Speed Over Prudence in Stimulus Spending

Last week at the National Contract Management Association World Congress, we discussed many issues facing the federal contracting community. Among them was the push for transparency and accountability from the Obama Administration, specifically in the oversight that will be associated with Stimulus spending.

I would like to begin that conversation with the article in the Washington Post, which begins with the assumption that waste, fraud, and abuse to the tunes of billions is somehow inevitable in the rush and urgency to spend the money and get the economy rolling again.

…Missing amid all these high-minded calls to protect taxpayer dollars is an awkward question: When the whole point of a major government spending program is to stimulate the faltering economy as quickly as possible, what exactly counts as "wasted" money? After all, if some stimulus cash is misspent -- say an errant official or contractor buys himself a Cadillac or a Harley Davidson, only to suffer the full force of law -- might not such fraud boost the economy more than if the cash languished in a law-abiding state account? All that monitoring, however well-intentioned, may undercut recovery by compelling officials to spend more slowly to avoid hearings, prosecution, or embarrassment in the media… (Emphasis mine)

This is an interesting point that is causing serious issues with how best to keep track of the funds, and may lead to what I call an “analysis paralysis.” Relating this theory to DoD programs, officials often want the best solution, which to DoD means a system that meets 100% capability. Perfection is nice, but is it realistic? Is it in the best interest of the warfighter or taxpayer? Instead, focus on the 80% solution, and get capability quickly fielded and perfected with incremental additions of mature technology. For the Stimulus funding, it is the same theory. Federal officials may be so paralyzed of making a mistake and being called out on the carpet, that spending decisions may be slow-rolled and second-guessed in an environment of risk aversion.

My colleague Steve Schooner of George Washington University makes the point in the article:

… "If the goal for the stimulus spending is to minimize fraud and waste to the point of zero, I know how to do that: All I have to do is not spend the money,"

.. "Are we capable of grasping the concept that in a struggling economy, it's more important to throw money at the problem, even if it's possibly inefficient and possibly inaccurate?"…

The purpose of the Recovery Act was to help push broader policy initiatives for healthcare, energy, and education. Therefore, the stimulus funding needs to have the desired impacts on policy, but also has been placed under the microscope of oversight. Here is the where the paralysis is feared, as some in Congress are keeping a very close eye for even the slightest hints of problems amid association with Iraq or Katrina contracts and pictures of millions in $100 bricks being handed out with little accountability.

The enormous amount of attention to stimulus funding is creating a burdensome process that continues to be defined, and redefined. Agencies and contractors must spend enormous amount of resources creating reports, further burdening an acquisition workforce under siege. There appears to be a lack of commitment on data feeds with Recovery.gov, with complaints on the rise that little useful information is being provided to create the real-time informational reports that were envisioned with its creation. Therefore, just the reporting is becoming a huge impediment to Stimulus will processes and procedures that seem to be conflicting or self-defeating.

Further complicating the issue is what gets defined as "waste," and what is being targeted. Some in Congress, along with Offices of the Inspector General, are concerned with blatant fraud and abuse, while some see anything short of the bill's specific policy aims as a failure. This of course includes political gamesmanship on both sides of the aisle, which will invariable further slow the process and question spending that can be used as a political weapon. Of course the issue of risk aversion is never far away, as stated by Alan Chvotkin of the Professional Services Council:

… the oversight is putting a scare into federal officials whose agencies are undermanned as it is when it comes to contracting and procurement. "Most of the agency officials, the career officials, are risk averse," he said. One such individual he spoke with told him that the White House was behind the official "with a hot pitchfork to get the funds out," Chvotkin said, "yet he knows whatever action he takes is going to be reviewed by a lawyer or his inspector general or Mr. Devaney, so he's saying, if it's going to be [me] in a sling, this is going to be done on my timetable.".. (Emphasis mine)

We seem to be repeating some of the issues and tensions experienced by President Roosevelt, who in 1933 created the Public Works Administration and the Civil Works Administration to get America out of the Great Depression. These two agencies had different philosophies, and different imperatives on stressing speed over prudence. It is a policy focus being fought today, although I fear that prudence may be winning the fight over speed. Some in Congress, however, are bringing important questions to light:

…Amid the calls for oversight, Sen. George Voinovich (R-Ohio) issued a rare dissent. "Does this make sense?" he said at last month's hearing. Officials "are filling out all these reports and they're going to ask the question, 'Do they want us to do [stimulus] or are they more interested in the reports?'…

Some level of waste or fraud is inevitable, but the questions have to be raised about what level we are willing to accept with the broader focus of getting the economy back on track and getting people back to work. I agree with the Interior Department's highly regarded inspector general, Earl Devaney, who stated in Congressional testimony that assuming fraud will be ferreted out with the tremendous amount of transparency and accountability called for in the Recovery Act is naïve. There has to be a proper balance between actual stimulus, and creating so many policies, reports, layers of bureaucracy, etc. that risk aversion takes hold, and the Stimulus becomes a trickle as opposed to the envisioned flood for our struggling economy.

New Blog Postings

I will be attending the NCMA World Congress this week, so I don't expect to have any postings until the week of the 13th. Should have some great materials on transparency in government, the new Alliant award, continuing saga of the KC-X tanker, and human capital management isssues.

Fixing Defense Programs with Knowledge

Following the report earlier this week from the GAO on the explosive cost growth and systematic delays in DOD’s portfolio of 96 major defense acquisition programs, new testimony from the GAO outlines the steps needed to fix the issues and get the defense acquisition system back on track.

The GAO outlines their approach to measure knowledge, processes, and outcomes that are critical to achieving the recommended improvements through the prism of best practices to gauge the health of these programs. According to the report:

GAO employs a set of knowledge metrics to determine whether programs have attained the right knowledge at critical points over the course of a weapon system acquisition, and facilitate the identification of potential problems that could lead to cost, schedule, or performance shortfalls. In essence, knowledge supplants risk over time. Key knowledge points and metrics include 1) achieving a high level of technology maturity at the start of program development, 2) reaching design stability at the system-level critical design review, and 3) demonstrating that critical manufacturing processes are in control before starting production.

GAO acknowledges that favorable outcomes are not possible if defense acquisition programs to not begin with realistic plans and clear requirements baselines prior to start of development. The report outlines GAO’s prerequisites to a program’s acquisition strategy that includes a knowledge-based business case for each acquisition, limiting time and requirements for product development to manageable levels, employing sound systems engineering practices early on in the process to ensure realistic cost and schedule estimates are created, fully funding programs upon approval, ensure programs are vetted against needs, and sound program management plans for delivery.

DOD’s performance will improve when the focus of defense acquisition programs are knowledge and outcomes. Knowledge metrics provide decision makers with the information for determining whether programs have met the requisite objectives to proceed with the next phase in development, thus lowering the risk of cost and schedule overruns. Outcomes metrics, combined with earned value, will ensure cost, schedule and performance goals are met and informed decision making is possible to effectively manage programs.

Conclusion of the Troubled ANC Program

Government Executive completed its series of articles accompanying the feature "Out in the Cold" , which appeared in the March issue of the magazine. This series focused on the contracting preferences for Alaska Native Corporations (ANC), and the need to reform the program now that former Sen. Ted Stevens (R-AK) is no longer in Congress. This series demonstrated how the ANCs have been used and abused, and painted an overall disturbing picture of how the ANCs have shifted the playing the filed in their favor, eliminated competition, and became holding companies and siphons for big business to continue receiving small business contracts.

In the fourth article in the series, Robert Brodsky reported on the frustrations and unfair competitive advantage ANCs have in “competing” for contracts:

…Jennifer Bisceglie decided early on that there was no point in competing against Alaska native corporations for government contracts.

"It comes down to time and money and resources and who do you really want to spend your time competing against," said Bisceglie, who runs InTEROS Solutions Inc., a four-year-old supply chain management consulting company in McLean, Va. "There is no way to win against an ANC as a small business."…

… Paul Miller, a small business lobbyist and partner with Miller Wenhold Capitol Strategies in Fairfax, Va., said many of his clients have abandoned any attempts to win work with the government, in part because of their frustration in competing against ANCs.

"People in the small business community said 'Forget about it. There is no way to get the business,'" Miller said. "So they don't want to waste the resources and manpower to try to go after it when it's futile."…

This has been a common theme among many 8(a) companies that face competition from ANCs as ANCs enjoy a unique business model that illustrates the need to reform this program. Part of the problem is the ability of ANCs to win sole-source contracts of unlimited value, in addition to being able to have multiple affiliate businesses in the program, as long as they operate in different sectors and become holding companies. This has allowed ANCs to skew 8(a) award data in their favor, and has been used by the acquisition workforce to award large contracts without the need for competition or the normal procurement process. Exacerbating the problem is the lack of oversight by the SBA:

…But Calvin Jenkins, deputy associate administrator for SBA's Office of Government Contracting and Business Development, argued that the federal contracting pie is large enough to accommodate all types of small businesses. Small firms earned more than $83 billion in government contracts in fiscal 2007.

"There is enough opportunity and a lot of room for us to assist all of these groups," Jenkins said. "We just need to be more strategic in doing that."

...SBA has not conducted an economic impact study of whether the contracting advantages provided to ANCs have hurt other types of small firms, but would consider such an examination, Jenkins said…

and the inherent corruption in the program:

…Contracting data shows that many of the more successful ANCs have these advantages in spite of the fact that they possess the capital, experience and workforce typical of larger prime contractors…

The last comment by the SBA rep is very telling, and indicative of the cavalier attitude by the SBA to ensure the viability of 8(a) companies, but also the inherent disinterest by the government in ensuring best value and being good buyers by simply awarding to ANCs on a sole source basis due to a perceived burdensome procurement process. The procurement process could be more efficient if the government could make strategic decisions on how it buys and ensures the procurement process is focused out favorable outcomes.

Some of the reforms that have been proposed are to bring the ANC program more in line with the normal 8(a) program, such as caps on the sole-source value and the ability to graduate from the small business category after a certain time period.

Defenders of the ANC program often point out to the fact that they are being improperly targeted and do good work for the government. No one is disputing this, but the argument is fairness and equity by being good stewards of taxpayer resources. This can be accomplished by ensuring the government receives best value for its investments through normal avenues of competition. Congress is discussing the elimination of the HUBZone program, but the discussion should include reforming the ANC program as well.

DOD Needs to Look Inward to Support Acquisition

A recent report by the GAO on the defense acquisition workforce starts to give a clearer picture as to the main reasons DOD continues to struggle in completing its acquisition mission. The report discusses skill gaps, lack of personnel, and overdependence on contractors. As I have posted in the past, contractors are not the enemy. Treating industry as the problem will not solve the issue, and further exacerbate the real human capital management issues the report addresses.

According to the report:

…. GAO found that program office decisions to use contractor personnel are often driven by factors such as quicker hiring time frames and civilian staffing limits, rather than by the skills needed or the nature or criticality of the work. Second, DOD’s lack of key pieces of information limits its ability to determine gaps in the acquisition workforce it needs to meet current and future missions…

… Omitting data on contractor personnel and needed skills from DOD’s workforce assessments not only skews analyses of workforce gaps, but also limits DOD’s ability to make informed workforce allocation decisions and determine whether the total acquisition workforce— in-house and contractor personnel—is sufficient to accomplish its mission..

The total acquisition workforce concept has not been adequately embraced at DOD, and certainly not understood or acknowledged by Congress. The report is correct in that DOD is establishing practices for overseeing additional hiring, recruiting, and retention activities. What seems to be missing is a focused approach to developing the core skills needed by current personnel overseeing in-house contractor acquisition support, mainly training personnel in oversight responsibilities, and program management skills to manage the contractors. Thus the situation is incomplete data with insufficient information on how the acquisition mission gets accomplished, and by whom. The resultant analysis is a conclusion that contractors supporting the acquisition mission are running amok and need to be reined in.

What I find interesting in the report is that the GAO met with representatives of leading companies to understand workforce management practices. However, the GAO did not meet with leading companies that are currently providing DOD with acquisition support. I am not sure why this omission occurred, as GAO could get a better understanding of the needs of government by finding out how and why they are being filled by industry. I think this is telling in the apparent assumption that contractors are inherently causing harm, and that DOD will need to stop “depending” on contractors if the acquisition mission is to be reformed.

The GAO is correct in that much work needs to be done to have an effective human capital management strategy at DOD, and across government, to better ensure that agencies have the right staff, doing the right jobs, in the right place, at the right time, and by making flexible use of its internal workforce and appropriate use of contractors to fill skill and capability gaps. DOD is not truly managing from a “total force” concept as they claim, as they do not collect data on contractors performing critical missions in the acquisition community.

According to the report

… 25 program office cited staffing limits, the speed of hiring, or both as main factors in their decisions to use contractor personnel. Additionally, 22 program offices cited a lack of in-house expertise as a reason for using contractor personnel, and 17 of those indicated that the particular expertise sought is generally not hired by the government…

In other words, DOD is hiring contractors to help perform a critical mission because they not only lack the resources, but lack the skills to perform the mission. What I find somewhat disingenuous is that the information in the GAO report highlights the strategic case made by industry on a limited use by contractors. Industry will not hire outside contractors to perform critical functions because of the proprietary nature of the data. Furthermore, these companies are managing profit-loss tightly, with proprietary information staying in house as the viability of the business depends on it. Industry models for strategic human capital management certainly can be researched for best practices, but I disagree with the approach the GAO took in their analysis as they fail to point out very different business models and missions.

As reported in FCW:

Many government officials and experts already say DOD relies too much on contractors, particularly for services contracts, and it needs to find a way to end that dependence. However, they also acknowledge that it can’t be done quickly or completely.

As result, one member of Congress is taking a simple route. Rep. Joe Sestak (D-Pa.) introduced a bill March 18, which would require the defense secretary to train members of the Armed Services before they are deployed on how to manage contracts and contractors.

I have already commented on the route taken by Rep. Sestak (here), and the inherent problems with this approach. The focus is misplaced by the GAO report and members of Congress in that contractors are not a critical issue having a negative effect on DOD acquisitions. I think it is best served to understand that program offices acknowledge that contractors are helping complete a vital mission, and it is imperative of DOD to look inward on how to best meet the needs of the mission, and focus on a true workforce concept which includes support contractors as necessary.