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Improving Public Procurement Through Improved Incentives
In a recent Buyers Meeting Point guest post Bryan Robinson asked What if the US Government Embraced Strategic Sourcing?
Cynically upon reading the title my first thought was... "Nothing."
The issue isn't FAR and it isn't the people doing the sourcing, like nearly all things it comes down to incentives.
FAR isn't the Problem (well at least not the whole problem)
The original author suggested "(tearing) up the Federal Acquisition Regulations and start(ing) fresh with new mandate: everything gets competitively bid; cost savings is the number one objective." Replacing it with objectives to...
- Deliver at least 3-5% cost savings from their commodity or scope each year
- Collaborate closely with stakeholders on supplier selection; cost, quality, delivery, and overall total cost of ownership will be the primary selection factors
- Ensure a high percentage of spend under management is competitively bid on rotating basis
- Keep robust documentation for all of the above
That is actually a pretty good definition of FAR. The problems are actually baked into the objectives.
Numbers 1 & 2... Procurement has virtually no ability to control the cost of production. The designs, testing and specifications are written to government standards that no public company would tolerate.
There is no incentive for the design to be cost efficient because there is no return on investment measured, budgets are use it or lose it and our $17.5 trillion deficit is a pretty strong piece of evidence no one is too serious about it anyway.
Some of the criticized purchases are actually valid though. For example the cited $670 toilet seat was part of the cabin of a spy plane. The high price was due to the testing required to ensure the high heat wouldn't burn the crew when in use and any off gassing wouldn't be fatal to the pilot or cause a crash.
#3 & #4 are both linked... The "robust" documentation of the current FAR process leads to long lead times and transaction costs estimated to be between $500 and $5000 per requisition. Furthermore the documentation requirements for choosing someone other than the low cost bidder are arduous due to the audit process. Hence the common military joke "Always keep in mind that your weapon was made by the lowest bidder."
The lowest bidder isn't always the best choice, but if it is the easiest it is the one you are most likely to get.
The issues with public spending is based on the motivation of public purchasing professionals.
Everyone is influenced by both internal and external motivators. Internal motivation comes from enjoyment of the process, self-esteem or a sense of duty. External motivation comes from a desire to increase money, respect and influence.
I am sure that there are a great number public procurement professionals that have a great deal of internal motivation. I love procurement so I get it, but the public sector is limited on its ability to also engage external motivators; thus limiting results.
In the private sector, savings can trigger external motivators that drive desired behaviors.
· Saving are often directly tied to bonuses increasing salaries.
· Results can lead to promotions or better career opportunities.
· Results are shared internally increasing team standing.
· Results signal market knowledge.
· Leadership's recognition that savings increase profitability.
· Savings are reinvested, increasing the power of grateful peers.
Elimination/reduction of monetary and influence based motivators makes leading public teams more difficult and increases the relative value of things like reducing conflict and increasing time with family.
Organizations with no return requirement, use it or lose it budgets, heavy bureaucracy, and little correlation between results and rewards are set-up for procurement ineffectiveness. Embracing strategic sourcing alone would have little effect.
The only way to fix the system would be to fix the incentives.
Agree? Disagree? You can contact Ron directly on Twitter @iluvprocurement