Stanley N. Sherman, DBA
Stanley N. Sherman, DBA, Professor, School of Business and Public Management, George Washington University, Washington, D.C. 20052, 202/994-7462.
Abstract. Change has invaded the Federal acquisition (purchasing) world. It is reflected in new statutes and revised regulations, and more importantly, in the attitude of executives in the system. An increased emphasis on effective performance of services and efficient conduct of buying operations is clearly evident. Much of the change resulted from taking a new look at private sector practices related to those of the Government and by adopting approaches that emulate best practices wherever they are found. This article continues the author's series of studies that examine this field of activity.
Reforming Reform. An era of reform has captured the thinking of Federal purchasing leaders and the Congress for at least thirty-six years. During the first thirty years actions taken were mostly negative--nearly every action added constraints on decision-making and sanctions for failures. The thinking turned positive during the 1990s. The tone of the reform era began to change when the embarrassment associated with the A-12 debacle began to be understood. Prior to that event reform actions were aimed at adding restrictions and oversight procedures to the system. A new line of thinking was introduced shortly after the A-12 termination. It was accelerated by the move toward "Reinventing Government" under the direction of Vice President Gore. Another early event that may have influenced the change in tone was publication in 1990 of a book, Procurement and Public Management: The Fear of Discretion and the Quality of Government Performance, by Steven Kelman. Kelman's thesis was that poor performance resulted from established policy and practices governing the procurement process. His book may have been influential because it was a well documented set of case studies of agency procurement actions in the information technology arena. His appointment as Administrator of Federal Procurement Policy in 1993 was perhaps a direct result of his book.
Kelman's concept as expressed in his book seems consistent with, and possibly was the keynote that sparked, the many subsequent procurement rule changes which encourage greater reliance on the workforce and some diminution of prescriptive rules. That concept seems to underlie the new statutory thrust embraced by the Federal Acquisition Streamlining Act (FASA), The Federal Acquisition Reform Act (FARA), and the Information Technology Management Reform Act (ITMRA). These enactments, taken in combination, constitute a substantial departure from the history of reform during the previous thirty-year period. The reform activity has not ended--new proposals emerge almost daily, many of them at the agency policy or regulatory level. It is noteworthy that changes in statute often have limited effect until incorporated into the regulatory system. FASA has been implemented by changes in the Federal Acquisition Regulation (FAR) but the FARA and the ITMRA were not fully implemented at the time of this writing and appear to be held up by internal conflict.
Reforms Enacted in 1996. A review of the changes introduced by FASA is found in Sherman, 1995. The following list of items summarizes the additional changes introduced by FARA and ITMRA that seem to be most important. However, as experience is gained, some of the many other detailed changes may emerge as important. The new legislation enables these actions.
The ITMRA repeales the Brooks Act and revampes Information Technology (IT) acquisition. Specific elements are as follows:
System Reforms May Not Affect Major Acquisitions. This summary of the 1996 statutes, taken alone, may not adequately convey the significance of the change process, but it is an indication the Congress is persisting in its effort solve acquisition system problems. The new direction was set by FASA in 1994 as implemented in the FAR in 1995. Together, FASA, FARA, and ITMRA indicate serious, perhaps radical, change. They are accompanied and complemented by major agency level policy and regulatory revisions. But one should not be misled: The changes are largely focused on processes that affect the everyday purchase of supplies and services. Whether the changes will prove effective in bringing about better management and results from the Government's vast procurement of major weapon, space, information, and related systems is unclear at best. The decision-making process associated with major acquisitions begins well ahead of the recognized acquisition planning phases leading to specific procurement. Those early decisions pertain to whether needs, and methods of meeting them, are fully understood and evaluated against agency missions, or, as in the case of the Defense programs, the threat that must be met. A recurring problem in the major acquisitions arena is the pressure from states and localities, expressed through their elected representatives, to achieve economic benefits, especially employment, from Federal expenditures. The economic benefits of expenditures may unduly influence decisions as to needs. Reports by some DOD budget experts and case histories such as that of the A-12 are not reassuring. Overall effectiveness of major program decisions and actions, however, is an issue that is beyond the scope of this article.
Benefits of Reform. Regardless of their effectiveness at the level of major systems acquisition, the current reforms are important to Federal procurement personnel and to recipients of Federal contracts. The risks and rules associated with doing business with government have been modified in the direction of making Federal Government business more attractive to the private concern, particularly to firms selling a line of commercial products and services. One indication of the extent of change is a publication prepared jointly by the Federal Acquisition Institute (FAI), and the Acquisition Reform Communication Center (ARCC). The 136 page pamphlet identifies 80 functions performed by Federal Contract specialists. Of those functions 54 were altered by FASA and related actions through the date of the pamphlet. The pamphlet summarizes each of the changed work processes.
A further illustration of the new buying environment is the reduced effort to impose Federal Government policy on commercial suppliers. Previous policy subjected most primes to CAS and TINA rules and required them to flow the rules down to subcontractors via contract clauses in the subcontract. Now, commercial primes are not subject to those policies and even prime contractors that are subject to them are directed by a new clause in their contracts not to flow such policy clauses down to their commercial suppliers. This change is good news to many commercially oriented firms whose limited capacity to deal with the complex rules involved has been a problem.
Acquisition Reform and Outsourcing or Privatization. Whether one uses the private sector term purchasing, or as seems to be preferred by the Government, acquisitions the buying process implies that the organization will assign work to external sources for performance. The decision involved may be known as make-or-buy and it often becomes a basic element of strategy. Management decides whether to perform work internally or to outsource its requirement. Extended discussion develops over this question when, as often is the case, the operations involved are currently performed in-house. When that is the question, and the organization involved is a government agency, the term applied to the issue is privatization: arranging through contractual or other procedure for a private source to perform operations that have been provided in-house by agency personnel. It is a highly charged issue at times because the immediate interests of the employees who are affected compete with the long run benefits to the organization, the public, and potentially, if properly planned and executed, to the employees. The question will usually arise when the functions involved are seen as merely supportive as opposed to ones that are "inherently Governmental functions," or ones that may be considered core capabilities.
The privatization issue is raised by the Clinger-Cohen Act, and particularly by the ITMRA because it deals with a type of function, information technology, that is susceptible to outsourcing. Some of the impetus for the Act was the recommendations of Vice President Gore's National Performance Review to reduce "overhead" positions so as to improve government operations. In this context the definition of information technology becomes very significant. In part, the definition states as follows:
The term information technology includes computers, ancillary equipment, software, firmware and similar procedures, services (including support services), and related resources.
The very nature of IT lends special significance to this broad definition. Work methods, interactions of personnel, flow of information, systems and procedures for delivering services, and broadly, the character of an organization may be affected and defined by IT. In addition, the Act directs agency heads to consider explicitly, and to quantitatively measure, performance by the private sector in relation to internal performance within the agency prior to investing in any new information system. One author describes the impact of IT in this way: "When a system is computerized, the basic activities of the ... process remain essentially the same as when the system was operated manually. What changes is the way in which the activities are performed." It is the changes in the way activities are performed that impacts the organization. When IT is to be introduced to an organization, the action is unlikely to be simply a purchase. More likely, the introduction will encompass an investment in personnel training, software, hardware, revised operational procedures, communication of information, and workflow. It is not surprising, when new IT is proposed, that the most effective approach to its introduction may turn out to be to contract for the entire function to be performed externally.
Recent Outsourcing Actions. Three examples of outsourcing by governmental units may be cited here. Each has resulted in significant operational improvements and important cost savings. First is an action by the city of Indianapolis in awarding a seven-year contract to Systems and Computer Technology Corporation (SCT). Under the Contract SCT will manage the city's information systems operations. This action has generated savings and is believed to expand the city's economic growth likelihood. The city employees involved were hired by the contractor. An interesting Federal action was NASAs announcement on September 30, 1996. NASA awarded a contract to the United Space Alliance (a joint venture of Lockheed-Martin and Rockwell) for space shuttle ground processing and in-flight operations. The contract assigns increased responsibility to the contractor for oversight of routine shuttle operations and employs an award fee type of incentive whereby the agency evaluates the contractor's safety record and cost savings achievements. The agency retains overall responsibility. An even more explicit transfer of functions from public to private performance is illustrated by an action of the Office of Personnel Management (OPM). OPM planned and organized the US Investigative Services, Inc.(USIS), a new corporation owned by its employees, including over 700 former government employees. USIS performs a full range of personnel services for OPM and other agencies. It is also able to compete in the private marketplace to sell its services. Employee resistance to this was overcome by their opportunity to own the corporation and by formulating satisfactory salary and benefit programs. A key mechanism enabling OPM to achieve this was the public interest exemption to the requirement for full and open competition. OPM used this authority to award a sole source contract to USIS. In the absence of that authority it is unlikely OPM could have accomplished this privatization.
The Importance of the Current Era of Reform. A philosophical change seems to have penetrated the thinking of Federal acquisition leaders. It may be best described as a new tolerance for a degree of flexibility which previously was thought not to exist in the Federal procurement system. It is most clearly expressed in the new willingness to deal with commercial suppliers using established private sector practices. Potentially even more important than revised commercial buying policy in terms of eventual savings and improved performance, is privatization. The idea that better and less costly performance of services ought to be a major goal of the Federal agency appears to be firmly in place together with a recognition that the objective cannot be achieved if contracting rules remain so inflexible that executives are stymied when they attempt innovative actions. Flexibility has been given a major boost by the Clinger-Cohen Act. Of particular importance are the broad definition of information technology and the focus on effective performance which is contained in the Act.