OFPP | The Contracting Education Academy

December 14, 2011 By AMK

Reverse auctions: A bid for budget-conscious business

Sometimes a good idea gets even better with the passage of time.

Ten years ago, shaving nearly 15 percent off the cost of a procurement by using a novel approach to the bidding process was a good idea. A decade later, as agencies across the government are seeing programs cut and discretionary funding dry up, it seems like a great idea.

In 2002, Cathy Read, director of acquisitions management at the State Department, gathered her most forward-thinking contracting specialists — the ones who “were always looking for a better way to save money and do it faster” — and asked them to try a new approach to buying commercial IT products.

Rather than soliciting quotes from companies and then picking the one with the best value, the department invited companies to bid against one another, driving the price lower and lower until one bidder emerged as the winner. It’s like an auction, except instead of bidding to buy products, companies are bidding to sell them — hence the name “reverse auction.”

The approach has paid off. State officials estimate they saved $33 million on more than 3,000 purchases in fiscal 2011, based on an independent government estimate. That’s a savings of more than 14 percent.

Proponents say other agencies could achieve similar savings, for a governmentwide total of billions of dollars a year. Given the current budget crisis, those experts say reverse auctions deserve a closer look.

“You can’t always do things the way you’ve always done them,” Read said. “You have to be lean on your feet, and you have to make do with what you have.”

Start small, think big

Reverse auctions are appealing because it’s easy to test the approach and see immediate savings — and imagine how much more savings they could bring to bigger projects.

In the beginning, Read had State auction off a few items to test the new method, and when she consistently found that the approach was saving money, she turned to reverse auctions more often over the years and with a wider array of commodities.

As time went on, the savings continued to increase and the competition for solicitations improved.

Even the department’s inspector general took note of the savings from reverse auctions in a report on spending under the American Recovery and Reinvestment Act of 2009. After reviewing a $13 million program to replace desktop workstations, the IG estimated that the reverse-auction approach had saved the department 7 percent, with greater savings being seen on other projects.

David Wyld, professor of management at Southeastern Louisiana University, has done extensive research into the benefits of reverse auctions. He has determined that $74.5 billion in federal acquisitions could be competed through reverse auctions, and his analysis of auctions conducted across the government demonstrated a savings of 11.9 percent. That means the auctions could bring an annual savings of $8.9 billion across the federal government, with $6.1 billion saved on Defense Department spending alone.

“To me, the real-world benefit is the cliché ‘faster, better, cheaper’ way of doing business,” said Wyld, whose findings were published by the IBM Center for the Business of Government in a report titled “Reverse Auctioning: Saving Money and Increasing Transparency.”

Saving more than money

However, this isn’t just about saving money.

Time is an equally precious commodity in government offices, and many federal officials and acquisition experts say the acquisition workforce doesn’t have enough hours in a day to do all that it needs to do. Both Wyld and Read said reverse auctions save employees the non-renewable resource of time.

Wyld studied how much time State saved by using reverse auctions and found that the department shaved off nearly a full workday from each procurement it conducted using reverse auctions. Specifically, the department saved an average of 475 minutes — or 7.92 hours — whenever it conducted an acquisition through reverse auctions rather than traditional procurement methods.

“If you’re going to be a buying shop today when budgets are being cut by 15 to 20 percent because money is an issue, then as a buyer, you have to look for better, faster, more creative ways to get your program office what it needs,” Read said.

Agency officials must consider tools like reverse auctions or they won’t be able to adjust to the ongoing need to reduce the cost of government operations, she added.

Nevertheless, the auctions are not simply a way to save a little time and money here and there. The approach also streamlines the negotiation process. Reverse auctions simplify communication and collaboration between buyers and sellers, Wyld wrote in his report. “The competitive bidding processes that took weeks or even months to complete can be compressed into days or even hours,” he said.

All those factors help increase competition and bring agencies closer to the true fair-market value of a purchase. State’s IG wrote that reverse auctions “have been found to be significantly less expensive per item than buying the items from comparable General Services Administration schedules.”

The flip side of reverse auctions

Reverse auctions do have their limitations. For one thing, “the expedited form of procurement won’t work without oversight,” said Robert Burton, former deputy administrator of the Office of Federal Procurement Policy (OFPP) and now a partner at Venable law firm.

Furthermore, procurement offices cannot turn over all solicitations to reverse auctions. The approach only works when the terms of the contract are clearly defined and there is little — or no — room for flexibility. In other words, it is best for common products. Burton warned against buying services through a reverse auction because such contracts have far too many variables.

However, Read said she believed it was possible to buy certain basic services through reverse auctions.

Furthermore, Wyld said the auctions could change the nature of the relationship between buyers and suppliers. Instead of establishing long-term partnerships, relationships might only last until the next competition. The potential for switching suppliers is a cost of doing business, and for basic items, it won’t matter much, he said.

“Copy paper is copy paper,” Wyld said. “Toilet paper is toilet paper.”

However, a reverse auction also might affect the dynamic between buyers and suppliers, with the suppliers feeling coerced into lowering their prices in order to join an auction, Wyld wrote.

Jaime Gracia, president and CEO of Seville Government Consulting, said the reduction in procurement spending has the potential to make competition fierce, which, in turn, forces companies to lower their prices to win contracts.

To succeed with reverse auctions, Gracia said agency officials must determine which procurements are appropriate for reverse auctions — and which are not — and they must make sure that those solicitations have very clear requirements.

Making the case for innovation

Experts say now is the time to sell agencies on reverse auctioning because senior officials are desperate to find ways to conserve their resources.

“Agencies are looking under trees and in the couch for any spare change,” Gracia said.

OFPP has issued memos calling for agencies to use innovative procurement tools, including reverse auctions. Recently Dan Gordon, outgoing OFPP administrator, urged agencies to consider the approach.

To make the case to their bosses, Read said procurement officials should start small and document the results. From the beginning, she kept detailed notes on the reverse auctions that State conducted. She can cite dollar amounts, volumes and percentages by fiscal year.

“You can see the metrics are very important to really understand if we have savings and success,” she said.

However, she said that although innovative contracting specialists will likely embrace reverse auctions, instituting the approach agencywide will take time. “Change management issues in a federal government agency are always a bit of a challenge,” Read said.

Wyld, too, said reverse auctions should be implemented with care. However, he added, “hill by hill, staffer by staffer, people will change after hearing firsthand stories of savings.”

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. Published Dec. 12, 2011 at http://fcw.com/articles/2011/12/12/feat-reverse-auctions.aspx.

December 9, 2011 By AMK

Collaboration needed now more than ever

With the imminent departure of Office of Federal Procurement Policy Administrator Dan Gordon, rightful praise has been given to his legacy of collaboration and needed improvements in how government and industry interact. However, the “MythBusters” campaign is an ongoing activity that needs continued focus in this environment of budgetary uncertainty.

The Government Accountability office recently reported on the critical success factors on programs that met cost, schedule, and performance goals, and it was no surprise that active engagement by the program with its contractor base was listed. Only through this active engagement can programs properly define requirements, properly define metrics, and execute on them.

However, many programs see this critical success factor as just a time-consuming, and low-value added effort. The reality is that the current environment of low-cost contract selection, combined with a budgetary environment that may turn into a nuclear meltdown of sorts beginning on 2013, is a vital step to ensure any form of program success.

One clear example of this fact is the Navy’s Next-Generation Network or NGEN, a program that will replace the Navy/Marine Corps Intranet or NMCI, with an estimated cost of around $10 billion. The program office recently announced the importance of cost on this program, effectively warning the handful of competitors that price is the factor for contract award selection. It is an example of things to come, with prices being cut, margins being squeezed, and badly needed innovation and performance as possibly the latest casualties resulting from the current madness that seemingly has taken hold of Congress.

In this environment, doors need to be swung wide open in the area of industry and government collaboration and communications. Government needs to be realistic about what it can afford, and industry needs to be given the chance to work with government buyers on realistic solutions that do not sacrifice performance for price. Regretfully, the dominant communications are “no calls or emails” in conducting market research, especially with Requests for Information or Industry Days, if even conducted at all.

Further exacerbating the issue is the desire to cut training and support contracts, which will only fuel the desire to close even more doors through a poorly trained and overtaxed acquisition workforce, pressed for time and overly pressured to do more with less. This is the wrong strategy, yet budgetary pressures are such that laying the foundation for program success early in the acquisition process is a nice-to-have, a luxury that is just not affordable.

Effective collaboration is a necessary strategy to prevent the future wave of waste, fraud, and abuse that is currently running rampant throughout the federal government. By properly developing requirements and program goals, combined with a focus on realism and reasonableness when it come to program affordability, programs have a much higher chance of being successful and surviving the “more with less” pressures.

Contractors can still provide the needed innovations in technology, but it requires the government to understand that only through a strategic partnership and open and honest communications can this be possible. It is just a business reality in industry that margins will be squeezed, and fewer opportunities will exist. However, it is growing decidedly more difficult for industry to succeed when they do not have the opportunity to work together with procurement officials in the constraints of this fiscal reality of the government market.

Dan Gordon will no doubt be missed, but it his leadership in helping shape the future best practices in federal buying that will be a significant gap to fill. We need to be talking more, not less, and ensure the “MythBusters” campaign is not another passing fad in the continued need on acquisition reform.

About the Author: Jaime Gracia is president and CEO of Seville Government Consulting, a federal acquisition and program management consulting firm. Published by Federal Computer Week on Dec. 2, 2011 at http://fcw.com/articles/2011/12/02/collaboration-needed-now-more-than-ever.aspx.

December 8, 2011 By AMK

Contracting officers must be willing to take risks, panel says

Smart contracting in a time of tight budgets requires a trained agency acquisition workforce that is willing to take reasonable risks to achieve innovation, federal procurement specialists said in Washington on Thursday.

In a discussion headlined “Innovation in a Budget-Constrained Environment,” the Congressional Smart Contracting Caucus, co-chaired by Reps. Rob Wittman, R-Va., and Gerry Connolly, D-Va., heard Obama administration acquisition officials and a private sector spokesman say that fears of conflicts of interest or protests from unsuccessful contract bidders should not make agencies so “risk-averse” that they can’t find creative ways to invest in future innovation that benefits taxpayers.

“As we approach the federal debt problem and seek efficiencies, we need to separate what’s nice to have from investments that we can’t afford to walk away from,” said Connolly, a former federal contractor whose district is heavily dependent on such public-private partnerships.

The examples of essentials he gave were cybersecurity and cloud computing. “Sometimes the experience doesn’t exist in the federal government, so you have to rely on technical contractors, especially in larger systems integration contracts,” he said. But because growth in the number of federal contractors has outstripped growth of the federal acquisition workforce, Connolly said, “investing in skills in contract management pays off for taxpayers.”

Stan Soloway, president and chief executive officer of the Professional Services Council who served at the Pentagon during the Clinton administration, said he was “afraid we didn’t learn the lessons from 1990s,” when the Defense Department budget after the Cold War was “cut by a third across-the-board.” Categories such as contract officers needed to go up, he said, adding that good acquisition also requires pricing specialists and program officers who understand the need for a “robust, mutually strong business relationship.”

David McClure, associate administrator at the Office of Citizen Services and Innovative Technologies at the General Services Administration, said the current budget crisis presents a difficult “new environment that raises the bar with agency contract officers,” as well as an “opportunity to use technology to get more bang for the buck.”

He says it is not simply that contract officers are in short supply, but also that too many lack the requisite knowledge and skills and are “junior or entry-level managers managing a huge complex program.” He called for more mentoring and on-the-job training.

Moderator Jill Aitoro, senior staff reporter for Washington Business Journal, asked whether federal agencies are comfortable talking to business in the pre-contract phase when there is risk of conflicts of interest.

Lesley Field, deputy administrator of the Office of Federal Procurement Policy, said there is sufficient detail in both the Federal Acquisition Regulation and Obama administration policies to make contract requirements clear and to “give agencies a bit of cover” in pre-contract discussions. Industry, she said, has a lot of information and the fear of doing something wrong and of prompting a bid protest is what keeps procurement officers from communicating with industry, “but there is no need to chill the dialogue.”

She said it is fine to have a “have a riskier contract vehicle if you have a good contractor management team in place,” stressing the need for solid training.

McClure added that GSA encourages pre-contract dialogue that creates a platform rather than specific solutions. He mentioned using industry forums that promote “ideation,” discuss best practices, produce white papers by outside experts, and even contests for ideas that offer cash awards or a handshake from the president.

Connolly was skeptical, saying many contractors and agencies worry that such exchanges could mean they face being penalized later. He acknowledged that agency representatives who take risks that turn out badly can be called on the carpet by a politically polarized Congress. This occurred in November when Office of Personnel Management officials were taken to task following widely noted troubles with OPM’s takeover from a contractor of the federal website USAJobs.gov.

“I wish more of my colleagues would take the higher road,” Connolly said, but in Congress, the “system of reward and punishment is to seek headlines and stories by skewing the story.” Sometimes, risk is worth the money, he added, citing recently deceased Apple leader Steve Jobs, whose “failures were dispositive for his career.”

Whitman agreed that too often in Congress, “the response is not in the public policy realm, but the political realm. That shouldn’t mean we take zero risks and become risk-averse. But it must be a reasonable risk that’s worth taking.”

–By Charles S. Clark – Government Executive – December 1, 2011 at http://www.govexec.com/story_page.cfm?articleid=49460&oref=todaysnews.

December 6, 2011 By AMK

OFPP’s Gordon stresses future continuity as he prepares to leave

As Dan Gordon prepares to leave after two years as the administrator of the Office of Federal Procurement Policy, his message to the acquisition community is simple and clear: continuity.

Gordon, who announced Nov. 2 he is leaving to become the associate dean for government contracts law at the George Washington University Law School, said the ongoing initiatives under the three-pronged approach started by the administration to improve the acquisition process will stay on course toward their goals.

“You are going to see my successors and the wonderful staff at OFPP continuing our efforts,” Gordon said from his office in Washington during an exclusive interview with Federal News Radio. “We’ve been working with the Hill, with the appropriators and others, to ensure there is adequate funding for the acquisition workforce at the agencies. We will continue to do that. We are going into challenging times, but we will be focused on strengthening and protecting the acquisition workforce.”

During his two-year tenure, Gordon focused on three areas: strengthening the aforementioned acquisition workforce, as well as improving how agencies acquire goods and services and oversee contractors and re-balancing the federal-contractor workforce.

Gordon said he will be working on these areas up until Dec. 31 when he walks out of the Old Executive Office Building for the last time.

“I am at this point almost entirely focused on OFPP and our work here at OMB,” he said. “I will work here full steam ahead until I move on at the end of December.”

Not done yet

And he still has a lot to do. Just this summer, OFPP began pressing agencies to use suspension and debarment tools more often. Then OMB Director Jack Lew issued a memo requiring their use.

Gordon also will play a big role in finalizing the fiscal 2013 budget request and the remaining 2012 spending bill Congress still must pass. All of this comes in the light of expected budget cuts and the failure of the super committee to reach a deal.

“One of the hallmarks of my work has been listening to the various communities, that’s both within the agencies, and in the vendor communities as well as on the Hill,” he said. “I know there is nervousness in industry as well as at the agencies and disappointment at the failure of the Congressional super committee to reach an agreement. That said, the fact is under the law, Congress has until January 2013 to deal with the problems and as a result in the near term I would not expect any impact.”

Gordon added more broadly, the acquisition community understands the pressure to reduce spending and take advantage of the government’s buying power.

That is why Gordon pointed to the strategic sourcing initiative as one of the highlights of his tenure.

He said the focus by agencies already is paying off in terms of millions in savings from changing the way agencies pay for package delivery.

“The contract is set up so that when you order delivery you can decide whether you want to pay extra to get whatever you are sending delivered the next day or whether you want to save money and have it delivered by ground delivery,” Gordon said. “It’s the same thing that we face when we are ordering from private companies on the Web where most of us when we are on the screen asking if we want to pay extra for delivery tomorrow morning. Most of us say ‘It’s not worth that extra money.’ In the olden days, way too often we were automatically paying that high extra fee to get delivery the next morning. Now, the latest data I see, and I get very frequent reports on this, most of the time we are satisfied with ground delivery, which is an enormous savings to our taxpayers. We were spending money for no purpose. We now are savings those dollars.”

Gordon said the next areas for strategic sourcing are in the technology area and are led by the General Services Administration. He said GSA issued two blanket purchase agreements in the recent months, one for print management services and one for wireless devices and plans.

“These are areas we are working very closely with the E-Gov office,” he said. “Agencies spent an enormous amount of money and there is a lot of low-hanging fruit. There are way too many situations where agencies — and that means taxpayers — are paying monthly fees for wireless plans, for cell phones or BlackBerrys or other devices that aren’t used. There is no one using them, and yet we are paying a monthly fee. We can save an enormous amount by doing a good inventory and getting on top of what we are buying.”

Workforce improvements

Gordon said all the strategic sourcing and better buying activities can only be so effective if the acquisition workforce isn’t well equipped to use the contracts.

This is one of several reasons why he spent so much of his tenure trying to grow the number of contracting officers, contracting officer representatives and others in the acquisition workforce.

Gordon said agencies have reversed the downward trend of the acquisition workforce with modest increases. And just as important, Gordon said agency-wide and government-wide training has been improved.

“We are focused on making our training better, more useful, more timely and more current for our employees,” he said.

For instance, when OFPP and the Federal Acquisition Regulations Council issue a new rule there is training ready to go at the Federal Acquisition Institute and the Defense Acquisition University.

“A good example is the new rule for women-owned small businesses,” Gordon said. “We got the training ready so when the rule came out. The training was available — a very important thing. We don’t want our people to be faced with a new rule without the tools to use it.”

He said another example of strengthening the acquisition workforce is the new contracting officer’s representative’s standards and certification requirements. OFPP issued a policy in September.

“That is really correcting a weakness that has been out there for a couple of decades,” he said. “That is a particularly important where we have made real progress.”

Gordon said through the AcqStat sessions OFPP is keeping tabs on how agencies are increasing the number of and training of contracting officers and the CORs.

“What we are hearing is, they are really paying attention for the first time, in terms of getting their people certified, and being sure they have qualified people managing those contracts,” Gordon said. “It is a bright light of progress in what has been prior to this administration a pretty bleak picture.”

During the review sessions, OFPP asks agencies how many contracting officers and CORs they have and how many are certified to ensure agencies are making progress.

Insourcing met its goals

Gordon received a lot of praise for his work to strengthen the acquisition workforce.

Another initiative to rebalance the federal workforce was the insourcing initiative. Many thought it was a reaction to the Bush administration’s outsourcing initiative. But Gordon said it not only wasn’t a reaction to outsourcing, but the goal was never to bring back large numbers of employees.

Gordon said he didn’t agree with the perception that insourcing didn’t work.

“What we said was we will be sure inherently governmental functions are done by government employees,” he said. “But closely associated functions and critical functions can be done by contractors as long as the government does its job in terms of contract management, checking to be sure, in terms of management controls, that federal employees are in charge and that federal employees are ensuring that contractors stay in their appropriate roles. Insourcing has been limited, targeted and focused and in my opinion has been successful in doing exactly what we promised it would do.”

Gordon said insourcing was never designed to be used to save money, but rather rebalancing the federal employee and contractor relationship or to better manage contracts.

As for the future, Gordon will teach and help improve the curriculum of the procurement lessons for the law school.

“It’s always a challenge to decide when to move,” he said. “The position at George Washington was a very tempting one. It is a terrific position as associate dean for government contracts law. With very mixed emotions, I accepted their offer of the position.”

Gordon said the associate dean position is a new one and a huge honor to be named the first one.

Gordon said his current staff Lesley Field, Matthew Blum and others will continue down the same path the administration has been pursing across the three focus areas.

Gordon said the success of his office came because of his approach that focused on his knowledge of acquisition, his ability to listen, two-way communication with agencies, industry and the Hill and ideas not driven by ideology, but making real change.

“We let people know what we are doing, we don’t surprise people and we don’t ambush people,” he said. “That has been very much appreciated by all these communities. We are very reality focused. We want to improve the reality on the ground. We don’t propose things that are unrealistic and we don’t push things that are unrealistic. We are worried about what will really help our acquisitions and protect the taxpayer’s interest as we go forward.”

— by Jason Miller, Federal News Radio, Nov. 29, 2011 at http://www.federalnewsradio.com/?nid=65&sid=2648327.

November 29, 2011 By AMK

OFPP, SBA team up on procurement data

Agencies may soon have a smoother and faster process to deal with small-business contracting data. The Office of Federal Procurement Policy and the Small Business Administration said Nov. 14 in a memo that they are aligning operations.

Each year, SBA sends individual reports to agencies on anomalies related to small-business contracting awards. The reports help officials answer questions about data before SBA releases its small-business contracting scorecards. Then agencies turn in reports to OFPP and the General Services Administration, certifying that their procurement data is accurate and complete.

This fiscal year, OFPP and SBA will begin integrating the two processes. Officials said integrating the small-business data quality reviews will reduce the acquisition workforce’s work and improve acquisition planning. They also said the new alignment will improve accuracy of the data.

For the fiscal 2011 data reviews, SBA will provide agencies with anomaly reports. These reports will be focused on high-risk areas though.

OFPP and SBA want something in return for their changes.

“We ask that you increase the attention given to small-business data quality as part of your ongoing data validation efforts,” they wrote in the memo.

Officials expect agencies to incorporate a stronger focus on small-business data.

To help with that, GSA is developing standard anomaly reports available in the Federal Procurement Data System. These reports use the protocols currently available to agencies. They will be easier to use with a standard form.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. This article appeared Nov. 18, 2011 at http://fcw.com/articles/2011/11/18/ofpp-sba-small-business-procurement-data.aspx.

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