project Office decided FSS blanket purchase agreements were the best vehicles for large information technology contracts. The previous contract's request for proposal (RFP) was more than 1,000 pages long; the blanket purchase RFP would have run a little less than four typewritten pages, but it was delivered electronically. Vendor

proposals for the first contract were delivered in trucks in dozens of three-ring binders. Proposals for the BPA were submitted and evaluated electronically.

Not only are the FSS schedules becoming popular with agencies contemplating large purchases, vendors like them, too. Firms save millions each time they get a blanket purchase agreement and avoid pulling together a massive, costly IDIQ bid. Lucent Technologies, a schedule vendor, produces Central Source, a quarterly newsletter to encourage government procurement people to use GSA schedules. The September 1996 issue offered a coupon worth 5 percent off on Lucent telecommuting solutions purchased through the schedules.

Getting Smart

As acquisition reform is takes hold, top officials are helping people outside the procurement offices take on larger roles in buying smarter. Executives are prodding procurement staffers to act as consultants to program colleagues who are taking on more acquisition responsibility. President Clinton and Vice President Gore are holding political appointees' feet to the fire on acquisition reform, as well. In the "Blair House Papers," reinvention marching orders presented to all Cabinet secretaries in January, Clinton and Gore direct department heads to ensure agencies are using common sense procurement policies by:

  • Asking front-line managers whether they have purchase cards and whether the cards ease small purchases.
  • Making sure internal procurement rules reflect acquisition reform.
  • Asking whether the agency routinely uses performance-based contracting.
  • Finding out whether the agency is taking advantage of improved FSS schedules.
  • Seeing to it that contractors are chosen based on their past performance.
The message from the top couldn't be clearer: Everyone is responsible for knowing and using buying reforms.
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