President prepares to give purchase orders

19 December 2008

8 January 2009 | Paul Snell

On his campaign for the US presidency, Barack Obama vowed to reform procurement. Paul Snell asks insiders and experts how the leader can make good on his pledge

As Barack Obama enters the Oval Office, following his inauguration as forty-fourth President of the United States on 20 January, there will be a packed in-tray of problems demanding his attention.

And among the challenges, including repairing an economy in recession, wars on two fronts in Iraq and Afghanistan, and reforming the country's healthcare system, will be the question of what to do about government contracting and procurement.

US annual government procurement spend has risen from $203 billion (£135.4 billion) in 2000 to $412 billion (£270 billion) in 2006, and is estimated to be around $450 billion (£300 billion) in 2008. And according to figures released by the Obama campaign, the Bush years have also seen high-profile errors and growing criticism of waste and fraud in purchasing, often related to the war in Iraq or the aftermath of Hurricane Katrina.

Obama himself is no stranger to spending reform. As a senator he introduced legislation, with presidential rival John McCain, to set up a "spending google" website, usaspending.gov (News, 5 October 2006). And during the campaign he sponsored further reform to expand transparency on the site (Web news, 10 June).

The policies

While campaigning for the presidency, Obama and his vice-presidential candidate, Joe Biden, set out 11 pages of proposals outlining spending reform. Its title pulled no punches: Stop wasteful spending and curb influence of special interests so government can tackle our greatest challenges. In the manifesto, Obama promised a "line-by-line" review of the federal budget and pledged to "fix government contracting". He swore to cut spending with suppliers by $40 billion, to hire more buyers and contract managers and improve their skills. He also said his administration would implement annual audits on a quarter of major contracts.

There were commitments requiring departments to defend their use of contracts awarded without open competition. The value of these deals rose from $67.5 billion (£44.3 billion) in 2000 to $206.9 billion (£135.8 billion) in 2006. Obama wants to end the "abusive" use of these agreements, and to limit the use of cost-plus contracts. He also vowed to stop the "tens of thousands" of suppliers that have unpaid tax bills from winning government contracts.

There was also a promise to save $4.5 billion (£3 billion) with improved use of technology, such as purchasing cards, in procurement. And he committed his administration to a number of ethics reforms to rein in the power of lobbyists in contracting.

Experts agree that the new president's top priority for reform should be his proposal to increase the amount of buyers and their training. He outlined the core of the problem himself: "The government's ability to manage contracts has not kept up with the increase in [their] volume and complexity."

A recent study into acquisition by vendors' group the Professional Services Council (PSC) found a lack of resources remains the biggest concern for government buyers. While the spend under management increased rapidly, the number of government buyers remained the same or, in some cases, shrunk. It prompted one senior official to compare the situation to an "extinction" of acquisition staff, "like they're as rare as white Siberian tigers".

The report cited the need to reform the "broken" hiring system, to offer better salaries and the importance of providing more training.

Greater professionalism

But bringing about these changes will present huge problems. Robert Burton, a partner at law firm Venable who spent seven years as deputy administrator at the Office of Federal Procurement Policy (OFPP), which sets policies and practices for purchasers, said improving their professionalism was a focus for the previous administration. He was optimistic it would have an effect, but this would take time. "There is no question the workforce is understaffed, but realistically that is not going to change. There are budget challenges, so the priority must be training the [buyers] we have."

Larry Allen, president of the Coalition for Government Procurement, which represents contractors, added Obama's focus should be to make buyers more flexible and adaptable to immediate challenges, and ensure more attention is paid to contract management.

Another obstacle is that acquisition [procurement and contract management] jobs suffer from a low profile and are not perceived to be glamorous. According to Angela Styles, who held a number of senior procurement roles in the Bush administration and is now a partner at law firm Crowell & Moring, Obama could help here, by selecting high-profile people and putting them in charge of procurement. Stan Soloway, president and CEO of the PSC, agreed. "Buyers need strong leadership to feel empowered and important."

The plan to reduce spending has also been welcomed as a balanced approach. He has not, as candidates have in the past, demanded an arbitrary cull in the number of government suppliers.

'Easily save 10 per cent'

Allen said the incoming administration has been supportive of suppliers, who suffer a "negative perception" in political circles because of high-profile cases of fraud and waste. And Soloway believes the plan to cut "at least" $40 billion in spending should be straightforward. "Most people would say if we were better at [procurement] we could easily save 10 per cent."

Obama has also called for increased transparency. Burton believes the US has the most transparent contracting process in the world, but warned more legislation could mean increased costs and push suppliers into the arms of the private sector, a sentiment shared by respondents to the PSC study.

But Lloyd Chapman, president of the American Small Business League, said the need for transparency outweighs any extra costs for buyers and suppliers.

However, President Obama needs to overcome a number of hurdles if he is to embed his reform programme. Styles said he will have little control over departmental budgets in the first year, which were confirmed a long time ahead, and will only be able to "tweak around the edges". Burton added reforming the law can be a long process, with up to a year before implementation. He believes Obama would influence buyer behaviour more by reforming the OFPP regulations they follow. And there were calls for Obama to approach reform cautiously. Allen believes it could act as "rocks on a garden hose". He also urged the president to treat the supply market with care.

While, as Styles pointed out, the stability of government business is attractive when the economy is weak, excessive regulation and targets could push suppliers away when it recovers.

But there is one aspect of an Obama presidency that all of the experts agree on - the responsibility and expectation on buyers to perform is only going to increase.


At a glance: the key Obama procurement issues

  • Reduce the amount of federal spending on suppliers by "at least" 10 per cent, saving $40 billion a year.
  • Hire more and improve training for contract managers.
  • Ensure oversight of contracts remains with the government, and is not outsourced to other suppliers.
  • Audit 25 per cent of large contracts annually to check performance, cost savings, whether the work should have been contracted originally, whether tendering was fair, and whether the supplier treats its workers fairly.
  • Stop "abusive" no-bid contracts and limit the use of cost-plus deals.
  • Stop contractors with unpaid tax bills winning government deals.
  • Improve the government's use of technology to reduce payment errors, increased use of purchasing cards and better property management, to save $4.5 billion.
  • Strengthen whistleblower laws to protect employees willing to speak out about waste, fraud and abuse.
  • A ban on purchasers serving as lobbyists for suppliers for two years after they leave public service.
  • Build on the "Google for Government" spending website, to cover subcontracts as well as contracts.
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