Best Bets

Top contracting shops share their secrets.

Around Valentine's Day each year, Helen Hurcombe sends a note to National Oceanic and Atmospheric Administration program offices. As the director of acquisitions and grants, she asks them to submit their contracting plans for the coming year. Once she gets the wish lists, she then assigns each project to a contracting specialist. The specialist and program office brainstorm about potential vendors and whether the contract should be set aside for small and disadvantaged businesses. All that happens at least six months before the award is made.

In interviews with a dozen acquisition leaders recommended by their peers as the best in the business, advance planning was a recurring theme. Less predictable practices also emerged. Top acquisition managers develop tight bonds with industry, even to the point of granting business favors. They avoid the cumbersome Federal Acquisition Regulation whenever possible and ignore some newfangled contracting tools, such as reverse auctions. Most of these leaders also said their approach mirrored the Big Crunch theory, which posits that the universe will slowly begin to shrink one day. Like distant stars, contracts are consolidating and folding into one another, turning into giant McContracts that serve an entire agency instead of a single program office.

"Instead of 10 area offices individually buying goods and services, all buys are supported through commodity centers," says Susan Brownell, vice president of supply management for the U.S. Postal Service. Four years ago, USPS began centralizing purchases by assigning categories of spending, such as landscaping or cleaning, to teams throughout the country. They analyze Postal Service demand and what the market has to offer, and negotiate good deals. Through this method and others, Brownell says, the Postal Service, which spends about $12 billion a year on contracts, has saved $2.1 billion over the last five years.

In a similar step toward centralization, a new shared services center at the Stennis Space Center in Mississippi gradually will ramp up its procurement spending on behalf of NASA, says Tom Luedtke, assistant administrator for procurement. The center, which opened in March, eventually will be responsible for several hundred million dollars in purchasing and, he says, will "enable us to really build up expertise" in one location.

The Air Force also is evaluating the Big Crunch. Officials recently analyzed what would happen if they centralized contracting activities currently managed at 71 Air Force locations into a single command center. The analysis found centralization would save resources, bolster accountability and improve contracting services for Air Force customers.

Likewise, the Health and Human Services Department began implementing strategic sourcing in 2003, two years before the Office of Management and Budget mandated the approach. It leverages agencies' huge buying power to negotiate better deals on bulk purchases. Using strategic sourcing to buy standard commodities and services such as events management and temporary medical staffing has saved the department as much as 50 percent off original prices. HHS applies the method to about 10 percent of its $2 billion in annual procurement spending, says Kesa Russell, strategic sourcing project manager.

With all this talk of centralization, top-rated contracting executives also are doing what they can to prevent implosion. They stress the importance of reserving some contracts for small businesses so the big companies don't hold all the cards. And they seem always to return to what seems to be the profession's mantra: Talk early and often.

Show Your Cards

Like Hurcombe at NOAA, David Litman, senior procurement executive at the Transportation Department, encourages his contracting staff to work closely with their customers in the program offices. "There has to be a continuous dialogue," he says. Even if program staffers plan to use an interagency contract, he wants them to talk to his contracting employees first. "We want to bring our own set of business eyes to the issue," to consider tactics such as strategic sourcing and small business set-asides, he says.

Clear communication is just as important when dealing with vendors, Hurcombe says. For example, it's important to explain to an unsuccessful vendor why it wasn't selected for an award. "If vendors feel they're being treated fairly . . . and that we've kept them in the loop, then they're OK with it," she says. Many award protests can be avoided that way, she adds.

"Too often, the procurement officer serves as a barrier between the [agency and vendor], as opposed to a facilitator of information flow," says Glenn Davidson, president of consultancy EquaTerra Public Sector in Washington. As a result, the vendor can't offer the best solution because it doesn't understand what the agency really wants, he says.

Edward Simpson, director of procurement at the Energy Department, breaks down potential barriers by holding one-on-one listening sessions with potential contractors up to six months before a solicitation is released. He avoids holding large industry meetings because "the potential competitors sitting in the audience don't feel they have the freedom to say certain things. They're fearful of tilting their hand to the competition." Senior contracting and program officials meet with every vendor that expresses interest in an upcoming solicitation, Simpson says. Those meetings "give us their good ideas on how to structure the requirement," he adds. The department, which spends more on contracts than any other civilian agency, spent $23 billion in fiscal 2005, the bulk of it for management and operation of research and production facilities.

Agencies should show their requirements to companies when they're 70 percent of the way toward finalizing them, says Karen Reuter, former president of the National Contract Management Association in McLean, Va., and acquisition specialist at the Defense Department in Fort Meade, Md. The contracting office should ask, " 'Do you see holes in it? Can you price this?' You get a lot of good feedback," she says. "The government has a bad habit of telling people how to do the work, and what kind of people they need, and we're not the experts necessarily. The expertise is out in industry."

Industry days, one-on-one meetings and research reports on best practices and business leaders help guide Patrick Bradfield, director of acquisitions at the Education Department's Office of Federal Student Aid. His staff also isn't shy about calling up other agencies, and even banks that have done similar procurements, and getting advice on what worked and what didn't.

Bradfield takes advantage of exceptions to the FAR that Congress has granted to his agency. He can limit competition to select vendors based on a process that establishes a competitive range and excludes vendors that fall outside of it. That way, his office can avoid wading through hundreds of detailed proposals, some of which don't come close to winning. Other agencies also can take advantage of the "advisory down-select" process in the FAR, which allows them to collect information from companies and suggest whether or not they are likely to be competitive. Bradfield has more flexibility because he can base his decision, with which companies must abide, on relatively little information.

Brownell of USPS, which is not bound by the FAR, uses a similar simplified bidding process. Instead of hosting full and open competitions, her office identifies the likely top contenders through market analysis and invites them to submit proposals. "We're trying a little bit more to act like a business," she says.

Sweeten the Pot

Dale Anglin, director of Customs and Border Protection's enterprise acquisition division, sweetened a uniform contract for vendors with an inventory buyback clause that guarantees the agency will buy all stocked uniforms in the event the uniform or contract changes. Instead of seeing that as a favor to the contractor, Anglin says it's in his agency's best interest, because it gives the vendor an incentive to find new products and to invest in the current offerings since there's no fear their product will suddenly become worthless.

"You want to set up a structure such that the contractor is motivated to do a lot of thinking and management," says NASA's Luedtke. That means selecting the right kind of procurement. While a firm-fixed-price contract, under which the agency and contractor agree to a set price in advance, makes sense for commodities, performance-based incentives often make more sense for less easily defined deliverables, such as a new type of technology. NASA, along with the Air Force, has pioneered the use of award-term contracts, which extend the length of a contract in return for excellent performance. Luedtke says NASA applies performance-based rewards to more than half of its contracts.

Hurcombe also relies on award-term contracts at NOAA, which she encourages because extending awards reduces the number of time-consuming and costly acquisitions and gives a program office more stability when they're working with a contractor they like.

Bradfield of the Office of Federal Student Aid, where about 60 percent of contracts are performance-based, names a debt collection deal as one of his most successful. The vendors collect money from people who have student loans and get paid a percentage of what they collect-nothing else. A portion of the awards are set aside for small businesses, many of which do so well under the performance-based contract that they turn into large businesses by the end of their three-year terms. The vendors also are monitored to ensure they aren't overly aggressive in pursuit of the money. Bradfield says this contract has contributed to the declining default rate for student loans, which now hovers around 4.5 percent

In addition to judging contractors, top-rated contracting executives also make it a point to judge themselves-but not by numbers alone. "We don't want everything to be just a financial metric," says USPS' Brownell, echoing a sentiment expressed by her colleagues. While she measures cost avoidance and savings, she balances those numbers with customer surveys and supplier performance ratings.

Luedtke also interviews his customers-NASA program offices-and asks them how well they feel they're being supported and whether they're getting what they need. He asks NASA's legal team, which often reviews procurement documents, for insights, and questions his procurement staff about training they need and whether they can talk to their bosses.

The focus on customers is no accident. Decades ago, if a program office turned in faulty paperwork related to an acquisition, the contracting office would hand it back and say, "Do it again," says Mark Lumer, head of contracting for U.S. Army Space and Missile Defense Command. Now, contracting officers are more customer-friendly, partly because they face more competition because program offices can easily turn to interagency shops in their place. "That's a gigantic sea change from the way many of us were trained," says Lumer.