Britain, which hires private firms to run parts of its health service, schools, prisons and public transport, has been rethinking how it awards contracts after the collapse of contractor Carillion just over a year ago. Carillion became the largest construction bankruptcy in British history last year, leaving creditors and pensioners facing steep losses and putting thousands of jobs at risk. Its demise reduced the number of big corporate bidders for government contracts and increased scrutiny of how the sector is run, driving down share prices of firms that provide outsourcing services, such as Babcock, Capita, Serco, G4S, Mitie and Compass.Read this and other articles at the link(s) provided; I tend to slice and dice, rearrange, omit, paraphrase and pretty much destroy the integrity of the original work to try to create a teachable moment fitting the context of this blog.
Britain’s government will take measures to identify and reduce risks taken by private firms that provide public services, it will say on Wednesday, in a bid to encourage companies that have become increasingly wary of taking on new government business. “A more considered approach to risk allocation will make us a smarter, more attractive client to do business with,” cabinet office minister Oliver Dowden will tell business leaders at the Confederation of British Industry on Wednesday.
Guidelines, set out in the “Outsourcing Playbook”, will specify that “when designing contracts, departments must seek to mitigate, reduce and then allocate risks to the party best able to manage it”, Dowden will say, according to a text of his remarks released before delivery. The aim is to improve how government works with industry and deliver better public services by, for example, piloting services needed in advance and publishing details of work departments will require, so companies are better able to plan.
Public departments will also be required to say when it is best to deliver public services in-house or when there is benefit from drawing on private sector expertise.
Professor Steven L. Schooner, of the George Washington Law School, has asked, "what does your government hope to achieve through its government procurement law? It seems reasonable to attempt to describe general aspirations for a procurement system before drafting begins." In a paper he wrote, published in the Public Procurement Law Review in 2002, he identifies the principle of "risk avoidance" as one of nine particular desiderata often mentioned for a successful procurement regime.
It is difficult to describe a procurement regime without acknowledging the role of risk avoidance. Avoiding undue risk is a fundamental responsibility of any governing body. Conversely, improper obsession with risk avoidance can suffocate creativity, stifle innovation and render and institution ineffective. Further, there are infinite mechanisms available to control different types of risk.Prof Schooner applied that principle of risk avoidance in testimony before the United States Senate, Committee on Homeland Security & Governmental Affairs, in 2007, commenting on "the benefits, challenges, and risks of agencies’ increased reliance on contractors to provide critical services". He noted:
No system can fully achieve all of the nine goals. Nor can a state expect that its objectives for its system will remain constant over time. Determining which goals are most important is a daunting, ever-evolving challenge. Because no system can achieve all of the goals, your desiderata entails important tradeoffs. Ultimately, each government must decide how much discretion or flexibility it wishes to delegate to its buyers.
The challenges associated with extensive contractor reliance include, among others: (1) planning, which includes understanding what outcome will be sought from the private sector; (2) both understanding and accurately describing that outcome (or task) to the private sector; (3) selecting appropriate, qualified contractors in a timely fashion; (4) negotiating cost-effective agreements and drafting clear contracts that contain effective incentives (or profit mechanisms) to maximize contractor performance; (5) managing the contractual relationship to ensure that the government receives value for its money; (6) providing appropriate oversight throughout the process to, among other things, avoid corruption; and, most importantly, (7) maintaining a sufficiently educated, experienced, and motivated government workforce (or augmented workforce) to take on these challenges.
These challenges can be difficult to accomplish because the combination of government recruiting policies, salaries, benefits, opportunities, and quality of work lag much of the private sector, particularly in high-demand career fields. Thus, the “market” reflects that the government undervalues critical skills.
By the same token, slavish focus upon the relative cost of contractor support is misguided. Specifically, it is not productive to criticize agencies for paying contractors “too much” without: (1) permitting an agency to hire additional personnel; (2) confirming that sufficient personnel are available in the marketplace and willing to work for the government; (3) comparing “apples to apples,” such as taking into account all of the costs of civil servants or members of the armed services; and (4) considering critical issues such as flexibility and surge capacity. For example, higher contractor salaries may be offset, at least in part, by long-run costs avoided. Indeed, a strong case could be made that, for short-term demands for additional resources, it makes sense to pay higher, and potentially significantly higher, amounts for contractor support.
Fundamentally, though, it is difficult to conceive of a higher priority for a heavily outsourced agency than to “assess program office staff and expertise
necessary to provide sufficient oversight” of its most important service contracts. And, empirical evidence is scant to demonstrate that government employees are more talented, committed, motivated, or honest than their private sector counterparts, and vice-versa. However, the private sector’s exposure to market forces, and the related corporate purpose of pursuing profit, permits (and, arguably, requires) a more diverse and potent arsenal of employee incentives and disincentives. These tools include compensation (salary, salary increases, bonuses, stock incentives), opportunity for advancement, and, of course, the risk of termination. While the Government can use similar tools, their impact (or the degree to which these tools can influence behavior) is at least perceived as far less dramatic, given a heavily constrained promotion and bonus regime and an impenetrable de facto tenure system. The private sector-government contrast is greatest at the extremes. The private sector offers far greater economic rewards for success and threatens more credible sanctions for less than desirable performance.
Ultimately, however, the debate between in-house services or privatized services is increasingly academic. The government today relies on the private sector because we have restricted the size of government or, more specifically, the number of government employees. The government currently has no short-term choice but to rely upon contractors for every conceivable task that it is understaffed to fulfill. It is not an option to consolidate its missions, jettison a number of its tasks, terminate contracts, and take on only those missions it is appropriately staffed to perform. Nor is it feasible to wait while it embarks upon an aggressive program to identify, recruit, hire, and retain an extraordinary number of civil servants.
Only serious, long term, far reaching personnel reforms can, in any meaningful manner, begin to reverse the current trend. Accordingly, the government must continue to expend its best efforts to achieve its mission with the resources available, acknowledge that it is a rather “hollow” agency, and invest significant energy and resources in improving its use of contractors to help it achieve its mission. This involves conceding that contractors will continue to perform what historically have been perceived as inherently governmental functions. But even that notion is becoming increasingly quaint, outmoded, anachronistic, or simply irrelevant. At least, that is, until our increasing reliance on contractors to perform services for core government activities is matched by the capacity of government officials to supervise and evaluate the performance of these activities.
As our procurement system has struggled throughout this decade, Congress has been quick to call for more auditors and inspectors general to scrutinize contracting. That’s a responsible gesture. But the corresponding call – for more contracting experts to perform the many functions that are necessary for the procurement system to work well – has been both delayed and muted. In order to serve the taxpaying public and meet the needs of agency customers, acquisition professionals must promptly and accurately describe what the government wants to buy, identify and select quality suppliers, ensure fair prices, structure contracts with proper monetary incentives for good performance, and manage and evaluate contractor performance. Accordingly, the contracting workforce – understaffed, under-resourced, and under-appreciated – desperately requires a dramatic recapitalization.
We have witnessed an explosive growth in what we refer to as body shop or employee augmentation arrangements. As the name implies, the government uses this type of contract to hire contractor personnel to replace, supplement, or work alongside civil servants or members of the armed forces. Civil servants work alongside, with, and at times, for, contractor employees who sit in seats previously occupied by government employees. Unfortunately, no one stopped to train the government workforce on how to operate in such an environment. Worst-case scenarios have arisen where contractors have performed work under an
open-ended contracts (e.g., with a vague or ambiguous statement of work) without guidance or management from a responsible government official.
More than fifteen years of ill-conceived under-investment in the acquisition workforce, followed by a government-wide failure to respond to a dramatic increase in procurement activity has lead to a triage-type focus on buying, with insufficient the resources available for contract administration, management, and oversight. The old adage – an ounce of prevention is worth a pound of cure – rings true. More auditors and inspectors general will guarantee a steady stream of scandals, but they’ll neither help avoid the scandals nor improve the procurement system. Conversely, a prospective investment in upgrading the number, skills, and morale of government purchasing officials would reap huge dividends for the taxpayers.
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