Government Executive - Authors - Patrick J. Keogh

I’m a Former Federal Manager And I Voted For Trump

Patrick J. Keogh — Wed, 31 May 2017 09:19:54 -0400

I voted for Donald Trump. It was not an enthusiastic vote. I’m probably as apprehensive of big change as the next fellow and some of his statements put me on edge. But I had grown very disappointed in the Obama administration. I came to see many of President Obama’s policies as mostly divisive social engineering and as dissipating U.S. leadership in a troubled world. I thought his lack of executive experience hobbled him in creating a consensus among differing views. I believe he saw everything through a political lens. Hillary Clinton’s promise to follow Obama’s policies eliminated any prospect she had of getting my vote.

I was born, raised and educated in New York City. I am a real estate guy long active in private development and investment. I believe, as Calvin Coolidge said, that the business of America is business. When our economy is expanding at a vigorous pace our people tend to be content and when America is strong and assertive the world is a better place. I also had a long career as a real estate executive with the General Services Administration. I have read all of Trump’s books—not because I particularly admired the guy but because I developed a couple of major projects for the feds in the City. So Donald and I have common interests and I think I understand both his lingo and the turmoil some folks in government might feel from his style of governance. I would like to share my perspective of our new president and how he may see his job.

Avoid Stockholm Syndrome

“It’s remarkable how quickly they adapt to and are absorbed by the system.” A senior OMB appointee made that remark to me during the Reagan Administration. The point he was making is that political appointees are quickly captured by the career civil servants or more generally by “the system.” I saw it happen through several Administrations. The career professionals would persuade new appointees that the safe path was to continue to do things the way they had always been done. The career folks would counsel that the government is “different.” Whatever experience the appointees brought from the private sector was not applicable to government, they said. The incumbents argued that getting things done in government took more time and cost more money because of rules and regulations. Poorly performing personnel could not be dismissed or disciplined as they could be in the private sector because of personnel rules and regulations. Things were more expensive and took longer to acquire because of procurement rules and regulations. The appointees, committed to the kinds of change represented, for example, by President Reagan, gradually became apologists for the status quo. It was a kind of bureaucratic Stockholm syndrome. I don’t think Donald Trump will adjust to the system—he expects the system to change to suit him.

Results Matter

Over the years I did lots of real estate deals for the government. I don’t recall anyone ever asking whether any of my procurements were good deals. That is, were they structured on the right terms and at the right price? The bureaucracy saw me as a program manager responsible for “procurements.” It was as though “deal” was a four letter word. My performance was typically measured by whether my procurements were conflict or protest free. I can’t tell you how envious I was of people in procurement positions like mine when President Trump said the cost of Air Force One was exorbitant. In doing that, he was saying price matters. Working for someone with that kind of perspective should empower federal officials to assert the kind of initiative to make sure the people’s money is properly invested. In the federal procurement culture we hear a lot about the integrity of the procurement process. Who is in charge of promoting the best deal results of the procurement system? Let me suggest that we now have a president who takes on that responsibility. Of course, the propriety of the process matters but so do the results. That’s what I hear the president saying: “Get the job done properly but make sure you get good deals.”

Consistency Is Overrated

It has long seemed to me that the worst sin a public official can make is to be inconsistent. I think of it as Chuck Todd Syndrome. Todd’s “Meet the Press” interviews are usually about finding conflicts in someone’s public statements or actions. How often have you heard him and others in the media ask in an interview something like “then, how do you explain what you said during the campaign? Run the clip.” Any inconsistency must mean that the person being interviewed has changed his or her tune for some base personal or political purpose. Maybe they simply changed their mind. Or ,possibly, the earlier position needs to be abandoned to achieve a higher purpose. Take, for example, dropping the position that China is a currency manipulator because the president is soliciting China’s support to control North Korea. What’s wrong with being inconsistent if it keeps the other side off guard? That’s called negotiating.

Consistency is not the objective; getting the best deal is.

It’s Not Lying; It’s Hondling

How many of us have said “I would love to give you your price on that car. But if I paid that my wife would kill me.” Back in New York we call that “wifing the deal.” I often used the approach in government when I thought I could squeeze more cost out of a deal. Downcast, with furrowed brow, I would tell the contractor I had to call Washington before I could finalize the transaction. I would leave the room to make a call that might never be made and come back after a reasonable interval and tell my counterpart that I needed a lower price or better terms for any hope of getting the procurement approved. Was I lying? Who cares? I was doing my job; I was simply hondling. That’s New Yorkese for bargaining. So the frequent accusations that Trump is lying is often merely him setting the table to hondle for the best deal. Try to think of his confident pledge that Mexico will pay for the wall or that the United States will impose trade tariffs as chips to be used in the much larger deal of renegotiating trade and other relationships like NAFTA with one of our largest commercial partners, Mexico.

It’s About Winning

Trump, unlike his predecessors, did not spend years in government. He didn’t take the course on avoiding even the appearance of a conflict of interest. He was not trained on walking a verbal tightrope or flack catching. He didn’t learn to spin or be defensive in everything he says and does. He came from a world where they measure your performance by your runs, hits and the final score. He’s not so good on defense; it’s all about offense. It’s less about avoiding mistakes and all about winning.

Governance As Sailing

Trump has a strong pro business and American leadership agenda. He’s heading in that direction, but, he approaches governance like he approaches his business—it’s all about tacking as though sailing. He will always be heading toward his goals but he will be constantly tacking one way or another depending on conditions. By contrast, I think prior administrations approached governance like driving. They announced their destination at the outset to friend and foe alike. Then they headed as fast as possible toward their goal, mindless to changes and the negative consequences of all that speed.

Let’s Try This His Way

My last assignment in government was with Vice President Al Gore’s National Performance Review. The goal of the NPR was to “reinvent” the government. The NPR was mostly an attempt to adapt private practices to the way government conducts its business. By the time I started at the NPR I had concluded that rules and regulations generally were not the problem. Rather, the main reason government underperforms in comparison to the business sector is the difference in incentives. Government simply lacked the right incentives—most notably, there was no competitive incentive to improve outcomes. I was enthusiastic about the NPR but disappointed by the results. I came to think of the NPR as a noble attempt at reform, but because it was created and run by incumbents it lacked the energy and drive to make real change. We have now elected a 70-year-old business executive not so much to reform government but to fundamentally change government. Maybe it’s best to take him at his word that his family owes a lot to this country and he saw it heading in the wrong direction. He’s a deal maker and a negotiator. I don’t think he plans to adjust his approach to accommodate the status quo or the media’s view of what’s acceptable.

I think Trump has made superb selections for his vice president and cabinet, and as citizens we should be grateful for these folks’ service. They’re not doing it for the money. The president’s critics have cast aspersions on his cabinet as a bunch of billionaires. I think we should be thankful for the service of such successful people. Just think about the likes of Betsy DeVos leading the Education Department. She has spent her time and considerable wealth to reform a failing national public education system. She must now lead an entrenched bureaucracy on a fundamentally new course toward infusing a competitive incentive into our educational system. As a former bureaucrat of long standing, I doubt she’s found many advocates for her agenda among the staff. I would not want to be her entering Education’s headquarters every morning.

For weeks after the election I awoke every morning apprehensive about the things he was saying and doing. All the negative media probably did not help. Over time, though, I think I’ve come to understand his modus operandi. I like what I see. The change is real this time.

Patrick J. Keogh served for nearly 30 years at the General Services Administration, where he was program manager of lease development from 1988 to 1992. He was assigned to the National Performance Review from 1992 to 1993. He is an attorney and manages a family office, splitting his time between Austin, Texas, and Reston, Virginia.

Image via Gino Santa Maria/Shutterstock.com.

]]>

Spiff Up Employee Incentives

Patrick J. Keogh — Sun, 01 Feb 1998 00:00:00 -0500

ome years ago, while I was visiting an auto salesman friend at his dealership, his manager announced a $100 "spiff" on a particular make of car for the rest of the day. My buddy explained they had a problem moving that model, and his boss was offering a bonus, or spiff, to motivate the sales force.

Shortly afterward, an investment banker approached me at the General Services Administration with the idea of refinancing a number of the agency's mortgage-type obligations. With interest rates down, there was an opportunity to refinance $475 million in old obligations for about $450 million. The obligations were private financing agreements secured by public buildings around the country.

The investment banker had been unable to get anyone at GSA to act on what he believed was a profitable opportunity. Although the idea was feasible, pulling it off would be complex and time-consuming. The obligations had been entered into 20 years earlier under a special authority that had since lapsed. So, I would need the General Accounting Office's help. Also, given new rules at the Office of Management and Budget, accounting issues would be raised in getting adequate budget authority for the replacement obligations.

The concept involved selling new obligations to the Treasury Department's Federal Financing Bank. I would need the help of four federal agencies, including GSA, to get the deal done. I knew I would need lots of support in my agency from lawyers, budget and finance people, and the procurement staff.

I remember thinking how much easier things would be if the government had spiffs. I could approach all the people I needed help from and offer them a piece of the bonus we would earn for saving $25 million. That is what Chase Manhattan or J.P. Morgan would do. But the government is different. Or is it?

Regulations Are Your Friend

The idea was just too good to pass up. Maybe there was something in the rules or regulations that might help. After a long federal career I knew there was more than one way to read a regulation. First, I looked at the Code of Federal Regulations (CFR). The CFR specifically said that the Office of Personnel Management should encourage agencies to make maximum use of their incentive programs to grant "recognition commensurate with the value of the contribution to the government." That could get you into the spiff neighborhood. With that, I investigated GSA's internal orders on implementing the OPM policy.

GSA had clearly taken the personnel policy at its word. In fact, the chart below summarizes the awards to be paid where tangible benefits accrue from an employee suggestion or initiative:

Savings	Award Amount
$250 to $5,000	10% of savings
$5,001 to $100,000	$500 plus 2.5% of savings over $5,000
$100,001 to $1,000,000	$2,875 plus .25% of savings over $100,000
$1,000,001 or more	$5,125 plus .15% of savings over $1,000,000

Source: GSA Order EPA P 9451.2, Sept. 25, 1984

Create savings and you can get a piece of the action. Sounds like the same way my auto salesman buddy works. Applied to the project I wanted to undertake, a $25 million savings initiative could result in a spiff of more than $41,000. With that, I approached six or seven key people I would need to help me on the project and offered to name them as participants in the "spiff pool."

A year later, the deal was done and we requested our spiff. It was split between five GSA employees and two at the Treasury Department. GSA officials could not quite bring themselves to give us the full $41,000, but they gave us most of that amount. The public was $25 million to the better, and some federal employees had the satisfaction, recognition and compensation for a job well done. Incidentally, a regulation also worked the way it was intended.

I remember people's surprise both in and outside government when I told them about the GSA spiff order. They had accepted the idea that federal employees lack the incentives private sector employees have. In fact, the incentives could be surprisingly similar if federal managers wanted them to be. I found directives similar to GSA's at other agencies.

Other agencies have a variety of methods for computing awards and limitations. Many have given strong substance to the OPM policy calling for "recognition commensurate with the value of the contribution to the government."

Why Is This a Secret?

In a time when we are reinventing government, looking to adopt commercial practices and trying to save money, why are federal managers not using the incentive tools they have? Why don't agencies have their spiff programs posted on every bulletin board? One reason is the comfort of the status quo, made easier by declaring that government is different from private business. How often have we heard public officials confronted with a new idea from the private sector say, "that's a very good idea, but we're different and it would not work here. We have our own systems, processes and regulations."

The fact is, many federal agencies have the kinds of bonus programs found throughout the private sector. Managers simply have to start using them.

Those of us with government experience know that award programs tend to be reactive rather than proactive. So-and-so has done an especially good job this year, so he should get an award. Award programs are used to reward hard work and success rather than incentivize change and innovation. Given the kinds of incentive programs already in place, federal managers should instead be saying, "If you save or make money, then here is how we will measure your participation."

If spiff awards were proactive, federal employees would have more incentive to reach out to the private sector for ideas. Employee incentives would be more in line with the public's desires-make or save money for the public and you make money for yourself. That is the way the private sector works, and that is the way federal regulations allow agencies to work.

Proactive spiff programs would entice employees to challenge the way things have always worked and to reach outside their own area of responsibility to create opportunities.

Nothing would empower the federal workforce more than a broad mandate to promote spiffs for results. Employees know the agencies' operations best. They know where the opportunities are and with whom they need to team. The current passive, reactive way incentive programs are managed empowers managers who dispense awards. A proactive spiff program would encourage employees to empower themselves to earn awards.

There is no shortage of good ideas for improving the government's performance. However, employees lack incentives to implement those good ideas. The failure to embrace a proactive incentive approach feeds civil servants' complacency. In this case, as in so many others, the rules and regulations don't stifle employees. Clearly, the rules and regulations allowing performance incentives are there for federal employees. It is more a fear of initiating the kind of practices that work so well in the private sector that makes the public sector "different."

What to Do

What needs to be done? First, the existing spiff programs should be publicized. Every bulletin board should outline spiffs that can be earned. The incentives should be clarified to quantify the awards, like the programs outlined above. But spiffs should not be given for ideas. There is no shortage of good ideas. The awards should only be earned when the public has received the stated results. And, because employees can get little done alone, spiff sharing should be encouraged, so employees can come together to get an initiative implemented.

Federal spiff programs should be publicized in the private sector as well. A ton of great ideas are never brought to government or are too readily abandoned. That is because people believe things cannot change where incentives are structured against innovation. Remember, it was an investment banking colleague who brought me the refinancing idea and a car salesman who got me thinking about spiffs. The flow of ideas with the private sector would increase if public employees' incentives were parallel with private workers'.

Patrick J. Keogh is president of Bostonia Government Services, which specializes in procurement, financing and the creation of public-private partnerships. He is retired from government, where his last assignment was with the Vice President's National Performance Review.

]]>

Procurement: The Enemy Within

Patrick J. Keogh and Kim McCarson — Fri, 01 Aug 1997 00:00:00 -0400

hen federal managers talk about resources, they always seem to mean cash. But why can't they find ways to better use what they already have? In fact, there are some federal managers who have used public-private partnering to leverage assets, and, like their counterparts in corporate America, have created strategic alliances with industry.

NIH: A $15 Billion Business

Until 1995, the National Institutes of Health campaigned to win funding for a new $350 million Clinical Research Center (CRC) for state-of-the-art research. The existing hospital was badly out of date and in dire need of replacement. Given budgetary pressures, it was clear NIH would have to join the long line of agencies awaiting appropriation for development projects.

But NIH, the biomedical research arm of the Department of Health and Human Services, has annual appropriations of $15 billion, $12 billion of which supports its grant program providing research funding to private institutions. The agency believed it had an opportunity to leverage its existing assets to help fund a new research center. After all, the $350 million CRC equated to about a $30 million annuity. That is, a $350 million financing to cover the capital costs of the CRC could be paid for at a rate of about $30 million per year. NIH then asked: "What $15 billion-a-year business can't find or create $30 million per year, less than two-tenths of 1 percent?"

Looking at NIH from an asset management perspective, it's not difficult to see the opportunities: Commercial products developed as a result of NIH's grant program are the property of the grantee; carriers of insured patients in the CRC aren't charged for care services; there are 16,000 NIH employees on the 380-acre Bethesda, Md., campus but no retail space; virtually all NIH buildings are named after House members or senators at a time when the commercial sector often sells the rights to name a building; and the campus has about 10,500 parking spaces--all of them free.

New Procurement Tool

NIH's asset-management approach makes sense. Rather than define what they wanted to procure, officials defined whom they wanted to procure--a private development partner with prior experience in creating value for other owners. Creating value is what private developers do best. NIH would give the partner access to its primary asset--the business opportunity--if the developer could create the value necessary to pay for the development.

To implement its strategy, NIH issued the first Federal Request for Qualifications (RFQ), a procurement tool routinely used by state and local governments and corporate America to select private partners in major systems acquisitions, mainly real estate development transactions. The Federal Acquisition Regulation neither provides for nor prohibits an RFQ.

NIH's partner would get the exclusive right to work with the agency to create a business plan that would include an acquisition strategy, an asset management plan for funding the CRC and the terms of the relationship between NIH and the developer. Because NIH was interested only in developers with a prior record of creating value for other owners, the private partner was to be selected solely on the basis of qualifications. We estimate that no prospective partner spent more than $8,000 preparing its submissions. Boston Properties, selected as NIH's development partner for the CRC, was awarded a $350 million development opportunity after only a 10-week procurement cycle.

To implement something new in government, there's nothing more powerful than being able to say "so-and-so at the XYZ Agency did it and he's alive and well." In undertaking the very successful procurement for the CRC, the NIH teamed with the U.S. Postal Service, which has been using the RFQ for about 10 years. The Postal Service has undertaken about $1.5 billion in major development procurements without a single protest or claim. As if that weren't impressive enough, awards are routinely made in about eight weeks.

The Postal Service has quietly undergone its own reuse and closure process. Historically, mail has been brought to urban postal facilities by rail. As mail transport shifted to planes and trucks, distribution centers gravitated to suburban areas, leaving urban facilities underutilized. Rather than treating this as a problem, the Postal Service saw these properties as under performing assets that could be redeveloped to create cash flow. The Postal Service used the RFQ approach to select development partners to reposition these obsolete facilities. As a result, many former postal facilities are retail, residential, office and multi-use complexes creating a cash flow in excess of $100 million annually for the Postal Service. It was accomplished with little Postal Service capital utilizing an RFQ that ran about 20 pages.

The Postal Service has its own procurement regulations, which are substantially the same as the Federal Acquisition Regulation. NIH found a way within those regulations to issue a solicitation similar to that used by the Postal Service with equally successful results. The federal procurement system does not dictate how one structures a procurement, but rather tells what public values and objectives must be considered.

FDA Headquarters

The General Services Administration is representing the Food and Drug Administration in developing a new 2 million-square-foot headquarters in the Washington area. FDA offices are scattered around more than 20 locations in the capital area. The agencies have identified the former Naval Surface Warfare Center at White Oak, Md., with its approximately 700 acres, as a prospective site. The site is to be transferred to GSA as part of the base reuse and closure process.

GSA and FDA have unsuccessfully sought appropriations for a new FDA facility for about five years. Severe competition for appropriated funds and the "scoring" rules from the Office of Management and Budget on capital improvement projects have thwarted their efforts. When a lease is scored, funding must be available as though the project were directly appropriated.

Now, the two agencies are using the RFQ approach. Their 18-page solicitation calls for the selection of a developer who will have the exclusive right to work with the government in the development of a business plan. As with NIH, the plan will include acquisition, financing, asset management, community relations and the draft legislation required to implement the plan. The government will maintain the option of negotiating a development agreement and rates for the plan's implementation.

Again, as potential partners compete for the right to jointly develop a business plan with the government, they won't be asked to prepare the plan in their offers. As a result, the procurement cycle will be substantially compressed and costs held to a minimum. Of course, a key ingredient of the business plan will be identifying the assets controlled by GSA and FDA that can be leveraged into the new headquarters. The additional development rights at White Oak come immediately to mind: Will tenants pay to co-locate with the FDA and will that be acceptable to FDA and the surrounding community? Can intellectual assets be created to fund the new project? Will the government consider creating new fees for FDA's various regulatory functions? All these are matters for the partnership's business plan. Like NIH, FDA is leveraging access to the business opportunity, the private partner's incentive to find the values that will make the deal work.

Where could a new RFQ-type of procurement tool be used? With any complicated procurement. The RFQ is especially valuable where real estate development is involved, such as the redevelopment of military bases facing closure and the privatization of military housing. In addition, major information technology procurements often are characterized by conflict between the government and its suppliers, which makes it a good environment in which to develop advanced technology with government oversight.

Making the System Work

These procurements are based on a number of fundamental principles that run contrary to accepted practice in the federal government:

There's nothing wrong with the federal procurement system; it's the way we choose to use it that causes the problem. The system doesn't tell us how to develop a project, it tells us the public policies and values that must be promoted when conducting government business.

For complicated systems procurements, the government should move from specifying what it wants to procure to whom it wants to procure as its private partner. Pick a private partner and let that partner design the best tools for accomplishing the public's purposes.
Do less appropriating of funds for major systems procurements and increase flexibility and authority instead. Federal executives, whether they know it or not, control an enormous array of assets. They should be encouraged to tap those assets before asking for public funding. Public debt should be the last recourse, not the first.
We must perceive issues not as problems, requirements and costs, but as opportunities, leverage and assets. In real estate, for example, if an agency requires 100,000 square feet of office space it usually requests the necessary funding. The private sector would encourage managers to consider what values might be created by the space and look at ways to tap into those values to fund the requirement.
Rather than seeking congressional authorization for major systems acquisitions at the outset, we should authorize them after the private sector has helped define the best business solution. Use the procurement system more powerfully. Bring in private partners to create projects and identify opportunities, then seek the necessary congressional authorization. Obtaining authorization in the beginning puts constraints on our ability to take advantage of good ideas when they emerge.
You don't need money to start a procurement. Often the most significant asset controlled by the federal manager is access to the business opportunity. Leverage that asset. Choose prospective private partners and let them work with the public sector to create the opportunity, then give them the option to negotiate the business opportunity they helped create.

Members of the private sector are better at being developers and systems integrators; the public sector is best at overseeing public values. Create partnerships that give expression to each partner's strengths.

Patrick J. Keogh, who began advising NIH on the Clinical Research Center deal while at GSA and later as a consultant, started Bostonia Government Services in August 1996. Kim McCarson is an associate with BGS, which specializes in creating public-private partnerships.

]]>