Executive Briefings

The Federal Procurement Mess: A Lesson for the Private Sector

We've all heard the stories about hundred-dollar hammers and thousand-dollar toilet seats. Government procurement programs are out of control, plagued by fraud, waste and crooked contractors. There ought to be a sign on the door of every federal agency: Your Tax Dollars At Play.

Or so it would appear. Certainly there are a number of hoboes catching a free ride on the government-spending gravy train. But the bigger reason for inefficiencies in federal procurement might be more mundane in nature.

The federal government spent approximately $527.5bn on goods and services in the 2008 fiscal year, according to Steve O'Keeffe, founder of MeriTalk LLC. His company, based in Alexandria, Va., is an online community and research firm focusing on government investments in information technology. MeriTalk recently surveyed 200 federal procurement professionals to find out how the whole process might be reformed.

What it uncovered was an alarming lack of basic internal controls and accountability - the kinds of procedures that are increasingly finding favor in the private sector. In fact, MeriTalk believes that federal agencies could save a whopping 30 percent a year - up to $158bn - by implementing better procurement techniques.

That's a far bigger amount than President Obama has called for. In a memo to all federal departments and agencies last July, he mandated a 7-percent savings in baseline contract spending by the end of fiscal 2011. If we're to believe the results of the MeriTalk survey, federal procurement managers can do a lot better than that.

How, exactly? By implementing a couple of standard accounting techniques that are already mandated by law: Earned Value Management (EVM) and Capital Planning and Investment Control (CPIC).

EVM is a means for companies and agencies to measure total project performance. Through the establishment of a cost and schedule baseline within one integrated system, they can compare project plans with the actual work being performed. They can also get an early warning of any problems that are developing. In the MeriTalk survey, regular users of EVM reported a 47-percent improvement in their level of procurement-process maturity.

Ironically, EVM was pioneered back in the 1960s by the U.S. Department of Defense. But only 17 percent of federal agencies are consistently using it today, according to MeriTalk.

CPIC allows users to create a workspace where they can manage their portfolio of IT investments. As with EVM, a single interface can be created for the entering, tracking and reviewing of all relevant data. The technique is a big help in dealing with the massive amount of information involved in that area. Respondents to the MeriTalk survey who deployed CPIC saw a 33-percent boost in process maturity.

Another no-brainer, right? But only 14 percent of the federal agencies surveyed by MeriTalk are making regular use of CPIC for procurement.

Federal procurement managers are well aware of their shortcomings. Only 12 percent give their agencies an "A" grade for process maturity. Fifty-six percent lack basic training in program management. And just 18 percent plan to draw on new developments in IT, such as the interactive capabilities of Web 2.0, to gauge the return on investment from their contracts and solicit feedback from citizens.

Such failures come with a big price tag. According to O'Keeffe, 28 percent of federal programs today are not delivered on time and on budget. (I, for one, would have thought the number was much higher.) A Government Accountability Office study, issued last October, identified $3bn in cost overruns on 16 major IT investments by federal agencies.

Complacency among the bureaucrats is not an option. The White House has demanded an 18-percent rise in on-time, on-schedule procurement projects. It has identified a total of $95bn in federal programs that could be better managed.

Further tightening the pressure on procurement managers is a bill pending in the U.S. Senate, S. 920, to require greater accountability for cost overruns on federal IT investments. Specifically, the bill calls for consistent use of EVM by all federal agencies. (So does the October GAO report.)  "The time for talk is over," said S. 920 sponsor Sen. Tom Carper, D-Del. "The federal government must embrace efficiency as a means to not only save money, but also bring better service to the American people."

Given the obvious benefits of EVM, CPIC and related techniques, O'Keeffe isn't sure why so many agencies have failed to adopt them to manage their spend. One possibility is the demanding nature of the task. "The job for the procurement manager is complex," he says. "The workload on the federal acquisition workforce has increased by 140 percent in the past decade."

Asked what is holding them back, respondents to the MeriTalk survey cited a number of obstacles, including inadequate processes, project manager, staffing, accountability, technology, oversight and contract vehicles.

There's no question that the federal procurement orchard is ripe with low-hanging fruit. But for those of you in the private sector who like to gloat about government inefficiencies, take a moment to ask yourself: How well am I managing my own procurement operation? Am I making the best use of my limited budget for critical purchases?

In other words, might I have a few unpicked trees of my own?

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We've all heard the stories about hundred-dollar hammers and thousand-dollar toilet seats. Government procurement programs are out of control, plagued by fraud, waste and crooked contractors. There ought to be a sign on the door of every federal agency: Your Tax Dollars At Play.

Or so it would appear. Certainly there are a number of hoboes catching a free ride on the government-spending gravy train. But the bigger reason for inefficiencies in federal procurement might be more mundane in nature.

The federal government spent approximately $527.5bn on goods and services in the 2008 fiscal year, according to Steve O'Keeffe, founder of MeriTalk LLC. His company, based in Alexandria, Va., is an online community and research firm focusing on government investments in information technology. MeriTalk recently surveyed 200 federal procurement professionals to find out how the whole process might be reformed.

What it uncovered was an alarming lack of basic internal controls and accountability - the kinds of procedures that are increasingly finding favor in the private sector. In fact, MeriTalk believes that federal agencies could save a whopping 30 percent a year - up to $158bn - by implementing better procurement techniques.

That's a far bigger amount than President Obama has called for. In a memo to all federal departments and agencies last July, he mandated a 7-percent savings in baseline contract spending by the end of fiscal 2011. If we're to believe the results of the MeriTalk survey, federal procurement managers can do a lot better than that.

How, exactly? By implementing a couple of standard accounting techniques that are already mandated by law: Earned Value Management (EVM) and Capital Planning and Investment Control (CPIC).

EVM is a means for companies and agencies to measure total project performance. Through the establishment of a cost and schedule baseline within one integrated system, they can compare project plans with the actual work being performed. They can also get an early warning of any problems that are developing. In the MeriTalk survey, regular users of EVM reported a 47-percent improvement in their level of procurement-process maturity.

Ironically, EVM was pioneered back in the 1960s by the U.S. Department of Defense. But only 17 percent of federal agencies are consistently using it today, according to MeriTalk.

CPIC allows users to create a workspace where they can manage their portfolio of IT investments. As with EVM, a single interface can be created for the entering, tracking and reviewing of all relevant data. The technique is a big help in dealing with the massive amount of information involved in that area. Respondents to the MeriTalk survey who deployed CPIC saw a 33-percent boost in process maturity.

Another no-brainer, right? But only 14 percent of the federal agencies surveyed by MeriTalk are making regular use of CPIC for procurement.

Federal procurement managers are well aware of their shortcomings. Only 12 percent give their agencies an "A" grade for process maturity. Fifty-six percent lack basic training in program management. And just 18 percent plan to draw on new developments in IT, such as the interactive capabilities of Web 2.0, to gauge the return on investment from their contracts and solicit feedback from citizens.

Such failures come with a big price tag. According to O'Keeffe, 28 percent of federal programs today are not delivered on time and on budget. (I, for one, would have thought the number was much higher.) A Government Accountability Office study, issued last October, identified $3bn in cost overruns on 16 major IT investments by federal agencies.

Complacency among the bureaucrats is not an option. The White House has demanded an 18-percent rise in on-time, on-schedule procurement projects. It has identified a total of $95bn in federal programs that could be better managed.

Further tightening the pressure on procurement managers is a bill pending in the U.S. Senate, S. 920, to require greater accountability for cost overruns on federal IT investments. Specifically, the bill calls for consistent use of EVM by all federal agencies. (So does the October GAO report.)  "The time for talk is over," said S. 920 sponsor Sen. Tom Carper, D-Del. "The federal government must embrace efficiency as a means to not only save money, but also bring better service to the American people."

Given the obvious benefits of EVM, CPIC and related techniques, O'Keeffe isn't sure why so many agencies have failed to adopt them to manage their spend. One possibility is the demanding nature of the task. "The job for the procurement manager is complex," he says. "The workload on the federal acquisition workforce has increased by 140 percent in the past decade."

Asked what is holding them back, respondents to the MeriTalk survey cited a number of obstacles, including inadequate processes, project manager, staffing, accountability, technology, oversight and contract vehicles.

There's no question that the federal procurement orchard is ripe with low-hanging fruit. But for those of you in the private sector who like to gloat about government inefficiencies, take a moment to ask yourself: How well am I managing my own procurement operation? Am I making the best use of my limited budget for critical purchases?

In other words, might I have a few unpicked trees of my own?

Comment on This Article