IT acquisition: Pay less now, more later

Given the current budget environment, in which even essential programs are under scrutiny, it's only natural that agencies are pressuring their acquisition teams to put the squeeze on vendors for the best possible price. Unfortunately, they might get that price only to find out later that the joke is on them.

Experts increasingly fear that officials will develop a “lowest cost technically acceptable” attitude for their procurements. In other words, they will pick the bids that meet the minimal requirements and go for the cheapest price to demonstrate to the higher-ups that they are good stewards of the government’s money.

The result could be abysmal performance.

“Think performance is bad now? Wait,” said Jaime Gracia, president and CEO of Seville Government Consulting, a federal acquisition and program management consulting firm. “Soon, these jokers will come in to start work and they’ll be like the Three Stooges.”

In some cases, experts say, the lowest bid could actually end up costing agencies more as they eat up all the savings — and more — with make-good work.

“Suddenly, the lowest cost technically acceptable isn’t the lowest cost,” said Robert Burton, former deputy administrator at the Office of Federal Procurement Policy.

But several factors work against buying the best value, which weighs both cost and quality. One problem is timing: Investing in quality might not pay off right away, which could frustrate Obama administration officials who are eager to show that they are running the government efficiently.

Another problem is that best value is inherently subjective. Buyers must factor in the probability of success and the associated risks — both of which elude hard analysis — against any differences in cost. In contrast, when success is measured on price alone, it's easier to set goals and measure progress against them. You can just watch that bottom line.

Those difficulties are compounded by the fact that shrinking budgets also mean acquisition officials are getting less support from contractors. In the past, contractors have often helped with market research and other important tasks that can help justify higher bids.

Dan Gordon, who recently stepped down as OFPP administrator, offers a more tempered view. There are times when the lowest cost is fine, he said. But on more complicated procurements, the best value deserves a close look, too.

He said he is confident that the federal acquisition workforce has the training and experience to navigate those choices. They know they are “entrusted with the discretion to find the way to best protect taxpayers’ dollars,” Gordon said.

But others are less optimistic. Larry Allen, president of Allen Federal Business Partners, said he believes the low-cost mentality might have already taken hold in some parts of the government, such as the Defense Department.
The Three Stooges just might be arriving with a "fleet of Yugos," Allen said.

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Reverse auctions:
A bid for budget-conscious business

It’s like an auction, except instead of bidding to buy products, companies are bidding to sell them

Sometimes a good idea gets even better with the passage of time.

Ten years ago, shaving nearly 15 percent off the cost of a procurement by using a novel approach to the bidding process was a good idea. A decade later, as agencies across the government are seeing programs cut and discretionary funding dry up, it seems like a great idea.

In 2002, Cathy Read, director of acquisitions management at the State Department, gathered her most forward-thinking contracting specialists — the ones who “were always looking for a better way to save money and do it faster” — and asked them to try a new approach to buying commercial IT products.

Rather than soliciting quotes from companies and then picking the one with the best value, the department invited companies to bid against one another, driving the price lower and lower until one bidder emerged as the winner. It’s like an auction, except instead of bidding to buy products, companies are bidding to sell them — hence the name “reverse auction.”


The approach has paid off. State officials estimate they saved $33 million on more than 3,000 purchases in fiscal 2011, based on an independent government estimate. That’s a savings of more than 14 percent.

Proponents say other agencies could achieve similar savings, for a governmentwide total of billions of dollars a year. Given the current budget crisis, those experts say reverse auctions deserve a closer look.
“You can’t always do things the way you’ve always done them,” Read said. “You have to be lean on your feet, and you have to make do with what you have.”

Start small, think big

Reverse auctions are appealing because it’s easy to test the approach and see immediate savings — and imagine how much more savings they could bring to bigger projects.

In the beginning, Read had State auction off a few items to test the new method, and when she consistently found that the approach was saving money, she turned to reverse auctions more often over the years and with a wider array of commodities.

As time went on, the savings continued to increase and the competition for solicitations improved.

Even the department’s inspector general took note of the savings from reverse auctions in a report on spending under the American Recovery and Reinvestment Act of 2009. After reviewing a $13 million program to replace desktop workstations, the IG estimated that the reverse-auction approach had saved the department 7 percent, with greater savings being seen on other projects.

David Wyld, professor of management at Southeastern Louisiana University, has done extensive research into the benefits of reverse auctions. He has determined that $74.5 billion in federal acquisitions could be competed through reverse auctions, and his analysis of auctions conducted across the government demonstrated a savings of 11.9 percent. That means the auctions could bring an annual savings of $8.9 billion across the federal government, with $6.1 billion saved on Defense Department spending alone.

“To me, the real-world benefit is the cliché ‘faster, better, cheaper’ way of doing business,” said Wyld, whose findings were published by the IBM Center for the Business of Government in a report titled “Reverse Auctioning: Saving Money and Increasing Transparency.”

Saving more than money

However, this isn’t just about saving money.

Time is an equally precious commodity in government offices, and many federal officials and acquisition experts say the acquisition workforce doesn’t have enough hours in a day to do all that it needs to do. Both Wyld and Read said reverse auctions save employees the non-renewable resource of time.

Wyld studied how much time State saved by using reverse auctions and found that the department shaved off nearly a full workday from each procurement it conducted using reverse auctions. Specifically, the department saved an average of 475 minutes — or 7.92 hours — whenever it conducted an acquisition through reverse auctions rather than traditional procurement methods.

“If you’re going to be a buying shop today when budgets are being cut by 15 to 20 percent because money is an issue, then as a buyer, you have to look for better, faster, more creative ways to get your program office what it needs,” Read said.

Agency officials must consider tools like reverse auctions or they won’t be able to adjust to the ongoing need to reduce the cost of government operations, she added.

Nevertheless, the auctions are not simply a way to save a little time and money here and there. The approach also streamlines the negotiation process. Reverse auctions simplify communication and collaboration between buyers and sellers, Wyld wrote in his report. “The competitive bidding processes that took weeks or even months to complete can be compressed into days or even hours,” he said.

All those factors help increase competition and bring agencies closer to the true fair-market value of a purchase. State’s IG wrote that reverse auctions “have been found to be significantly less expensive per item than buying the items from comparable General Services Administration schedules.”

The flip side of reverse auctions

Reverse auctions do have their limitations. For one thing, “the expedited form of procurement won’t work without oversight,” said Robert Burton, former deputy administrator of the Office of Federal Procurement Policy (OFPP) and now a partner at Venable law firm.

Furthermore, procurement offices cannot turn over all solicitations to reverse auctions. The approach only works when the terms of the contract are clearly defined and there is little — or no — room for flexibility. In other words, it is best for common products. Burton warned against buying services through a reverse auction because such contracts have far too many variables.

However, Read said she believed it was possible to buy certain basic services through reverse auctions.
Furthermore, Wyld said the auctions could change the nature of the relationship between buyers and suppliers. Instead of establishing long-term partnerships, relationships might only last until the next competition. The potential for switching suppliers is a cost of doing business, and for basic items, it won’t matter much, he said.

“Copy paper is copy paper,” Wyld said. “Toilet paper is toilet paper.”

However, a reverse auction also might affect the dynamic between buyers and suppliers, with the suppliers feeling coerced into lowering their prices in order to join an auction, Wyld wrote.
Jaime Gracia, president and CEO of Seville Government Consulting, said the reduction in procurement spending has the potential to make competition fierce, which, in turn, forces companies to lower their prices to win contracts.

To succeed with reverse auctions, Gracia said agency officials must determine which procurements are appropriate for reverse auctions — and which are not — and they must make sure that those solicitations have very clear requirements.

Making the case for innovation

Experts say now is the time to sell agencies on reverse auctioning because senior officials are desperate to find ways to conserve their resources.

“Agencies are looking under trees and in the couch for any spare change,” Gracia said.

OFPP has issued memos calling for agencies to use innovative procurement tools, including reverse auctions. Recently Dan Gordon, outgoing OFPP administrator, urged agencies to consider the approach.

To make the case to their bosses, Read said procurement officials should start small and document the results. From the beginning, she kept detailed notes on the reverse auctions that State conducted. She can cite dollar amounts, volumes and percentages by fiscal year.
“You can see the metrics are very important to really understand if we have savings and success,” she said.

However, she said that although innovative contracting specialists will likely embrace reverse auctions, instituting the approach agencywide will take time. “Change management issues in a federal government agency are always a bit of a challenge,” Read said.

Wyld, too, said reverse auctions should be implemented with care. However, he added, “hill by hill, staffer by staffer, people will change after hearing firsthand stories of savings.”

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Short tenures at OFPP hurt acquisition initiatives

Experts say a short tenure has

a tendency to stall initiatives

The Office of Federal Procurement Policy is losing another administrator relatively soon after his confirmation, which may be an impediment to advancing policies, according to one former OFPP official.

Since the late 1990s, administrators have stayed at OFPP for roughly two years. Steve Kelman was the last administrator to stay at OFPP for longer than that, from 1993 to 1997. Kelman is now a Harvard University professor and columnist for Federal Computer Week.

Dan Gordon, the current administrator, will leave at the end of the year for the George Washington University law school, where he will be associate dean of government procurement law studies.

When he leaves his office for the final time, he will have been administrator for about 25 months. Gordon was confirmed in November 2009.

A result of such short terms as administrator is that the office staff is pulled away from their inherently governmental functions of working on governmentwide procurement policies that affect agencies and industry.

“Unfortunately, the news of Dan leaving is that it disrupts the office and the focus on current initiatives,” said Robert Burton, former deputy OFPP administrator, who spent several years in the 2000s as acting administrator. He now is a partner at the Venable law firm.

Confirmation process

As Gordon leaves, the Barack Obama administration will once again have to find a suitable nominee. Once the next nominee is chosen, the White House staff will have to prepare the nominee for the Senate confirmation hearings, along with a crash course in the ongoing initiatives.

“It’s a lot of work,” Burton said.

While that's disruptive enough, Burton said it's also difficult for the office when leaders come and go so frequently. Consistent leadership is good to have, but hard to attain under those circumstances. And it's detrimental to the office-holder himself, Burton added, because accomplishing anything of note in just a couple of years in office is unlikely.

Gordon, however, was one who did manage to make some progress on initiatives during a brief tenure, Burton said.

Gordon's initiatives

One of his most significant initiatives was that Gordon worked to rebuild the federal acquisition workforce.

He gathered support to provide funding for more employee training, and he updated the certification standards for contracting officers. Gordon's reforms also increased training standards for contracting officer's representatives and program managers, both of which are considered part of the acquisition workforce.

Gordon also pushed agencies to think strategically when buying commodities. He encouraged strategic sourcing and getting agencies to take advantage of the government’s size.

“We are—finally—leveraging the federal government’s purchasing power as the world’s largest customer to deliver a better value for the American taxpayers,” Jacob Lew, director of the Office of Management and Budget, wrote on the OMBlog Nov. 2.

Gordon also brought attention to innovative methods to purchasing, such as electronic reverse auctions and interagency contracting.

The listening ear, the reasoned mind

In addition, Gordon was someone that government officials and industry leaders felt like they could talk to.

“Perhaps his most important contribution was his tireless efforts to bring open, reasoned debate and discussion back to federal acquisition,” said Stan Soloway, president and CEO of the Professional Services Council.

Gordon sought to mitigate the hyperbole and rhetoric of the procurement world with a Myth-Busters Campaign, Soloway said.

Steve Schooner, a procurement law professor at the George Washington University law school, said Gordon deserves a lot of credit for reviving the Front Line Forum, which was instituted by Kelman and had largely fallen away in recent years.

The forum let the procurement policy leaders hear from the workers dealing daily with government purchasing.

“It's hard to quantify how important this outreach is—not just engaging with the operational community, but actually listening to the concerns and suggestions and aspirations of the people upon whom the entire process depends,” Schooner said.

He said he’s hopeful that future OFPP administrators will recognize the importance of being “the acquisition workforce’s cheerleader-in-chief.”

Schooner said a major difference between Gordon and Kelman is the workforce. Kelman faced trend in the 1990s to decrease the size of the acquisition workforce, which he could not stop. Gordon inherited a far more starved acquisition workforce. One of his high-profile initiatives was rebuilding the workforce, and he had kept it on everyone’s radar screen.

It will be “one that will pay dividends to the government and the taxpayers for years to come,” Schooner said.

Kelman too said the government will benefit from the emphasis on the workforce.

“Dan did a good job fighting for increasing the numbers in the depleted contracting workforce,” he said.

What the next administrator needs

As the search will begin for the next administrator, the nominee needs the know-how understand the procurement world and the skills to see what in that world needs attention, experts say. Decisions and policy initiatives have far-reaching effects, such as rebuilding the acquisition workforce and insourcing government work.

Burton said it’s a very technical field and not merely a management position.

“And with only two years, you don’t want to spend the first six months helping the new administrator understand the Federal Acquisition Regulation, he said.

Gordon brought significant expertise from his 17-year stint at the Government Accountability Office, where he served in several legal roles, finishing as acting general counsel.

“Dan has brought a mixture of great substantive procurement knowledge and great interpersonal skills to this job—exactly the mix of skills you want in an OFPP administrator,” Kelman said.

Gordon set the bar high for the next political appointee to have technical knowledge, according to experts.

And so the search for a new administrator begins.

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