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New OMB Guidance – Will it make a difference?
July 30, 2009 at 2:08 am #76792
There are three acquisition related memos scheduled to be released from OMB between July and Sept –
I’m going to give my two cents on the first one “Improving Government Acquisition” which has several key points:
Requires agencies to come up with a plan to reduce budgets by 3.5% in each year 2010 and 2011 and to reduce by 10% the share of dollars obligated in FY10 under new contract actions that are awarded with “high risk” contracting authorities (i.e., sole source, T&M, labor hour contracts). The first requirement is to develop an “Acquisition Savings Plan”. The memo points out that the Administration has set a net savings target of $40B a year through better acquisition and acquisition related program practices. The memo goes on to say that there are “many ways an agency may achieve savings from their acquisition activities” which includes: (1) ending under or non-performing contracts, (2) building skills of the acquisition workforce and recruiting new talent to negotiate more favorably priced contracts and manage cost contracts more efficiently, (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, (5) reengineering ineffective business processes and practices to reduce cost to spend.
I think there are a couple key considerations in this memo that haven’t really existed in prior guidance memos. First, OMB has set specific savings targets of 3.5%. In May of 2005, OMB issued a memo entitled “Implementing Strategic Sourcing” which directed agencies to identify commodities to be strategically sourced and develop plans to do so. There weren’t any specific saving targets or budget implications. I worked on forming the Federal Strategic Sourcing Initiative (which is still active today) as an answer to this OMB memo and we believed the government could easily achieve 10% savings through understanding what we buy, aggregating requirements, leveraging our buying power, and improving business processes for buying which would reduce total cost of ownership. However, while we had many many agencies participating to define common requirements in several commodity areas, there was no disincentive for agencies not to use the resulting contractual solutions – budgets were not going to be affected. If this new memo actually means across the board budget cuts by 3.5% each year for every agency, agencies might be incentivized to look for economies and leveraged buys, look at existing contract solutions (rather than spending big bucks to put in place new contracts) and cut non-performing contracts. Unintended consequences might mean reductions in training budgets (usually one of the first thing to get cut along with awards) which would obviously impact the agencies’ ability to recruit and train staff in performance based contracting, cost contracting, etc. Would probably also mean agencies wouldn’t be able to hire much needed program and contracting staff. However, if we can truly collaborate across agencies to develop requirements for basic commodities and/or look at new ways of acquiring and work to improve total cost of ownership, these savings are very much achievable. We have a good model in place today to address strategic acquisition, it’s just a matter of agencies embracing it.
Part II – Reducing the use of high risk contracting authorities – directs agencies to “aim to reduce by at least 10 percent the combined share of dollars obligated through new contracts in FY10 that are: (1) awarded non competitively and/or receive only one bid and (2) cost reimbursement contracts. While I’m not sure what % of our total contracted dollars in government are awarded non competitively or are cost reimbursement, I do believe the 10% figure is doable as well. Although one aside on this – if I remember correctly, I believe during the previous administration a member of congress declared that task orders awarded under IDIQs, MACs, or GWACs were not competitive. Personally, I completely disagree. We are able to get healthy competition under MACs, IDIQs, GWACs, etc. So, one challenge in government is spending enough time to do market research and give industry enough information and enough time to put together a solution and proposal so we get more than one bid. Federal agencies are very much interested in competition and getting a diversity of solutions. Another thought – maybe if the agencies actually got budget authority in Oct, we’d have more time to actually execute what we asked for, spend more time doing market research, and accomplish those goals we set. We might be able to do that due diligence and give industry time to prepare quality bids. Again, just saying.
Addressing cost reimbursement contracts. We have the ability to reduce those kinds of contracts by combining FFP and cost reimbursement. FFP the known portion and do the cost portion with metrics so that we can capture the data we need to evolve those cost type contracts to FFP (well, at least some of the time). I still maintain that cost contracts are necessary and valuable tools – we need to provide training to PMs and contracting staff to properly structure, manage and oversee.
The attachment to this memo provides more detail on the recommended activities. Just a note, anyone in the federal acquisition arena will tell you the activities described are not new and agencies have in fact been focusing on many of these areas over the years.
So, while there’s a lot of “agencies should” in the memo, it comes down to whether budgets will really be impacted. And by the way, are there incentives tied to agency “good behavior”? Yes, savings and value to the taxpayer is always what we want to achieve. However, there are costs associated with changing business practices, hiring more people, training those people, revamping programs, etc. Agencies need to work together, share and collaborate and take advantage of innovative practices (see Andy Krzmarzick’s posts as examples) in acquisition to make a real difference.
July 30, 2009 at 2:36 am #76804
Kim Patrick KobzaParticipant
Very helpful to understanding the challenges. To effectuate these levels of transformation, it is going to require a high degree of transformation in process. The administration just can’t wish it to be so. With this level of complexity it is going to be important not to run into the laws of unintended consequences.
July 30, 2009 at 2:48 am #76802
If I read the comments correctly, I agree. IMO, we are unlikely to “save” by implementing the new OMB Guidance. Once budgets have been established, it may be too late to affect savings at the budgetary level, and the knee jerk reaction to cut staff since many budgets are labor may have the opposite effect as Mary may have suggested.
Relative to the ever popular issue of fixed price contracts versus other contract types, it all depends on the certainty of the work, our ability to describe such work, and to execute the work without changes,.
Having made the cynical comments above, I believe that mission acquisition costs could be reduce by 10% by more effective acquisition methods including more aggressive competition and negotiations especially on services where margins tend to be very high based on my experience.
There is much to mull over in this thread. I look forward to reading comments. Perhaps this is a good follow-on to the what is wrong with fedral acquisition discusson.
July 30, 2009 at 11:20 am #76800
The old adage was “I takes money to make money.” The government version of this adage is “It takes money to save money.” We need money in specific areas so achieve these savings. We need the money in personnel outreach to attract people to government jobs, training to develop the skills, and systems to capture the metrics to prove we are schieving the savings. I really feel like we need to steer management to focus on Return on Investment and Total Cost of Owenership BUT this is very tough to do when we work on ‘retroactive’ annual budgets. My dream would be for Congress to approve FY10 AND FY11 budget by this Oct. Then continue to work at least one year ahead! What a concept!
July 30, 2009 at 1:35 pm #76798
Peter G. TuttleParticipant
Great posting Mary. I think these are necessary and achievable “mid-tier” steps, but they won’t achieve the level of cost reductions and workforce alignments that will be truly necessary for the acquisition process to be more effective in the 21st Century. These, in my opinion, are tinkering around the edges of the real underlying issue.
Check out the “Improving Government Acquisition” memo, page 2, top Para where 5 potential methods of cutting out the fat are mentioned. These are excellent suggestions, but they should be initially focused the “top-tier” to determine what organizations, programs, projects, initiatives and functions should be eliminated from agencies that do not directly contribute to accomplishing the “core” missions of those agencies. These types of analyses would be grueling and widely unpopular since it impacts jobs, careers and livelihoods – both inside and outside the government. If the ultimate goal is to cut costs, improve effectiveness and efficiency and truly align the our government bureaucracy to the needs of the nation and our taxpayers, then these steps must be taken, otherwise meaningful long-term savings and efficiencies will not be realized. After these analyses, the mid-tier ones would be much more effective and practical.
Admittedly, this is probably ivory tower thinking and the Administration must take what it believes are reasonably achievable steps. This being said, the memos are fine, but who will actually be held accountable for not following OMB’s guidance? For any of this to work, agency senior leadership will have to embrace OMB’s guidance and actively encourage, empower and reward their rank & file for being innovative, making smart business decisions and taking risks. This empowerment of subordinates, of course, in part, will depend on our agency leaders (let’s throw the Administartion and Congress in here as well) viewing overall mission accomplishment with a long-term lens.
One specific comment on “Improving Use of Contractor Performance Information” – the new FAR rule and this memo should, hopefully, serve as the catalyst for the PPIRS Program Office to develop an interface specification so that contract writing system vendors can integrate agency procurement systems with PPIRS, thus preventing an already overworked and understaffed acquisition workforce from having to jump between applications and duplicate work.
July 31, 2009 at 1:03 pm #76796
Stan Solloway’s thoughts on these memos http://washingtontechnology.com/articles/2009/07/30/soloway-omb-procurement-memo.aspx?s=wtdaily_310709
July 31, 2009 at 1:24 pm #76794
Certainly if these issues can be addressed and executed properly, they can help make a difference. The devil is certainly in the details, and careful business case analysis on any action will need to be conducted to ensure the best use of taxpayer funds and long-term change. For example, strategic sourcing is one of the most effective buying strategies that can be implemented relatively quickly to ensure the Government is leveraging its buying power, in addition to identifying real cost savings.
The “high-risk” contract area does trouble me, as the push to use fixed price contracts may overpower common sense approaches to federal contracting and prohibit matching contract type to requirement. The use of fixed price contracts is a great tool to transfer risk and help ensure delivery through oversight and surveillance (especially with performance-based acquisition), but it is not for everything. Careful planning needs to be conducted to ensure sound, complete requirements are developed. More planning upfront in general needs to be conducted, and this has been a vital shortfall in government operations that is getting more attention.
Insourcing is another critical area, which also would include workforce development. Stan Soloway’s piece in Washington Technology today points that out. These initiatives are just a paper exercise unless careful consideration is given to how these initiatives will be executed through looking at a critical skills and capabilities gap analysis as the hiring strategy, and not just playing a numbers game. It is here where the collaboration can make a tremendous impact, coupled with recent legislation that should help reform the hiring process and streamline talent acquisition to find the best available talent and help Government complete with private industry.
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