Federal Acquisition Change (Part 2 of 3)

Two days ago I talked about Improving Government Acquisition through savings and a reduction in risk. I am still a little skeptical about the risk side of that. Today though, I will focus on the second memo, Managing a Multi-sector Workforce.

This memo doesn't actually do, much, but it is a clear shot across the bow to a lot of current work. For many years the federal sector has been dealing with Curcular A-76. The intent of A-76 is to introduce competition for segments of work that were/are performed by federal employees. Momentum on this issue has been solidly behind the industry. Part of the reason for that is because there is a lot of political momentum for decreasing the size of the federal workforce.

My personal take on this issue is that, the work doesn't disappear. Some process, call it ABC, was getting done by federal workers, and now with A-76, a company can compete with the government to try to do it cheaper and better. The problem I have with this is that we never actually realized the cost reduction. In fact, I strongly believe that we actually received a cost increase because of this policy. Take this as an example. A federal employee processes my leave forms for when I need to use vacation time and sick time. Let's say hypothetically, that person gets paid $50,000 per year as a federal employee. We have an A-76 competition on for that work and the industry wins because they can find a person to do that work for $35,000 per year. That sounds good right? So they pay a person $35K, but don't forget, the company has to make money as well (that what businesses do). So there is a mark-up, let's say 10% (which is pretty low). So now that $35K work is now costing the government $38.5K. Still works out better. But then you have to add in the cost of developing, competing and awarding a contract for the work, that has to be worth about $5K. This puts us up to $43.5K, which is still on the plus side. But wait, you also have to add in the cost of monitoring performance and training, transition in and transition out costs. Those start to push the cost up to the original $50K, which just makes this exercise a wash. But don't forget, this is just the base year for what is likely to be a 3 to 5 year contract. Those types of contracts almost always have escalation clauses built into them. The smallest I've seen is 3%, but 5% is pretty typical. If we escalate the contractor cost by 3%, we get up to about $45K in year 5 and that doesn't include the cost of administering or monitoring the contract, or, god forbid, litigation that sometimes happens with a contract.

While A-76 seems like a cost cutting program, I believe it is a net cost when considered in the long-term just from a practicaly dollars and sense perspective. To be fair, I did not go through all of the add-ins that go into a federal employee, and they exist, but I want to make a point. When you consider this issue from a Knowledge Management perspective, there is no comparison. Something like keeping track of Time & Attendance is one thing, but we have been outsourcing functions like Contract Specialists.

Wonder why we are in such a tough situation in the field of acquisition? The answer to this is rooted partly in the other side of A-76. Set aside the actualy dollars and cents cost analysis and look deeper at the hidden costs. What is the government losing when function ABC is outsourced? They are losing the institutional knowledge of that work and the connections it has to all of the other areas in the business. In my example of someone performing the work of Time & Attendance, that is one thing. But if we look at other segments that are not necessarily "Inherently Governmental" then we can start to see the roots of the acquistion problem. Procurement Analysts and Contract Specialists are two functions that are not currently identified as being inherently governmental. That means that the government can and does award contracts to get people to fill these roles. As we do that, we (the federal government) loses the institutional knowledge associated with performing this work. The people who perform this work are the people who are going to be stepping up to be tomorrow's Contract Officers. But as we outsource these positions we lose the richness of their connections and must compete against the higher salaries of the commercial sector to bring them in to the CO roles.

This Managing a Multi-sector Workforce memo says to me, 'Look out, we're getting ready to change the definition of inherently governmental, and it is going to impact the acquisition side.'

In particular, overreliance on contractors can lead to the erosion of the in-house capacity that is essential to effective government performance. Such overreliance has been encouraged by one-sided management priorities that have publicly rewarded agencies for becoming experts in identifying functions to outsource and have ignored the costs stemming from loss of institutional knowledge and capability and from inadequate management of contracted activities. Too often agencies neglect the investments in human capital planning, recruitment, hiring, and training that are necessary for building strong internal capacity – and then are forced to rely excessively on contractors because internal capacity is lacking...

It's coming I tell you.

Federal Acquisition Change (Part 1 of 3)

This is going to take some time to pull apart. This is a game changing article published in the Washington Post today. The article reveals that 3 separate memos have been released that are likely to reshape the acquisition landscape for the federal government.

The first memo, Improving Government Acquisition, has two main thrusts, Acquisition Savings, and Reducing Risk. The acquisition savings area identifies 5 actions:

1. ending contracts that do not meet program needs or projects that are no longer needed,
2. building the skills of the acquisition workforce and recruiting new talent so as to negotiate more favorably priced contracts and manage contract costs more effectively,
3. developing more strategic acquisition approaches to leverage buying power and achieve best value for the taxpayer,
4. increasing the use of technology to improve contract management, and
5. reengineering ineffective business processes and practices to reduce cost to spend.

Each of these is good, and will make an impact. If there is a surprise in this list, it is #1, I don't think we need more help in eliminating projects that aren't needed, but that might just be me. Incidentally, I haven't blogged about this yet, but I recently finished a proposal panel exercise in which we used SharePoint to capture the consensus scores and strengths and weakenesses of the proposals. That's a good hit for me on #4.

The Reducing Risk part of the memo makes me a little bit nervous. Remember my post about Choosing the Right Vehicle? This memo throws a lot of the risk onto Time and Materials (T&M) types of contracts. While I am in agreement that there is a general overuse, It makes me very nervous when I see guidance like this, because there is a specific time and place for T&M based contracts. If the government cannot effectivley judge the level of effort that will be required to complete the project, that is when you should use T&M types of contracts. Activities like Requirements Gathering, and many Design types of activities in which you must keep going until the business agrees that you have it right (scope), it is done well (quality), with the right level of customer satisfaction are best left to T&M contract types. I don't know when I begin these types of activities how much effort the contractor will have to pour in to achive the necessary levels of scope, quality and satisfact when I begin. Because I cannot identify how much effort, if I try to fix the price I am actually increasing the risk in that one of two things will happen:

• Offerors will increase the cost in their proposals to account for the increased risk or
• No accounting for the increased risk will sacrafice scope, quality and satisfaction such that when the contractor has spent the money, they must move on regardless of whether they got it right, did it well or made anyone happy in the process.

Trust me, I have first hand experience of this dynamic at work. The real problem is that most offerors will choose to do the former and one or two either shady or dumb ones will do the latter. The government performs its review and the contractors in the latter category almost always win.

Anyway, a lot to talk about in that first memo. There are two more. I'll hit the Managing Multi-sector Workforce and the Improving the Use of Contractor Performance Information in subsequent posts.

Grants.gov

As many know, I have been developing grants management systems for the federal government for years. I'm particuarly disappointed to read a GAO Report released yesterday on Grants.gov. The problems facing this system are significant. I am particuarly concerned about the funding aspect. Do you mean to tell me that with about $18 Million per year we can't make this thing work? Even if some agencies pay late, it still looks like about $12 Million more than what you should need to do the job.

Thinking back I remember some of the problems that we had in the form and format of the output we received from Grants.gov. It came as basically ascii without any format at all. But to be what, 4 or 5 years in and still be working through fundamental problems like DUNS registration, that is not acceptable.

What is the fundamental problem here? The problem is that we have a bunch of agencies who have no inclination to work together and have evolved different internal processes for managing their grant processes. I know that at least two partners have radically different methods for handling it. But what does Grants.gov try to do? They try to squeeze every peg through the same round hole. That is a fail whale right from the get-go. Instead of trying to get each agency to accept a consensus process, carve it up a little bit. Let HUD have their little unique aspect, and let USDA have theirs. The opportunity that Grants.gov should focus on is having access t each of these on the same system, but each agency will have a slightly different application. Grants.gov should focus on the development of a standard base model that can easily and efficiently be customized based on nuance with the agency or the program.

The cost model seems to be a little bit off doesn't it? Instead of a flat rate that Departments and Agencies pay in, wouldn't a utelization-based cost model be better. What happens in this current model is that agencies pay their burden and then over-utelize resources. That second tier is where they are putting a lot of effort and that effort, I bet, isn't in proportion to the amount paid by the agency. But this would be a difficult case to make. So instead, the Grants.gov PMO should focus on the base model, which is deployable for basically nothing, and charge based on the amount of customization on top of the base and the tier of support the agency wants. So if you have a program that will collect applications and you need a lot of support for the community then you pay more. If you have a simple program and all you are collecting is basically an SF 424 and a lobying certification, and you don't need help, then you pay less.

That's What I'm Talking About

I'm very happy to read this article that indicates that the Federal CTO is pushing cloud computing (http://fcw.com/Articles/2009/07/15/cloud-computing-storefront.aspx). I tried unsuccessfully to push a little cloud opportunity here. It didn't catch fire, but I still believe in it. Now with the CTO on that bandwagon I suspect that it would receive a slightly different reception now.

The fact that the Certification and Accreditation will be handled on the cloud side and that I as the agency should expect to just build in the connection with a Service Level Agreement that the C&A requirement is met is a significant breakthrough. That has always been the sticking point in the cloud computing and Software as a Service (SaaS) models. I would have had a responsibility (risk) with this site that is difficult to inspect working with people I don't know. Now that someone will oversee the C&A aspect, it turns into a comodity service that I can more easily consume.

Performance Incentives

I read an article today that is why I have shyed away from identifying performance incentives in the projects I manage Report Faults Performance Bonuses for Contractors.

I generally like the approach of sticks and carrots and I think that it should work in the federal environment, but you really have to do a good job in documenting areas from your Quality Assurance Surveilance Plan (QASP). If you fail to document well most Contract Officers will start with the assumption that the contractor deserves the performance bonus and it is up to the COR or GTR/GTM to justify when the incentive is not warranted.

It is really hard to build the incentives into the work statement because you don't know how much things will eventually cost when your receive proposals. For example, would it make sense to have a $20,000 bonus if the application is delivered a month ahead of schedule? Maybe. But if the proposal comes in at $2 Million do we really care? Is the $20K meaningful? Even with a really good IGCE you are still likely to be 20% off of the final price. So how much can you really structure into the acquisition?

Would it make a difference if there was a $20,000 penalty if it was a month late? Maybe, but I have never heard of a contractual penalty for any work that was in the services area.

These sticks and carrots could really work if you have a really well laid out QASP. You would have to identify milestones and then identify the levels of performance for schedule (due date), quality, price (cost), scope (this is the hard one) and satisfaction (the other really hard one). If you can develop completely objective measures for these factors in your deliverable then you should feel free to incentize the product and the contractor's performance. If you can't nail down all of these ahead of time, then you shouldn't waste time trying to develop performance incentives. The constractor will make sacrafices in one of those areas to meet the incentive criteria and that may harm the overall project.