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

So the $16 muffin is back in the news as the Department of Justice (DOJ) Inspector General made updates to its previous report by correcting the record, and bowing to the sensationalist media coverage that yes, the muffin itself did not cost $16. 

Correcting the record is a good thing. However, what the sensationalist media forgets, and what seems to be ignored, is the fact that the DOJ, in addition to the federal government itself, is not doing enough due diligence to ensure that the these expenditures are in the best interest of the organization or that they are being good stewards of taxpayer funds. The report correction goes on further to say that all-inclusive lunches cost $76. Will this be the subject of the next series of reports?

Putting aside the full court press of public relations activity by the hospitality industry, how does government know they are getting the best value? Having done this myself over the years, I have always tried to negotiate better pricing for conference space, refreshments, meals, etc. by playing venues off one another to get the best deal for my needs. I do not doubt that the venues are being flexible to get my business, but how can the government buyers say with a straight face they too are getting the best prices? Further, what options are being explored to find more cost effective means of holding these conferences and training (i.e. videoconferencing, other federal spaces, etc.)?

It is this willful ignorance that explains why we can continue to expect the inability to create budgets, more focus on nonsense, and putting aside effective governance and accountability for the foreseeable future.

Performance Outcomes: Judgment Day is Coming

So Fiscal Year (FY) 2011 is now in the books, and the new government FY 2012 begins. I don't think anyone can argue that this end of FY was one of the most challenging end of FYs in recent memory, with budgetary issues and Continuing Resolutions adding to a sense of doom in industry, if not outright confusion and desperation in most government procurement shops. Many of the acquisition divisions at federal agencies did not have a clear sense of what the budgets and fiscal environment for the rest of the year would be, thanks to a dysfunctional political system and a Congress willing to sellout stable government operations in the name of political sensationalism and outright partisanship at the expense of the nation.

From what I have seen over the last few months and winding up this FY, coupled with the bleak fiscal horizon in the next few years, government operations are in serious trouble. Frankly, if you think government operations are bad now, you ain't seen nothing yet. The Government Accountability Office, Office of Management and Budget, and other watchdog groups and organizations can expect their workload to increase to the point of trying to move a mountain with a shovel.

One only need taking a look at what is happening with alarming regularity, and will no doubt continue as the government continues to find ways to save money and reduce the amount of contractor support and contracted dollars; low price is the only price.

Granted low price, despite illusions of "best value" has always been around, things seem to be spiraling out of control. I have seen with alarming frequency contracts be awarded to low-priced bids, at prices that are ridiculously low compared to both other bidders and government estimates. Sometimes 20% or more below. So much for price not being the most important factor. Price reasonableness and realism? Looking at the bottom-line figure is not enough. Sometimes performance costs money, and should actually save money in the long-run. That is a concept seemingly lost on procurement officials right now.

Although "buying in" is a prohibited practice according to the Federal Acquisition Regulation, it has now become a sanctioned activity. Expect to see many more fixed priced contracts, despite the requirement, in addition to modification after modification. Performance will be an afterthought, as multipliers in industry (the final amount that a contractor bills the government for a dollar of labor, often referred to as “loaded” cost) get lower and lower. Anything less than 2.4 is considered inexpensive; with 2.4 – 2.7 the norm and anything greater than 2.7 considered expensive. I have heard of firms lowering their multipliers to 1.9 to be competitive. Competitive? How can you be profitable?

Size is the answer, as only very large firms can absorb that type of contract strategy. Make it up in volume, and the modification circus that poorly written and "cheap" contracts is also another outcome. This strategy simply decreases competition, especially for small businesses, and will result in even further poor contract performance. Just what we need. Forget about even developing proper requirements, as that is now a cost driver.

So how to you staff these contracts if you are "lucky" enough to win a contract? Answer: on the cheap. Hire know-nothing consultants straight out of college or inexperienced staff to support the requirement, pay them rock-bottom salaries with little if any benefits, and put them through the sausage grinder for a couple of years. Repeat the process. How will government get any decent performance? The current environment and abilities of the acquisition workforce are not conducive for governance and oversight as it is. Now you're going to expect them to provide even more?

Industry: How are you planning to succeed in this environment? What adjustments are you making? What experiences have you had in this "new" low-cost paradigm?

Government: What are you doing to ensure performance with such a low-price? What price reasonableness and realism checks are being done? What technical acceptability checks are being done?

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.

How Do You Stop A Contracting Disaster?

In light of the new inherently governmental rules that have been published by the Office of Federal Procurement Policy, decision making by the government in regard to acquisition strategy comes to mind. When it comes to hiring contractors to assist in performing acquisition functions, it is very much a caveat emptor situation.

Contracting is a difficult subject, that requires expertise. There are many IT and Program Management firms that continue to receive contracts to provide acquisition support, although they do not have the competency or the skill set to provide it. They just happen to be there providing other support services, are an 8(a) so you can sole-source a contract, or see these opportunities because of the desperate need by government. So why not assist with procurements? It is just paper-pushing anyway, with little value-added service, right? Hardly.

What is happening is that IT Program Managers with a few DAU classes under their belts are making incompetent recommendations related to contract type, acquisition strategy, and requirements. Because the federal IT clients do not understand contracting, and the acquisition shops are overloaded and not providing sound business advice, the government relies on poor advice in its decision making.

Contracts worth millions, sometimes hundreds of millions, are being made in this dysfunctional environment. The government continues to bleed, and incompetent contractors continue to be paid. The inherently governmental rules allow contractors to provide guidance and advice, but little vetting of competency and skill set seems to be happening due to pressures of desperately needing support, and the need to increase contract throughput. These services, when done right, can be very critical to supporting this crucial government management mission. I am not advocating they go away, but in looking at inherently governmental functions, the government really needs to be careful what it is getting and why.

How can we honestly discuss acquisition reform when this environment exists?

Contingency Contracting Failures: It's About the People

The big story before the Labor Day holiday was the release of the final report by the Commission on Wartime Contracting in Iraq and Afghanistan (CWC). According to the Project on Government Oversight (POGO), the enormous dollar volume of waste and the assumption of the over-reliance on contractors for contingency operations was the focus of the report. I very much respect POGO's work, but I respectfully disagree.

The major issue is the quality of the acquisition workforce. In agreement was Sen. Claire McCaskill (D-MO), who stated that two areas in the report that jumped out to her was the Defense Department culture and the lack of qualified and too few contracting professionals as main reasons for the waste. Although I normally focus on quality, it was the quantity on this issue that was also a major failure.

..."I think the dirty little secret that has now been exposed-in fact this goes governmentwide and not just in wartime contracting-is that if you don't have the personnel that work for the federal government, rather than increase the personnel and the costs associated with that, go out and contract," she said. "This has occurred to a large extent in the Department of Homeland Security, it's occurred in a number of places and we have been doing that while we have hollowed out our acquisition personnel. We need to make investment in government employees that know how to police this and we frankly have dropped the ball in that regard."...

What the report simply fails to address is the political realities made with these decisions. Hearts and minds needed to be won, and thus materialized the pictures in Iraq of U.S. personnel sitting a top pallets of U.S. currency, handing it out like candy to win favor in line with local cultural norms. In Afghanistan, bounties were paid to find "terrorists,"so locals sold their neighbors up the river to win favor with the U.S., make more money than they ever have before, and take over land and settle old scores. Warlords also were paid off, although sympathies to al Qaeda and Taliban forces continue to be difficult to determine. How much waste went to the enemy? Perhaps that is the $30 Billion that the report mentions in possible unaccounted for waste. Any oversight with these issues?

The realities for personnel are that contingency contracting may be one of the most difficult areas of contract management, as local customs and norms may interfere with transparency and oversight, making the glaring lack of adequate training even more difficult to comprehend. Further, how many people across Defense, State, and USAID have any formal training? Obviously not enough. It got so bad that Defense was actually considering giving every lowly grunt going into theatre some form of contract training!

Coordination and collaboration across these agencies means creating a Contingency Contracting Corps, shared among the agencies, that can perform the contingency contracting mission across the globe. They would be the "special forces" of contracting; the tip of the spear to ensure accountability to the taxpayer. This of course requires a massive overhaul in the training curriculum available to the acquisition workforce, which of course needs to include revamping services contracting and commercial item acquisition. A much broader skill set would also need to be considered, one that needs to be factored in for hiring or designation to this mission.

After 10 years of war, and the 15 strategic recommendations made by the Commission, I hope that Congress understands the issues at stake. We need to invest in the acquisition workforce, and fully fund these initiatives that can have vast returns with upfront investments. I would like to think that government management of this scale would easily be an election year issue, but perhaps it will not make effective sound bites.

Policy Reviews Will Not Improve Government Procurement

As part of the continuing push by the Administration to reduce the amount of redundancy and to cut red tape through a review of existing federal regulations, agencies recently announced their final plans that describe what they will begin to consider as possible reforms to current regulations to execute on the President’s Executive Order.

The plans look at variety of issues, including increasing competition, payments to small businesses, and vendor communications with government. In addition, the final plan for regulatory reviews also includes conflicts of interest, how to properly review a company’s past performances, and working with the Small Business Administration to update rules for using set-aside contracts and small business subcontracting plans.

Although the regulatory review plans are long overdue, and definitely needed, I am not sure the fundamental issues at the heart of the problems are regulatory in nature.

In July, the Department of Defense (DOD) proposed changes to the Defense Federal Acquisition Regulation Supplement’s rules on how DOD gets a fair or reasonable price from a company when only one-bid is received. Under the proposed new rules, Contracting Officers would have to re-compete the solicitation for at least another 30 days, and would have to determine prices to be reasonable through price or cost analysis or they can enter negotiations with the company that made the bid. However, the proposed regulatory change does not even discuss a comprehensive review of requirements or acquisition strategy, which more than likely led to the one-bid in the first place.

Regulatory reviews also plan to look at FAR 15, and regulatory obstacles to vendor communications. In fact, the regulations are clear on best practices and what is permissible prior to RFP release, even though it is not getting done. Dan Gordon, administrator of the Office of Federal Procurement Policy (OFPP), plans to discuss the rules about communications, and provide more guidance via a proposed memo by the end of 2011.

This memo would be a continuation of the OFPP's Myth Busters Campaign that discusses the misconceptions about government and industry communications. The Better Government IT initiative was created to help in this effort, but it is through this crowdsourcing that best practices can be reviewed, not through a review of regulations.

Mandating the use of current policy and regulations does not seem to be a viable option for ensuring government executes on these issues. It is through concerted leadership to execute existing policy and actively solicit best practices that we can expect to see effective change.

Eliminating burdesome policies and regualtions that create barriers to entry and create costs to government and industry would be welcome, but I am not sure this policy review will be as productive as might expected by its proponents.

MythBusters Call For Participation

Continuing the ongoing campaign to improve government and industry relations through the "Mythbusters" initiatives, the American Council for Technology (ACT) - Industry Advisory Council (IAC) has put up an initial list for comment and expansion to deliver on finding the "Top Ten."

Please visit the BetterGovernmentIT.org site to offer your comments and suggestions, and to vote on the top ten vendor-friendly strategies. The site will be active until 9/9! Help us help Government – visit bettergovernmentit.org and provide your input!