Report says government should focus on quality of contracting competition

By Elizabeth Newell Jochum

October 9, 2009

Agencies should focus on increasing the quality, not just the quantity, of competition in contracting, according to a new report from the Federal Acquisition Innovation and Reform Institute.

One of the key challenges in assessing federal competition is a lack of consensus on its key goals and measurements of success, said FAIR Institute President Raj Sharma. The most common question raised to gauge competition is determining how many contracts or how many dollars were competed, according to Sharma.

But agencies instead should concentrate on ensuring they are creating a competitive, innovative marketplace for federal contracts that ensures the lowest life-cycle costs for purchases, the report concluded.

"It's the quality of competition we need to look at in combination with the quantity of competition," Sharma said. "For example, if we determine we're increasing full-and-open competition, are we attracting the best suppliers and the best capabilities?"

While the Obama administration and other stakeholders agree that competition is an important element of a healthy acquisition system, there isn't consensus on whether the government is making progress. "There is no consistent definition for competition. To be able to say whether competition is increasing or decreasing, when there's no consensus definition, is hard," Sharma said.

The FAIR Institute reported that the current competitive environment does not allow government to attract the most innovative and capable suppliers or to manage total life-cycle costs effectively. The group identified three primary issues hindering progress: limited knowledge of industry or supplier capabilities, economics and cost structures; a complex acquisition process and unique government requirements; and common acquisition strategies such as aggregating unlike requirements.

These issues create an acquisition environment Sharma likened to the federal hiring process -- "complex, lengthy and unattractive for the best candidates." Among the most detrimental consequences are a process and requirements so excessive they discourage some qualified companies from competing in the federal marketplace. Many of those that do choose to compete incur significant costs to overcome barriers to entry, costs that are eventually passed on to the government and taxpayers.

The report also criticized the government's cost management and negotiation strategies, which neither reduce cost nor improve performance, observers said.

"The government often ends up in situations where it pays higher prices and also ends up with higher total costs," the report stated. "Suppliers end up frustrated and sometimes walk away from government work."

Sharma said private sector companies best known for their procurement practices have a deep understanding not only of their economics and the cost of their own business, but also of suppliers at every level. This understanding allows for more productive negotiations and the ability to address cost drivers, he said.

"The philosophy has been that by openly competing, we get the best price; that is not true," Sharma said. "Competition by itself doesn't ensure best value."

To ensure best value and productive competition, the government should adopt a more "proactive, systematic and holistic" approach to competition, the report stated. Agencies should develop a common set of definitions and metrics to measure competition, devise strategies to mitigate barriers to entry and attract the best suppliers, strengthen internal capabilities to perform industry analyses and cost modeling, and ensure acquisitions strategies enhance competition and limit risk in sole-source situations.

By Elizabeth Newell Jochum

October 9, 2009