Your Taxpayer Dollar$ at Work: Volume III – Muffin Edition

This week's news of the absurdity of waste, fraud, and abuse across government comes from the Department of Justice (DOJ) Office of the Inspector General (OIG) Audit Division. Their report, titled Audit of Department of Justice Conference Planning and Food and Beverage Costs is a follow-up to a previous September 2007 which examined expenditures for 10 major DOJ conferences held between October 2004 and September 2006. That audit found that DOJ had few internal controls to limit the expense of conference planning and food and beverage costs at DOJ conferences. This report highlights the same story, and little to no corrective actions by DOJ to mitigate this waste. Makes you think fondly of the $50 hammers and $500 toilet seats of Defense back in the 80s, doesn't it?

Of course politicians and the media jumped on the story for easy press, zeroing in on the $16 muffins and nearly $10 cookies served to attendees at one event. Emily Ingram of the Washington Post created a good competitive landscape of the muffin offerings in Washington, and only at government conferences will those prices apply. What is even worse is that DOJ officials basically stated they thought they were addressing the issue:

...Justice officials did not dispute most of the findings. The department did not offer an official to speak by name, but a spokeswoman who was not authorized to comment publicly said the agency “agrees that excessive spending of the types identified in the report should not occur” and has taken steps to prevent it. She said conference costs have been cut this year as part of an effort to curtail non­essential spending, though she could not specify an amount. 

Justice Department officials gave auditors a variety of explanations for the expenses, saying consultants they hired to help plan events had valuable knowledge and that the department had done its best to control costs. Officials from one Justice office said they thought they were saving money by serving muffins and other snacks instead of full meals...

You're not saving money DOJ, you're wasting it needlessly.

The OIG recommendations are pretty straight forward: itemize costs and ensure you have adequate price analysis to ensure "best value." These controls need to go much further by commoditizing these expenditures, of course itemizing all costs (both direct and indirect), and ensure no surprises and real best-value. There are many other quality, yet reasonable, venues that can accommodate these functions other than the Ritz Carlton.

Adequate market research must be conducted, lessons learned applied, and opportunities for strategic sourcing and leveraging the buying power of the government must be utilized. Further, perhaps this is an opportunity to consolidate BPAs across government and further leverage buying power, in addition to possible using reverse auctions to drive down prices. Cost savings of these types of expenditures are really low-hanging fruit, akin to eliminating free coffee or soda in the break room, which makes this report even more shocking at the level of waste rampant in government.

We obviously have a long way to go in reducing spending, although a thorough spend analysis of these commodity-type of expenditures could probably find millions, if not billions, in needless waste and efficiencies. The opportunities to save money are everywhere. Just look in the snack basket apparently.

Reverse Auctions: A Tool to Realize Real Cost Savings

As Government continues to leverage its buying power through continued fiscal pressures, one process that is not getting enough attention is the use of reverse auctions. Reverse auctions are an effective and efficient means of realizing large savings on purchases of not only commodities, but highly defined services as well. Although current initiatives exist such as the General Service Administration’s (GSA) Federal Strategic Sourcing Initiative (FSSI), which encourages adoption of industry best practices, federal buyers are simply not going far enough in leveraging their buying power to maximize price savings. To achieve maximum efficiency, the Government should begin to create holistic strategic souring initiatives that include reverse auctions as a mechanism for cost savings, since programs such as FSSI are simply catalog buys to bidders that have been pre-qualified, and mimic the GSA Schedules program. Further, many Program Managers and other acquisition officials I have spoken to state that they do not always get the best prices by using these types of pre-negotiated arrangements, and thus buy either directly from vendors or execute procurements outside these initiatives. The result is ineffective buying and the continuation of not maximizing efficiencies to the detriment of the taxpayer.

Reverse auctions are by definition a structured competitive bidding event where competition can be maximized to help drive the price lower over the course of the event. One common reason I have heard for the poor adoption rate is technology barriers, which is a frankly a disingenuous reason. The benefits of potentially significant cost savings, enhanced transparency, increased collaboration, increased competition all outweigh any barriers that seem to be artificially created by Federal organizations. If the Office of Management and Budget (OMB) and the Obama Administration are serious about Open Government and accountability, then enhanced adoption of reverse auction should be further explored.

Another stumbling block to adoption is the issue of transparency, as the risk adverse nature of Government creates issues that should not exist through fear of protest that seems to be paralyzing acquisition decision-making. The reverse auction process is Acquisition 2.0 in motion, as reverse auctions create a structured and automated negotiation process with transparency at its core, since the process depends on vendors creating a clear and documented process for creating the pricing structure and the subsequent contracted price. It is the openness of the process that should be embraced, since the reverse auction allows for real time pricing feedback, and also allows acquisition officials to have real time visibility into the negotiation. This type of structure and the transparent process creates and enhances competition, reduces complexity, enhances collaboration, and ensures compliance with the acquisition policies and regulations.

It is these types of procurement methods that should be embraced, and will need to be further explored to help create holistic strategic sourcing initiatives for realizing true cost-savings by adjusting processes, ensuring leadership drives change, and breaking the endemic status-quo culture of Government. Successful examples of reverse auctions already exist through both Defense and civilian agency use, so lessons learned are available for use and need to be expanded upon to help with widespread adoption. As OMB continues to issue guidance on improving federal acquisitions and government management in general, reverse auctions need to be part of this process of continuous improvement and increasing accountability to the taxpayer.