Reverse auctions need more scrutiny to curtail the win-lose situation

proxibid.com

Reverse auctions are back in the news yet again this week, highlighted by recent testimony before the House Small Business committee, in which the discussion revolved around the proper use of reverse auctions, and potential to harm both the government and industry without clear guidance and policy. 

This is nothing new. Government Accountability Office (GAO) reports were critical of the process, in addition to criticism by the Small Business Committee’s Contracting and Workforce Subcommittee, which held a joint hearing with the Veterans’ Affairs Committee’s Oversight and Investigations Subcommittee.

Firstly, I think reverse auctions are a great tool to save money, increase competition (especially for small businesses), and speed up procurement times. However, there is one caveat: when used appropriately.

On that note, one of the best articles on appropriate usage came from Stan Soloway of the Professional Services Council, who advised the proper use should come through simple commodity buys where requirements are not to any level of sophistication that warrant another buying method:

…Reverse auctions and strategic sourcing, along with the precipitous rise in low bid buying and efforts to create standardized labor rates that ignore how high performing businesses have to be run, reflect a broader and disturbing tendency toward commoditizing both people and capabilities. This trend assumes that the ability to do something minimally or adequately equates to doing it well, let alone exceptionally well. It understates the critical importance of historic performance and ignores the reality that high quality professional services and technology are highly nuanced and constantly evolving….

I have written about this issue in the past (click here), and the GAO report started the salvo of calling into the question the use of reverse auctions through disturbing findings at the center of testimony provided by Michelle Mackin, Director of Acquisition and Sourcing Management at the GAO:

…Competition and savings-two of the key benefits of reverse auctions cited by the agencies we reviewed-are not always being maximized… because not all reverse auctions involve what we refer to as interactive bidding, where vendors engage in multiple rounds of bids against each other to drive prices lower. We found that over a third of the fiscal year 2012 reverse auctions had no interactive bidding-and agencies paid $3.9 million in fees for these auctions…

Of course, one of the main issues with reverse auctions is the transparency and oversight of the process and the contracts themselves. Dan Gordon said in his hearing that this function is "inherently governmental." He also stated:

…FedBid has an organizational conflict of interest. They control the data. They control the information," said Gordon. "They have a financial interest in having as many reverse auctions as possible, regardless of whether the procurement is suitable for one…

The vast majority of reverse auctions are run through FedBid, the Vienna, VA, based company that got a slap on the wrist after an inspector general report from Veterans Affairs exposed major issues with ethics and business practices.

The most troubling issue is the negative consequences that happen more often than not to small businesses, as the race to the bottom continues to put undue pressure on companies that are already struggling to survive in this hyper-competitive federal market.

I hope that reverse auctions get a thorough review, because I feel it is doing more harm than good to both the taxpayer, and the firms that are using this practice in hopes of winning federal business. 

How Healthcare.gov Will Not Drive Federal IT Acquisition Reform

Photo by ActiveRain

After weeks of reports about the debacle known as healthcare.gov (here and here), the latest news and actions around preventing the next IT boondoggle are now headed in the direction of reforming IT acquisition.

Although President Obama got in on the action, I do not expect any significant reforms to take place, until the root cause of the problems are addressed. Further, “fixing” IT acquisition is not a silver-bullet endeavor, but as the Professional Service Council highlights in their latest report, there are some fundamental approaches to improving the current situation that do not require any new legislation or further regulations (thankfully).

Nonetheless, if real IT acquisition reform is to be realized, the answer is to dig deep and not focus on outlying issues. Not an easy proposition.

Fixing IT Acquisition: Strip It Down to the Bolts

Just weeks before the failed launch of healthcare.gov, I was having an interesting and enlightening debate with Clay Johnson on LinkedIn regarding innovation and RFP-EZ. Clay is CEO at The Department of Better Technology and one of the original Presidential Innovation Fellows of the RFP-EZ project.

He and I were debating about the need for IT innovation and its definition, in addition to creating software and technologies that provide rapid capability at a fraction of what most IT projects cost. That is to say, it is possible to create and deliver technologies and capabilities that meet end-user expectations for functionality without breaking the bank or requiring being hauled before Congress.

My main concern regarding RFP-EZ is that this technology already exists; mainly through Federal Business Opportunities or FedBizOpps.gov. Wasn’t RFP-EZ a redundant technology? Shouldn’t we be more focused on fixing the real IT acquisition issues, like the workforce?

No question infrastructure, human capital, and execution are major problems, but after seeing healthcare.gov rolled out, and Clay’s remark about the possibilities that exist to solve the issues of IT in the federal space, I believe his vision to reform how government purchases technology is what can lead to real change.

“Big Bang” Means “Big Bucks”, With Little To Show For The Investment

One of the biggest issues I see is simply culture, as government is fully entrenched in purchasing large programs with thousands of disparate requirements and no clear vision of what capabilities are desired. Combined with an aversion to change how business is conducted, and further exacerbated by strong business (e.g. lobbyists) interests that prefer the status quo, this will be one of the hardest issues to combat.

Recent federal leadership comments, I believe, illustrate this point. Comments by former Department of Homeland Security CIO Richard Spires and former acting administrator at the General Services Administration, Jim Williams, illustrate this problem. Although their recommendations are very useful and helpful, one has to wonder about the level of success of IT programs at their respective agencies when they held their respective positions. Furthermore, they both effectively state “Next time we undergo another large program like healthcare.gov, we need to do better.”

To realize real change, we need to put the brakes on this “Big Bang” approach to purchasing IT and ensure return on investment is at the forefront of future technology acquisitions.

Photo by BCW, UK

Innovation Can Not Happen With “Big Bang”

Everyone talks about how there is ample competition in the federal acquisition marketplace, and how regulations promote this competition. If you really believe this, I have a bridge to sell you.

There is a reason that such a vast majority of federal business is won by a small number of firms, and this entrenched environment is part of the “IT Cartel” that former Federal CIO Vivek Kundra discussed. Although this moniker was regrettable, and pounced on by large government contractors and the media, his analysis was very accurate.

Although his “25 Point Implementation Plan To Reform Federal Information Technology Management” laid the groundwork for real transformation, I would argue that little has been done to fully execute these initiatives, outside of cloud computing and data center consolidation.

Until government understands that huge multi-million dollar IT programs simply are a continued recipe for waste and little innovation, we will continue to build more projects like healthcare.gov.

What Does Real Change Look Like?

For starters, Requests for Proposals (RFPs) that are hundreds of pages of requirements, that no one understands (especially with requirements that are TBD), go away. After 30+ RFP amendments and months, if not years to award the final contract where the technology requirements are now obsolete at contract award, who thinks this is a good idea anymore?

Further, getting more small businesses in the federal technology space is what will drive more innovation in technology, and improve the level of technological capability that IT projects deliver. As opposed to the business model of requiring large businesses to run these massive legacy systems at enormous expense that total billions every year, smaller firms are simply closer to cutting edge, ground-breaking technological capability that is required to change the paradigm, and improve the level of services the federal government delivers.

All at a fraction of the cost, I might add.

The requirement for Open Systems Architecture would also go a long way to improving capability, since the current environment is to purchase “Commercial-of-the-Shelf” technologies, then spend hundreds of millions of dollars to customize the software for government use that ultimately creates proprietary software, and a nightmare for data rights and licensing fees. This only encourages less competition, since usually only the incumbent (a large business) has the resources to manage these enormous undertakings, or compete on them for that matter. Security issues, for the most part, are also nothing more than a red herring at this point.

Of course, holding those accountable for failure is also woefully lacking in the federal environment. Only in the federal government can you manage a program that wastes millions of dollars, only to have it fail, and possibly canceled, and the only response seems to be a shoulder shrug.

Risk taking and bad management are two separate things, and the former is what needs to be encouraged. Combined with using more Agile development techniques, and a renewed focus on workforce capabilities and not just box-checking certification requirements, are further areas of improving the status quo.

We do not need the next healthcare.gov to drive change. I think we taxpayers have had enough.

The Acquisition Workforce: Are We Going Backwards?

As the meat grinder of sequestration continues to move forward, the initiatives to improve and develop the acquisition workforce will more than likely come to a grinding halt, and move capabilities backwards at a time where forward movement is badly needed.

At this past week’s 2013 Acquisition Excellence Conference, The American Council for Technology-Industry Advisory Council and the General Services Administration (GSA) co-hosted what was dubbed a "training and education" event, but according to those that attended, the unspoken theme was “doing more with less” and strategic sourcing.

I regretfully was unable to attend, but it sounds like perhaps the conference was a missed opportunity to really “train and educate.” However, the fact that the conference experienced 30% less attendance from last year, that number is a symbol of what seems to be happening all across the board in the development of the acquisition workforce.

Make no mistake; the acquisition workforce is in crisis mode. With budget cuts and continued uncertainty, the opportunities to educate and develop the workforce will shrink accordingly.

This point was analyzed through the excellent publication from the Professional Service’s Council biennial Acquisition Policy Survey (formerly the Procurement Policy Survey). The section of Budget Stability discussed “doing more with less,” which also includes who will be doing the buying. Which leaves an interesting question: Who will be doing the buying?

According to Office of Federal Procurement Policy (OFPP) Joe Jordan, it may be left in the hands on the less experienced:

…The top federal procurement officer on Thursday called for “not a tweak but a full rethink” of the government’s planning for its acquisition workforce, warning that as many as 40 percent of the 36,000 federal contracting officers could retire in the next five years.

Joe Jordan, administrator of the White House Office of Federal Procurement Policy, compared the coming brain drain to water flowing out of a “giant bathtub,” saying he plans to push agencies to “widen the aperture of who they recruit.”…

Adding insult to injury is the fact that due to budgets cuts, contractor support will also be cut, along with retirees coming back as consultants. We have no choice but to hand the keys over those with the equivalent of learner’s permits.

We now are back to the original issue: How do we assure the acquisition workforce has the capabilities to perform these most difficult missions under severe budgetary pressures and through less experienced 1102s?

OFPP Administrator Joe Jordan recently signed a service-level agreement (SLA) between OFPP and GSA to strengthen their cooperation and commitment to the Federal Acquisition Institute (FAI), who I like to call the “red-headed step child” of the training institutions in government. What Defense Acquisition University (DAU) is to Defense acquisition workers, FAI is to non-Defense 1102s.

Therein lies the rub, where is the money? Is there a monetary commitment with this SLA? DAU has traditional gotten vast sums of money, much more than FAI in the past, which is why I gave FAI that moniker. Should we not be preparing all acquisition workers (which I include program managers) equally to perform effectively?

We can talk all day about people, but until a financial investment is slated and properly used to educate and develop the acquisition workforce, we will continue to experience gaps in skill sets and capabilities.

Not a silver bullet of course, but educating 1102s on effective and proper practices on how best to execute their missions is important nonetheless. Based on fewer opportunities to attend conferences, classes (in some cases mandatory for certification), and overall training and development, we can expect to go backwards in how we award and manage contracts.

Not a particularly welcome prospect.

Aligning Margins And Performance At DoD

Stan Soloway, president and chief executive officer of the Professional Services Council (PSC), wrote a piece recently about the issues defense contractors face and the tough times that lay ahead for industry as the federal budgets continue to shift and shrink. Mr. Soloway’s piece was in conjunction with the PSC’s recent Marketview 2012 conference, and as he states, I agree they deserve continued attention and discussion.

While the road ahead will be rocky and uncertain, if it is navigated properly by both government and industry, a stronger government-focused industrial base could emerge. But it wasn’t until the last panel of the conference, which focused on the changing policies and strategies the military departments are using to procure services that the challenges associated with achieving that goal became most evident. 

Said one government panelist: “If you’re thinking about margins, you’re thinking about the wrong thing. The fiscal environment is such that you should only be thinking about booking revenue, not margins.” 

A moment later he said, “We have decided that the vast majority of what we buy is appropriately bought on a low price, technically acceptable basis" and "We are going to require that any component that seeks to use a ‘best value’ approach justify their reasons for doing so.” 

And finally, “If you bid too low, know this: We’re going to hold you to your contract and demand that you deliver what you promised."

What seems to be lost at DoD is that low-price, technically acceptable (LPTA) is only going to worsen what is an already difficult situation when it comes to program performance and outcomes. As mentioned, most programs of significance (budget-wise) are severely underperforming on all three of the “triple constraints,” yet now we want to further reduce prices and lower margins to the point where firms need to make even tougher decisions about the market.

The model for rapid acquisition was the Mine Resistant Ambush Protected (MRAP) armored vehicles, where capability and innovation were delivered quickly into the field. The ultimate success factor for this program was a blank check, where capability and not margins was the focus. This world has been flipped on its head, and now similar results are expected with constrained budgets, with no regard to profits. Industrial base be damned! 

Also lost on the conversation is the double-whammy of performance, from both an execution and ratings standpoint. I have yet to see the type of accountability one of the panelists mentioned, as the price needed to win a competition is often driven lower than a realistic cost (or should-cost for that matter). It is sanctioned “buying in,” so modifications and increased funding allow for the completion of the requirements and what the customer needs. Performance suffers, and the firm “underperforming” at the unrealistic price needed to compete also stands to suffer with a past performance rating. 

Further exacerbating the problem is some officials are arguing for firms to not be given the chance to challenge these poor ratings. Poor results for the taxpayer are assured in this environment.

Action Needed Now on Acquisition Workforce Reforms

A recent piece in FCW from Dee Lee, now executive vice president of federal affairs and operations at the Professional Services Council (PSC), highlights the need to temper acquisition workforce analysis with action.

Her piece is a follow up to her Aug. 5 testimony before Congress to discuss the multi-sector acquisition workforce, and according to Ms. Lee, her first testimony as a member of the private sector. Her work with the PSC will hopefully help guide the discussion on acquisition workforce reform forward, and to help Congress acknowledge that much more needs to be done and quickly, as the acquisition mission continues to falter as a result of breakdowns in the workforce.

…We do not need more reviews or competency studies, further discussions on who belongs in the acquisition workforce, or arbitrary new hiring goals. What we need is action.

The government must plan for and manage a multisector workforce. Strategically established, well-defined approaches for hiring the right people for critical agency functions and awarding and managing the right contracts and grants are crucial to mission success…

I could not agree more. Ms. Lee advocates the for the Office of Federal Procurement Policy (OFPP) to define the federal acquisition workforce to be capability-based workforce, much like my advocacy of the acquisition workforce being composed of a broad range of skills necessary for successful acquisitions — to include program management, contracting, and requirements. Although this may fall into the “who belongs in the acquisition workforce,” this strategy nonetheless will be more successful to create a lifecycle approach to acquisitions and thus outcomes.

Ms. Lee further advocates integration of the oversight role in the acquisition team and the government’s continuous improvement process. The acquisition process is ripe for process improvement, and the use of six sigma techniques could go a long way to streamlining processes. This process improvement should also include streamlining the layer after layer of review cycles that extend acquisition timelines by many months or years. However, crucial to execution is leadership, and as Ms. Lee also points out, strong leaders are needed now for OFPP administrator and General Services Administration administrator to provide the necessary guidance and vision to really move forward on effective change strategies and to communicate what is needed to see results.

…Ensuring the proper execution, oversight, accountability and effectiveness of federal acquisition requires policies that balance advance planning, resources and compliance. Those policies must be based on sound data and thoughtful debate rather than on anecdotes or headlines and must focus on actions that will truly improve performance and results rather than adding layers of non-value-added processes or reviews.

Developing a well-trained and well-supported acquisition workforce is the single most important ingredient for success. Delivering on that message will do more to strengthen the federal workforce than almost anything else…

It is this last point that is vital to understand acquisition reform. A people first strategy; with subsequent tools to hire, train, and retain talent, will do more to foster an environment for success in acquisition outcomes than almost anything else. Action is indeed needed now.

Follow Up: Dee appeared on the Amtower Off-Center program on Federal News Radio 1500 AM yesterday to discuss these issues and the state of federal acquisition. You can listen to the interview here