Procurement officials face mounting pressures

The to-do list for government’s top procurement officials seems to grow longer by the day: Drastically reduce contract spending and curb use of high-risk purchasing techniques. Bring thousands of contractor positions back in house without racking up a huge tab or sacrificing quality of work. Support a growing war in Afghanistan while managing a dwindling presence in Iraq. And those are just some of the tasks landing on the desks of chief acquisition officers.

If 2009 was the year for introducing dramatic reform in the acquisition field, 2010 is shaping up as a mammoth implementation headache, with a virtually endless supply of directives, guidance and internal decisions that have to be moved from paper to reality. Nonetheless, procurement officials are eager for the challenge.

“Overall, it’s a very exciting time to be working in the procurement arena,” says Maureen Shauket, senior procurement executive at the U.S. Agency for International Development. “We have the opportunity to make a fundamental difference in the way we are delivering developmental assistance.”

Scrubbing the Books

In July 2009, the Obama administration unveiled a bold vision for reducing contract spending and eventually decreasing the government’s dependence on private sector workers for critical skills. The Office of Management and Budget directed agencies to save 7 percent from their baseline contract spending by 2011 and to reduce by 10 percent their use of high-risk acquisition methods, including sole-source, cost-reimbursement and time-and-materials contracts. Altogether, OMB expects these reforms will save $40 billion annually.

But implementing a massive and immediate overhaul of the $533 billion annual federal procurement system is like cleaning a filthy house with a toothbrush – sure you can get the job done, but it’s going to take a while and you will get your hands dirty. During the past year, acquisition leaders have scrubbed their books for opportunities to cut fat, strategically align procurements and switch to safer contract setups. While it’s still early in the implementation process, officials say the results are promising.

For example, the Environmental Protection Agency is saving money by using strategic sourcing to consolidate its Washington telecommunications requirements. The agency also is moving many of its older and traditionally more stable service contracts from cost-reimbursement to fixed-price models, which are considered safer because costs can be better controlled.

“This was a very large effort to try to find the areas where we could save these funds,” says Chuck Gherardini, acting director at EPA’s Office of Acquisition Management. “We found the savings in different places and in different organizations. And now we are in the process of trying to get together a reporting mechanism to figure out exactly how much we saved.”

For international crisis relief agencies such as USAID, eliminating contracts is not always an option. Abandoning an agreement to deliver clean drinking water to Haiti, for instance, would have devastating effects on victims of the January earthquake there. To find savings, the agency has pursued traditional cost-cutting options such as shifting away from cost-reimbursement contracts and breaking down large indefinite delivery-indefinite quantity awards into smaller contracts. It also is relying more on local businesses to engage in reconstruction in Haiti and Afghanistan.

“Rather than saying that we will spend less money in Haiti, we are going to find more efficient and effective means [of contracting] so that we can ensure that more development is taking place with the same amount of funds,” Shauket says.

The Education Department faces still a different set of challenges. The size, complexity and rapidly changing requirements of its contracts, particularly for major studies, make it difficult to set a fixed price, says Hugh Hurwitz, deputy chief financial officer and senior procurement executive. The department, however, is trying a number of alternatives to meet the administration’s directives, from designing contracts with hybrid cost structures to scrutinizing higher-risk procurements.

“The minute we think we have a high-risk contract we’re [using] a contract review board,” Hurwitz says. “What we don’t want to do is get halfway down, be ready to issue the solicitation and say, ‘Why is this cost reimbursement?’ or ‘Why is this sole source?’ when it could have been fixed price or otherwise competed.”

The Veterans Affairs Department, meanwhile, has focused on issuing fewer sole-source contracts. The department raised its competition rate in one year from 49 percent to 72 percent, according to Glenn D. Haggstrom, executive director of VA’s Office of Acquisition, Logistics and Construction.

One reprieve for overburdened CAOs is Recovery Act contracting finally is beginning to wind down, as procurement reform heats up. After a whirlwind year of spending, agencies now have obligated nearly three-quarters of the $275 billion Congress provided for stimulus contracts, grants and loans.

Senior acquisition officials have borne much of the burden for accomplishing this, issuing billions of dollars in awards to improve the nation’s infrastructure, energy and education systems; managing projects that were heavily scrutinized by lawmakers and the media; and prodding sometimes resistant recipients to report their spending. As the dust begins to settle, procurement officials are optimistic taxpayers will receive a sound return on their investment.

“Acquisition professionals have negotiated better prices than estimated, allowing VA to reallocate remaining funds to other needed projects,” Haggstrom told the House Veterans’ Affairs Committee in December 2009.

Lightening the Load

Another glimmer of hope for CAOs is the Obama administration supports hiring more help. The White House’s fiscal 2011 budget includes $133 million to boost the size of procurement workforces at civilian agencies by about 5 percent. The plan is to hire mostly entry-level and midcareer employees from industry for a host of contracting-related positions.

“This is a once-in-a-generation opportunity for us,” Daniel I. Gordon, administrator of the Office of Federal Procurement Policy at the Office of Management and Budget, said during a March interview. “And it’s a once-in-a-generation challenge for us. We have to recruit people in a smart way, and then once they come on board we need to train them, supervise them and promote them in a smart way.”

The nation’s economic downturn has helped with the recruitment phase. “We’re seeing the best applicants we’ve ever seen both in terms of quality and quantity,” Hurwitz says. “We have even gone so far as to create a wait list of people we’d like to consider for future jobs. We just didn’t have enough vacancies to hire them all.”

Agencies governmentwide have been developing long-term strategic plans to boost the size of their acquisition workforce, which has been stagnant for more than a decade. VA, for example, opened the first federal civilian agency acquisition academy in the fall of 2008 to grow and train its contracting staff.

USAID is planning to double its overseas presence and build up its assisted acquisition workforce in Washington. “We are trying to increase the number of contracting officers and contracting officer technical representatives so that we can make decisions on development interventions that are not based on staffing,” Shauket says.

At Education, applications have been pouring in for entry-level contracting positions, but not for slots at the GS-12 level and higher. “We have to bite the bullet and hire young people that don’t know a lot about contracts and then train them, which is nice because they learn to do it the way we want it done and don’t bring baggage and bad habits,” Hurwitz says. “But on the other hand they don’t know anything. The workload doesn’t go away. . . . It puts more burden on the staff that is there, but in the end it pays out.”

The hiring spree has been most visible at the Defense Department, which announced last year that by 2015 it would increase its acquisition workforce from 127,000 to 147,000 – a level not reached since 1998. About half the 20,000 jobs will be new positions while the other half will be work previously performed by contractors. As of the end of March, the department had added about 4,800 employees, 1,500 of whom were associated with insourcing and 3,300 of whom were new hires, according to Defense officials. The latest Pentagon planning estimates indicate the department will exceed its original 20,000 goal, though forecasts still are being updated.

“Our focus has been on bringing certain skills and certain capabilities back into the government that had gone out,” says Frank Kendall, principal deputy undersecretary of Defense for acquisition, technology and logistics.

Striking a Balance

As more work comes back in house, CAOs must manage a significant shift in the government’s relationship with contractors. Procurement chiefs will have to demonstrate they are not leaning on the private sector for core work.

In July, OMB asked agencies to identify at least one program that might rely too heavily on contractors and to conduct a pilot human capital analysis of it. The results of the insourcing studies submitted to OMB in late April were mixed.

Education officials identified a number of cases in which contractors were helping prepare for acquisitions, and determined that work should be left to federal employees, Hurwitz says. USAID, meanwhile, has announced plans to insource much of its program design, monitoring and evaluation work. But an EPA review of the workforce inside the Office of Solid Waste and Emergency Response concluded that a mix of contractors and federal employees was appropriate.

“I am confident that the balance we have right now is pretty good,” Gherardini says. “We have the expertise. We have the people to make sure that the contractors provide us with a good product and that we can analyze it and use it in making final decisions.”

CAOs also are digesting a March OMB proposed policy memorandum that redefined “inherently governmental” tasks that are off-limits for outsourcing. The guidance reiterates officials are to avoid an overreliance on contractors for functions that are “closely associated with inherently governmental” work or that are “critical” for an agency’s mission.

But acquisition managers caution insourcing must be deliberate and thoughtful. Defense’s insourcing plan, for example, has come under criticism from industry groups as quota-driven and lacking sound financial planning. “When people use the word ‘quota’ there is a perception of arbitrariness,” Kendall says. “That’s not our intent. We are trying to bring in specific needs of the government to do specific jobs where they had atrophied too much.”

Hurwitz adds patience will be important. “It won’t be an overnight, ‘Let’s hire people to replace those contractors,’ ” he says. “It’ll be, ‘Let’s just build the workforce in and we’ll reduce the need for the contractors.’ ”

The Obama administration is eager to build up the government’s internal acquisition capability. The White House’s fiscal 2011 budget includes $133 million to boost the size of procurement workforces at civilian agencies by about 5 percent. The plan is to hire predominantly entry-level and midcareer employees from industry for a host of contracting-related positions.

At the Education Department, applications have been pouring in for entry-level contracting positions, but not for slots at the GS-12 level or higher.

“We have to bite the bullet and hire young people that don’t know a lot about contracts and then train them, which is nice because they learn to do it the way we want it done and don’t bring baggage and bad habits,” says Hugh Hurwitz, deputy chief financial officer and senior procurement executive. “But on the other hand they don’t know anything. The workload doesn’t go away… it puts more burden on the staff that is there, but in the end it pays out.”

Hurwitz is taking a hands-on approach to the effort.

“I meet with all new employees,” he says. The meeting is part of an onboarding program that stemmed from discussions with employees at the opposite end of their Education careers.

“Two years ago, we started doing exit interviews, and it was pretty clear from people who were leaving that one of the things they were frustrated about when they came on board was they didn’t know what they were doing and how to do it, and they didn’t have the proper resources,” Hurwitz says. “That obviously had stuck with them.”

The welcome program ensures newcomers have mentors, access to computer system log-ins and other information technology resources, and training and work waiting for them.

“At some agencies they’ll hand you the [Federal Acquisition Regulation] to read because they don’t have any work to give you,” Hurwitz says. “This program ensures you have assignments, you meet the right people, that you get introduced to everybody in the office. It makes for a much smoother transition, makes people feel welcome.”

In addition, it means Education can take advantage of the new hands on deck from the get-go.

“Every agency is screaming that they have more work to do and not enough people to do it,” Hurwitz says. “Then you bring in new people, which is what you’re supposed to be doing, but then you don’t give them work to do or don’t give them tools to do it.”

Hurwitz describes the program as “rudimentary,” but he says it has drawn praise from employees at a range of other agencies.

“What we came up with was kind of basic, but it’s so rarely being done that everyone thinks it’s a great idea,” Hurwitz says. “It has gotten such a good reception that the human capital working group at the [Chief Human Capital Officers Council] got a copy of it and is looking at ways to implement it beyond Ed.”

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CHIEF ACQUISITION CHALLENGES

The Government Business Council, the research arm of Government Executive, asked dozens of managers what they wish the chiefs would focus on . . .

Contracting Reform

Managers understand contracting reform mandates, but say conflicting pressures of time, cost and politics are insurmountable obstacles to true reform. Long-term acquisition officials are reform weary and believe attempts at sweeping change actually make them less efficient.

Requirements Definition

An often-cited acquisition criticism is agencies do not do a good job of stating their requirements. Some managers say agencies should be more specific, while others say acquisition officials shouldn’t dismiss products just because they fail to meet excessively detailed requirements.

Managing the Multisector Workforce

The Obama administration is pushing to bring many contractor positions in house, but managers say CHCOs and CAOs must work together to overcome a slow hiring process and other human capital obstacles that exacerbate acquisition challenges.

– By Robert Brodsky and Elizabeth Newell – Government Executive – June 15, 2010