GovernmentExecutive.com

alaurent@govexec.com

f the Clinton administration can boast of an unqualified policy success, it's acquisition reform. Born in the Defense Department from the fear of falling behind in the race to keep up in the fast-moving technology market, buying reforms have spread governmentwide. Now they're seeping deeper and deeper into agencies as procurement staffers get the word their regulatory shackles have been broken.

When reform began, just about everybody said radical changes were necessary. Most industry and government players agreed that the commercial market should serve as the model. Now that reform is settling in, however, critics are appearing on both sides. Industry officials complain that electronic commerce is a mess, past performance is unevenly applied, and the stodgy, bureaucratic mind-set is disappearing too slowly from the contracting corps. Government procurement people whose careers were built on knowing and enforcing the rules are finding it tough to transform themselves into flexible, canny business negotiators. They're having to learn a whole new set of tools and rules while at the same time being viewed as fodder for the downsizing mill.

Nevertheless, both sides agree the effects of reform are spreading and while there's room for improvement, the changes aren't likely to be reversed. One key area of contention is the use of past performance data in awarding contracts. In 1994, 25 civilian agencies, the military services and the Defense Logistics Agency pledged to conduct pilot tests of the idea of using past performance data. A study by the Office of Federal Procurement Policy (OFPP) at the Office of Management and Budget showed that on 30 contracts re-competed using past performance information, the average customer satisfaction level increased 21 percent over the previous contract.

More evidence of past performance success comes in anecdotal comments from contractors, says OFPP Administrator Steven Kelman. Kelman told participants in the Acquisition Reform Symposium in Rockville, Md., on June 26 that contractors are reporting to him they're working harder on government contracts now than in the past because they want to get good report cards.

Industry's view of past performance is decidedly more mixed. Also speaking at the reform symposium, Donna Ireton, contracts director at Advanced Systems Development of Arlington, Va., slammed the current use of past performance data as lacking standards and organization. "How is it collected? Is there a database and standardization? No. Everybody does it their own way," she said.

Kelman said making use of past performance routine is one of the remaining challenges of acquisition reform, though "OFPP has not felt the success of the past performance initiative is dependent on having a centralized database. It's up to the agencies," he said, noting that the National Institutes of Health and Energy Department have developed very effective past performance data systems on the Internet and are making them available to other agencies.

As for collecting and using past performance information, Kelman's biggest worry is that source selection officials will inflate vendors' grades and fail to discriminate between bidders whose past performance scores are very close. "The purpose is to reward the excellent," he said.

Ireton says past performance information is actually being used to exclude small businesses from competition for contracts. "In Washington, D.C., a central activity [of an agency] put into a contract that 'only past performance as a prime contractor with this client will be considered,' " Ireton related.

Paying for Performance

Acquisition reform includes a new focus on present performance, as well as past, especially in service contracts, which account for 66 cents of every dollar in civilian agency spending, according to Kelman. In the near future, he expects to see a new emphasis on performance-based service contracts, which hold vendors tightly to targets for performance outcomes while easing scrutiny on how they accomplish the work. "We need to do a better job on work statements and make them focused on results so they aren't too micromanaged, but not so vague they are unclear," he said.

In addition, Kelman said, vendors should expect to see the "turbocharged application of performance-based service contracts" in the form of share-in-savings or gain-sharing contracts. Under these pacts, contractors put up a significant amount of their own money to achieve improved service to meet specific goals. The contractor gets to keep a significant share of revenues beyond those goals. He predicts these pacts will bring vendors deeper into agency operations. "It's going to be impossible to get offerors to sign up unless they can kick the tires of the operation first-in other words, see where cost savings and improvements are."

Such scrutiny will be more palatable as reforms in source selection take effect and agencies are better able to narrow the offerors included in the competitive range on any contract to those likely to win the award. "You'll get a smaller group so you won't have 25 offerors running around kicking the tires," Kelman said. Pending source selection reforms in Part 15 of the Federal Acquisition Regulation should take effect early next year. They will open up communications, so contract officials can give vendors a better idea earlier of their chances in competitions. Firms also should get better explanations of why they lost bidding wars.

Civilian agencies are loudly touting their strides in electronic commerce and electronic data interchange, but vendors aren't always impressed. The Federal Acquisition Computer Network (FACNET), government's effort to present a "single face" to industry for procurements between $2,500 and $100,000, has foundered. In 1995, less than 2 percent of the 2 million procurements in the FACNET range were done over the network. Both agencies and industry have found its infrastructure unsound and its management poor, according to a January General Accounting Office report.

"FACNET is, as of today, a failure," Ireton told the acquisition symposium. Though a number of agencies are successfully using EDI to exchange business documents for procurements, they are doing so primarily on the Internet. This summer, legislators might change the requirement to use FACNET to a more general exhortation to use electronic commerce.

A Big Market

While acquisition reform has changed the face of civilian agency contracting, it hasn't made the market any bigger. In fiscal 1996, civilian agencies spent $56.5 billion on contracts worth $25,000 or more. That was a decrease of 6 percent from the 1995 mark of $60.6 billion. As usual, the top civilian purchasers, NASA and the Energy Department, dominated. Their combined spending was $27.5 billion, almost half the civilian agency total, the same as in 1995.

At Energy, the focus remains privatizing the cleanup of nuclear waste generated at 130 sites in 33 states during Cold War weapons production and energy research. This year, the department has begun an effort to widen its privatization drive, issuing a report listing more than 200 privatization opportunities agencywide.

NASA got good news this year in the form of a $200 million budget reduction to $13.5 billion in the Clinton administration's fiscal 1998 request. The proposed cut was much smaller than NASA officials expected. Overall, the space agency's spending is shifting from human flight to science projects. NASA is pushing performance-based contracting to its limits by privatizing space shuttle operations and using the approach in 57 percent of contracts eligible for it. NASA's next acquisition frontier is a contract to commercialize its communications, command, control and deep space tracking resources, an information technology deal some estimate to be worth $4 billion to $6 billion over 10 years. NASA hopes to acquire the services from a contractor who sells the same services in the private sector.

Among civilian contractors, the Bechtel Group made the biggest strides, springing from No. 16 to No. 5 almost entirely on the strength of Energy Department contracts. Bechtel won one of DOE's largest 1996 pacts, a deal to manage and operate the Nevada test site and, as a subcontractor to No. 2 Westinghouse, picked up part of a $6 billion contract for stabilizing nuclear materials at the Savannah River, S.C. site.