overnment is moving away from buying goods and services piecemeal toward acquiring business solutions aimed at achieving agencies' results-based strategic goals. The change has forever altered what agencies buy, how they buy it, who is involved in buying and the role of acquisition in overall agency management.
Government Executive, along with the Council for Excellence in Government and the Office of Federal Procurement Policy have joined to recognize the people and programs leading this transformation with the Business Solutions in the Public Interest Awards, given this year for the first time. The awards, sponsored by Visa USA, FedBid.com and US Bank, celebrate those who have wrung success from daunting changes in the role and work of acquisition experts in government.
Where supplies and equipment once dominated federal purchases-accounting for $145 billion, or 56 percent, of contracting dollars in 1985-that category now takes a back seat to contracts for services-the largest acquisition category at $78 billion, or 43 percent of total spending, in 1999-according to recent General Accounting Office testimony (T-OGC-00-7). Supplies and equipment fell to just $64 billion, or 35 percent of spending in 1999. The Defense Department, which accounts for 67 percent of government's prime contracts worth $25,000 or more, increased its purchases of services from $39.9 billion to $51.8 billion between 1992 and 1999; procurement of goods fell from $59.8 billion to $53.5 billion over the same period.
Government is buying more services primarily for two reasons. First, downsizing has forced agencies to replace federal workers with contractors. For example, DoD's inspector general reported in March that "functions now being contracted out include strategic plans, participating in the preparation of acquisition plans, source selection plans and other pre-proposal source selection documentation, and performing contract administration and quality assurance on other contractors' operations." ("Contracts for Professional Administrative and Management Support Services," March 31, 2000, D-2000-100.) Until recently, that work was reserved for federal employees. The other key reason for the rise in service contracting is a mosaic of laws and regulations requiring agencies to measure and achieve concrete mission results. The results imperative compels program managers to turn away from buying supplies, equipment and labor and cobbling them together to accomplish work. Instead they are buying services, in the form of comprehensive solutions, that combine all those elements and are aimed at achieving strategic agency goals.
Downsizing in acquisition offices, coupled with the need to complete purchases more quickly, especially in the fast-evolving information technology area, has led to changes in the way government buys. The Pentagon alone has reduced its acquisition workforce by 50 percent since 1990. A vast increase in the use of purchase cards and other simplified and streamlined commercial buying practices has helped acquisition offices offset the impact of downsizing. In the past, for example, agencies crafted their own contracts, often with single vendors for long periods of time. Today, the trend is toward issuing task or delivery orders against other agencies' contracts. Those contracts almost always are negotiated with more than one vendor.
Sales on governmentwide multiple-award contracts negotiated by the General Services Administration's Federal Supply Service have grown from $4.5 billion in 1993 to $10.5 billion in 1999. Other agencies have entered the buying business as well, particularly in the information technology realm. Governmentwide acquisition contracts (GWACs) and multiple-agency contracts (MACs) allow one agency to aggregate other agencies' demand in order to win lower prices. Those with GWACs and MACs also can collect fees from other agencies using their contracts. The fees have helped keep contracting and procurement offices alive during deep downsizing in acquisitions.
Performance Beats Price
Recent times also have seen a change from the days when program people slipped their requirements under the door to contracting and procurement staffs and then waited-sometimes endlessly-only to get cheap products and services that often were lower quality than they had requested. Nowadays, program people are deeply involved in almost every acquisition, and best value has replaced lowest price as the determining factor in government procurement.
As price has receded from its primary position in selecting contractors and services contracting has begun to predominate, performance has risen to prominence. Agencies have begun collecting and sharing information about their good and bad experiences with various firms and are considering past performance in selecting providers. This increased focus on performance also draws program people more deeply into the buying process as assessors of contractor quality.
Performance-based service contracting begins with a new kind of description of what is being sought from contractors. In the past, program and procurement staffers meticulously detailed what contractors were to do and how they were to do it. The resulting contracts often offered to reimburse contractors for extra costs. Such costs were common because writing a perfectly complete description of every aspect of a process or task was impossible. Government and contractor usually worked out the true process and tasks only after the contract was signed and under way. As a result, agencies assumed most of the cost of changed requirements as well as the cost of failure.
Performance-based contracts, on the other hand, begin with statements of the results sought or problems to be solved. Crafting those statements calls on program and procurement people to more clearly understand agency mission and program goals and to more clearly state them upfront. The resulting bid requests call on contractors to use their ingenuity to devise innovative solutions. Results-based contracts for solutions move performance risk off the government and onto the companies. The performance approach enables the government to reduce its use of cost-type contracts in favor of less expensive fixed-price pacts.
Contracts drafted this way contain per-formance measures agreed upon by both parties. The government monitors and measures contractor performance through the life of the deal, again placing added responsibility on program people who can best assess the quality of contractors' services.
Buying Business Solutions
In this changing environment, the role of contracting and procurement staffers is evolving as well. Once focused on enforcing procurement rules and driving down prices, acquisition experts now must become business advisers developing strategies for driving effective deals in commercial markets, partnering with top-notch providers and acquiring the best overall solutions for government programs.
Acquisition staffers' narrow focus on procurement and contracting is being thrown open to encompass program planning, budgeting, goal-setting, risk analysis, market research, capital programming, IT management and development of requirements and strategy. No longer do acquisition staffers' duties stop with the contract award. They include tracking cost, schedule and performance during the contract as well as adequate closure once it ends.
What's more, acquisition specialists must address all the elements of business management as members of teams that also include program, finance, technical and often information technology experts.
The winners of this year's Business Solutions in the Public Interest Awards exemplify the transformation in federal acquisition and presage the future. Take the National Mail Order Pharmacy program of the Defense Supply Center-Philadelphia (DSCP), for example. It's a bellwether of DSCP's move away from buying supplies and equipment toward buying services. Instead of attempting to buy and distribute prescriptions to the Defense Department's 7.2 million eligible active-duty service members, retirees and dependents, DSCP bought the services of a private contractor, Merck-Medco Managed Care. Merck-Medco receives prescriptions, certifies beneficiaries' eligibility, makes sure participants are receiving the correct drugs in the right amounts, monitors drug interactions, verifies prescriptions, and dispenses and mails the drugs. The firm also runs a customer service center. DSCP created an automated system for monitoring the contractor, but otherwise isn't directly involved in drug delivery. That's quite a departure for an agency whose raison d'etre used to be filling warehouses and distributing supplies.
The Bureau of Primary Healthcare's 100 Percent Access, Zero Health Disparities campaign showcases how agencies are moving out of directly delivering services, in this case by taking advantage of partnerships with nonfederal entities. Upon discovering it was reaching just a quarter of the 43 million Americans who are underserved and underinsured for healthcare, the bureau had to find a way to reach nearly 33 million people without adding staff or budget. It is accomplishing the goal by identifying communities that have eliminated health disparities and guaranteed care to the underserved and matching them with communities in need of help. The bureau funds efforts to replicate communities' successes, pairing civic leaders from a mentor community with those of a locality in need of assistance. The bureau doesn't fully fund each effort. Rather, it has come to see itself as part of a "social marketing" effort, sharing the success of certain communities.
The Air Force's Hunley Park Military Family Housing Renovation shows how performance-based service contracting can save significant amounts of time and money, even when the winner of the contract isn't the lowest-price bidder. Congress provided money for the renovation on condition that it be spent quickly. So the Air Force had to alter its normal approach to renovation projects, which usually required 180 days just to develop a design. Instead, the 437th Contracting Squadron pulled together an integrated team of experts to conduct various aspects of the project concurrently. They devised a way to avoid common and costly renovation contract modifications caused when unexpected problems appear as construction proceeds.
Instead of attempting to define the scope of the contract without knowing all of the potential problems hidden within the walls and yards of old, asbestos-insulated houses, the squadron required the contractor to experiment with just a few homes. Prototyping revealed site conditions before the contractor ordered mountains of equipment and materials to complete the entire job. The acquisition team also required all bidders to provide evidence of past performance in whole-house renovation and underground utility upgrades. The best-value contractor selection, trading off price against past performance, weeded out the low bidder, whose experience was far too limited. Future occupants visited the prototype houses to make suggestions for improvements in the design. The acquisition innovations added up to a total cost increase of just $35,000, or 0.06 percent, a mere fraction of a typical renovation project overrun.
NASA, long a leader in acquisition innovation, combined a performance focus and contract improvements in its Rapid Spacecraft Acquisition Program to cut the time to award contracts by 80 percent, slash delivery time by 40 percent and save $20 million per space mission. The program also moved the agency further out of the spaceship building business and closer to its preferred role as the world's leader in space research and development.
NASA used fixed-price, performance-based, indefinite delivery/indefinite quantity contracts to compile a catalog of commercially built small and medium-sized spacecraft for NASA project managers and customers. The program expands NASA's access to multiple suppliers, and by reducing the NASA resources required to field a mission, allows project managers to spend more on data-gathering instruments and less on spacecraft. Private firms bear all the costs of designing and building the craft and must pay NASA back or replace craft that don't work.
What NASA has accomplished in speeding up spacecraft acquisition, the General Services Administration's Federal Supply Service does every day by providing every agency an online catalog of 1 million products offered by more than 2,000 vendors at reduced prices, reflecting government's vast demand. GSA Advantage! lets federal employees with purchase cards or agency accounts search for products and services on the Web site and order them immediately.
GSA Advantage! beat Amazon.com and other dot.coms to the Internet, opening its virtual doors in 1995, when World Wide Web technology was brand new. Coupled with the smashing success of federal purchase cards-card transactions are up from 2,000 worth $460,000 in 1989 to 21 million worth more than $10 billion today-GSA Advantage! squeezes time and personnel savings out of purchasing, freeing people and money for work that is directly mission-oriented. The site is searched once a second during the day and once a minute at night, handling more than 1,000 orders worth $500,000 every day.
The Navy's Sailor Arranged Move (SAM) program combines the ease of purchase card buying with direct customer involvement, a focus on past performance and use of innovative purchasing techniques. The package ends up delivering a big morale boost to sailors. SAM is an experimental program that lets sailors choose their own moving companies based on the previous experience of their colleagues with the firms. That's a big switch from the traditional method under which the Military Traffic Management Command divvies up service members' business evenly among carriers. Putting customers in the driver's seat forces bureaucracy and contention out of the sailor-mover relationship. Letting sailors choose firms based on their track records adds a vital performance piece to the deal. In customer surveys, 95 percent of SAM customers say they're satisfied with their moves, compared to 23 percent under the traditional moving program. The dollar amount of an average claim for damaged goods has fallen by 50 percent.