Thursday, October 1, 2009

With New Fiscal Year Comes New OMB Guidance

As Fiscal Year (FY) 2010 is now underway, The Office of Management and Budget (OMB) will be ramping up its guidance on improving acquisition outcomes, which includes a broad section of areas to include competition, contract types, workforce, outsourcing, and acquisition practices. I will be covering theses issues in more depth as they are rolled out, but wanted to set the table for the upcoming guidance by reviewing past recommendations and improvement actions. The first of two steps of pointed guidance for contracting cost savings came from the OMB memo late summer, outlining existing contracts and acquisition practices. I will therefore review these two subjects, as the guidance from OMB in their memo left many in industry flat for the lack of details, and many in Government with the lack of direction that they desperately need and were hoping to obtain from leadership. My take is that the memo created a scenario of asking for short-term objectives with long-term guidance, creating somewhat of a mixed message structure and raising more questions than were answered.

In the July memo, OMB has asked agencies for a 7% contract spending reduction in FY 2010 and 2011, with the overall goal of $40 billion a year in net savings through better acquisition management and contract practices. Immediately, in my mind anyway, the questions raised and not addressed are how did the Administration come up with the figures? What analysis was done? Where is the transparency? Also, what investments in resources are needed to realize these savings? The logical solution is to make agencies accountable for reshaping their acquisition processes and refining their strategic plans to meet these objectives. However, many organizations find themselves in the unenviable position of either not having a plan, having poorly written plans, or more importantly, not having the resources and commitments from leadership to perform this important function. Most acquisition offices that I know and have spoken with would love nothing more to perform these important strategic activities, but the reality is that they are severely stretched thin, in both personnel and resources, with procurement velocity the only activity that can and must occur. Acquisition has to first become a strategic imperative at an organization; to be folded into the performance goals that are also being rolled out by OMB. First thing is first, and I think this dichotomy will cause more problems than it solves.

Since procurement as a strategic activity is a difficult if not foreign concept in the current acquisition process, many of the recommendations made by OMB will fall on deaf ears unless strong, active leadership executes on these initiatives. Let’s take a look at the recommendations as they were made by OMB one-by-one:

(1) Ending contracts that do not meet program needs or projects that are no longer needed

Does this also mean that Congress will stop funding pet-projects in their home districts; the ignominious and omnipresent earmarks or “pork barrel” projects? Doubtful, since Congress is under enormous pressure from an army of government contractor lobbyists and re-election always on the horizon. Further, my hope is that agencies do not take the “termination” guidance as a mandate, since the victims of those activities will more than likely be easy targets with little inclination and resources to fight back; small businesses. A thorough analysis of contract activities, return on investment, termination costs, and other similar variables will need to be analyzed through a prism of contract, budgeting, and program management; critical skills that are in short supply across Government.

(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

This is a long-term goal, and the most important one as the common denominator breakdown in the acquisition process; the lack of sufficiently, trained personnel. Government wide initiatives are already under way to shore up numbers, but I have yet to see coherent, strategic plans to build capability and skills, a much more important objective than numbers alone. I do know the Office of Federal Procurement Policy (OFPP) is working with agencies to develop these plans, but also believe the lack of an Administrator is hurting the efforts, with significant weaknesses in communicating these strategies and helping shape the policies and guidance that will help to alleviate workforce personnel issues. I hope that the nomination of Daniel Gordon, who has served as acting general counsel at the Government Accountability Office since 2006, gets expedited, as he is desperately needed. Nonetheless, I do not believe workforce issues will be a short-term activity to help realize the cost savings objectives, as the hiring process is too slow, and the training too substantial and lengthy for new acquisition personnel to have immediate impacts on the process. Changing that paradigm is another topic altogether, and does merit further discussion.

(3) Developing more strategic acquisition approaches to leverage buying power and achieve best value for the taxpayer

No question leveraging buying power is an important activity that needs to be properly planned and executed to see real savings. I believe this initiative is one the most value-added activities that needs to be a primary focus across Government to meet cost savings goals outlined by the OMB in the next 24 months. The issue here is a coherent strategic communication strategy, across multiple agencies and across multiple organizations so that the left hand knows what the right hand is buying, but also knows how they are buying, and why. The simple answer here is that working groups across Government need to continue working through these issues, conduct a thorough spend analyses, and eliminate redundancy to save on contract costs by increasing efficiency, cutting wasteful and redundant contract vehicles, and only purchasing from trusted vendors that offer the desired discounts and have a track record of meeting cost, schedule, and performance goals. Elimination of waste at buying centers saves on contract and administration costs, and could be done relativity quickly without the need of legislation. This is simply a good business practice, and is being conducted by commercial firms as a primary strategic imperative to save money and lower costs.

(4) Increasing the use of technology to improve contract management

I do not think there is an argument or question here about how technological innovations has drastically improved productivity and helped lower costs. However, the issue here is what technologies need investment as they pertain to reducing contract management costs. I believe the answer lies in the potential of Web 2.0 (or Gov 2.0). The power of Web 2.0 strategies is the improved exchange of information, which is critical and at the heart of improving transparency, quality, and accountability, all themes shared by the Obama Administration. Further the use of Web 2.0 technology can help improve communication and knowledge transfer between stakeholders, having a dual effect of increasing quality, and lowering costs. These tools can be very helpful during pre-contract award, where Government and industry can communicate on needs, build solid requirements, properly plan and budget, and create realistic cost, schedule, and performance objectives with corresponding metrics for successful administration and oversight. The impacts on long-term performance and lowering contract costs could be impressive and significant, but also timely.

(5) Reengineering ineffective business processes and practices to reduce cost to spend

Another important concept is improving the processes of acquisition, which I also see as long-term goal requiring short-term planning to see real change and reduce costs. One the best methodologies to accomplish this goal is Lean Six Sigma, where improvements are done in a structured, project format. This methodology follows a prescribed mandate and structure, which would be the reduction in contracting costs, and ensures that important issues are analyzed using a sound and consistent methodology. The beauty of Lean Six Sigma is that this methodology can avoid the pitfalls common to efforts that address symptoms of a bad process, rather than causes, of problems and enforce the use of data in decision making.

What is further important about this methodology is the consistency of how the processes are analyzed; which helps effectiveness of the process improvement project teams and allows for the sharing of project results across the organization. Using this methodology, along with Web 2.0 tools for knowledge sharing and information flow, also helps apply a disciplined approach to configuration management and feedback mechanisms to ensure that project team recommendations are implemented and tracked. Again this initiative is dead in the water without active commitment from leadership, which requires hands-on participation and creating a culture that actively supports process improvement. Further, leaders need to be change agents, and help and drive the message that change is good and can help complete the mission in a more effective, less costly manner.

The amount of work that needs to be done to create a world-class procurement process in Government is a long-term objective, but has been also put into a short-term bucket with cost savings targets that will be taken as a mandate by agencies. As we move into FY 2010, I look forward to continuing to see leadership in action, and change for the better.

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