By NEIL GORDON
Steve Kelman, professor at Harvard's Kennedy School of Government, former Office of Federal Procurement Policy (OFPP) Administrator, and contractor adviser/board member, has posted on the Federal Computer Week blog an interesting idea for "A new way to use past performance in contracting". Dr. Kelman suggests using past performance evaluations to encourage contractors to share cost savings with the government on fixed-price contracts.
Recently, there has been an increased emphasis on using fixed-priced contracts for federal service contracting. Fixed-price contracts, which are best suited for situations in which there are well-defined requirements and known costs, encourage contractors to come up with lower-cost ways to meet contractual requirements. However, there is no way for the government – and taxpayers – to directly benefit from such cost reductions, which contractors are allowed to retain as profits. Dr. Kelman proposes the following solution: if a contractor, who has met requirements at the end of a fixed-price contract, returns a set percentage (maybe 3 to 5 percent) of the fee to the government, the government will automatically give the contractor the highest possible rating on the cost control element of the past performance evaluation.
Dr. Kelman sees this as a valuable incentive for contractors to return money to the government. “[O]ne thing I like about this approach is that it recognizes the idea of rewarding a contractor who goes ‘above and beyond’ contract requirements, rather than expressing the view one hears sometimes that contractors should do only what the contract specifically says, nothing more,” he explains.
Is it a good idea? The devil is in the details.
POGO sees a few potential problems. First, we were struck by how much this arrangement resembles a classroom shakedown scheme in which, for a few (thousand/million) dollars, the government teacher will give the contractor student a high grade. This could eventually lead to grade inflation. It could also drive up costs for the government as contractors submit inflated bids to ensure they finish the contract under cost and receive the high cost control grade.
Second, this practice could unfairly favor the contractor “haves” over the “have-nots”. A small, financially struggling contractor might not be able to fork over the required share as easily as some of the corporate behemoths in our Federal Contractor Misconduct Database. Alternatively, some contractors might be so large, or have such strong relationships with their government customers, that the promise of a slightly higher past performance score will not be enough to encourage them to give up a share of their fee.
Third, Dr. Kelman’s proposal does not address the fact that the government’s past performance data cataloguing system, the Past Performance Information Retrieval System (PPIRS), has, to put it lightly, a few problems. POGO has repeatedly blogged in recent years about some of these problems, such as agencies either not checking the PPIRS database when they award contracts or not entering in the required data. It won’t be much of an incentive to buy a higher past performance rating if those ratings are either tainted by flawed or missing data or are not even checked by contracting officials in the first place.
The PPIRS system is critical to ensuring the government does business with companies that deliver quality goods and services on time and within budget. We hope that Dr. Kelman’s idea, even if it is never implemented, will at least spur the government to make the necessary changes and fixes to PPIRS.
Neil Gordon is a POGO Investigator
Both "Cost Plus Award Fee" and "Firm Fixed Price" contracts have the same problem. Both put the US taxpayer on the hook for product development. You don't buy a cell phone that way. I don't go to Apple and tell them I want a iPhone, give them the specifications I want it too meet and fund the development of the phone. That would cost billions of dollars and what recourse do I have if what they come up with is something I don't like? I have none, just like the US government has no recourse against contractors who do the same.
The government should pay for results, not for process. The cost of developing a prototype to the government's specifications should be the cost of selling to the government. Those costs should only be covered by the profit made on selling goods to the government and (in some cases) to the public. Anything that is needed by the government that needs to be developed with public funds should be developed by a not-for-profit agency of the government itself. Putting the US taxpayer on the hook for a for-profit company to develop goods for the govenrment to buy has repeatedly failed, is failing now, and will always fail. As noted in the article, the profit incentive on that way of doing business encourages failure.
Posted by: Dfens | Jul 11, 2012 at 10:33 AM