The risky business of outsourcing essential government services

Britain to tackle doubts about outsourcing risks with new guidelines

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.

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.

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.

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.

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.

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:

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.

Variety is the spice of procurement training

To improve the contracting workforce, improve training

In recent years, considerable resources have been invested in hiring and educating our biggest asset, human capital. This additional staffing and education has so far met with mixed results. This is because people are only as effective as the experience and education they have received.

Contracting executives frequently mention the need to develop judgment, reasoning, and analytical skills, as well as to obtain real-world experience. These goals can be met through exposure to diverse acquisition and operational scenarios. Three years of varied contracting experience (simplified acquisition, major systems, source selection, and acquisition planning) is better than 10 years of doing the same, simplified, repetitive tasks over and over, yet still moving up the career ladder.

Effective contract management doesn’t involve memorizing policies and regulations. To no one’s surprise, regardless of legislation, business judgment and skills are best learned on the job or via the next best thing: scenario-based training. Professional certifications require the ability to know where to find the various and often conflicting sources of guidance on a particular problem and weigh the merits of all in arriving at a balanced and proper business solution. Rigorous testing that most pass, but many may fail, ensures good judgment is developed before its applicability to real-world situations.

However, there is a way this varied experience can be developed—through scenario-based learning and testing. This involves providing present and future acquisition specialists the ability to develop their skills on the simulator faster and less expensively before being thrown into real-world situations.

A profession that develops itself exclusively through passive class time, guaranteeing successful completion to everyone, is no better than maintaining existing business processes because “that’s the way we’ve always done it,” or “because I said so.” A rigorous, widely adopted, professional development process, combining education with “practical exams” for every government and industry organization must exist in today’s complex and collaborative acquisition system.

I often suggest to my procurement students at Guam Community College that they follow all the news they can on a wide range of procurement issues. It may not suffice for actual hands on experience, but it can represent a case study approach to issues they do not see in their limited roles in the system.

This blawg is an attempt to present such a resource, and I encourage my students to wander through its posts and come back to it from time to time.

Unfortunately, all one has to do is check the View My Stats link in the right-hand column, and compare it to the ClustrMap hits, to notice that there are not a lot of hits from Guam, not even following the announcements in class. You can lead a student to water, but ....

The pot vs. the kettle

One in five businesses think public procurement skills are getting worse

More than 60 per cent of businesses have not seen an improvement in commercial skills in public procurement in the past year, and one in five believes capability has deteriorated.

That’s the results of a survey of CBI members, in which respondents also said improving the public sector’s commercial skills is essential to transforming the procurement process.

CBI added inconsistency across government departments and a short-term approach to commercial contracts are also key concerns amongst businesses.

Sometime last year, I gave a brief presentation to one of the Rotary Clubs on Guam on procurement matters in general. The Rotarians included some of the leaders of the business community, many with more than passing involvement in selling to the government.

I asked for a show of hands to grade Guam's government procurement capability, starting with 'A' down to 'F'.  Overwhelmingly, they rated Guam's government contracting effectiveness an 'F'.

I then asked for a show of hands to grade the private sector's effectiveness with the government contracting system.  The question seemed to unsettle the crowd a bit, and the show of hands going up didn't get much support until down to 'C' and 'D' (but no 'F'). I admired my colleagues for their critical self-examination.

All contracts require (at least) two parties. Failure of the contract formation process, and contract administration, is bound to deteriorate if either or both parties fail to understand their role in that process, whether it is private or public contracting.

Even the government (on Guam and likely elsewhere) seems to recognize that government handling of its contracting does not always go well, let alone ideally. It is also important that the private sector appreciate that they have a role to play in facilitating that process, however.

There are thousands of protests every year in the federal system, as any search of the GAO website will reveal. Far and away, the bulk of them fail to gain traction. Those that succeed reveal flaws in the government's handling of the solicitation. Those that don't often suggest if not reveal a failure on the part of the private sector participants to understand that government contracting is very much unlike private contracting due to the governance strictures associated with expenditure of public funds. 

There are unyielding standards, disclosure requirements, timelines and limited discretion authorities that make government contracting a whole different ball game than the cut and thrust of private contracting.  Contractors should be aware of the difference and the different approaches required for each.

I have been working with Guam Community College to create a Basic Training procurement program. It consists of 4 "modules", each with 18 hours of class time teaching. 

Module 1 is an introduction to procurement, including its nature, principles, fundamentals, and statutory authority and structure. 

Module 2 is an examination of the methods of source selection, including an understanding of principles applicable to specifications, determinations of responsiveness and responsibility and the like; it is very code and regulation focused. 

Module 3 covers the administrative and judicial review processes of the controversies cognizable under Guam procurement law: solicitations and awards, suspensions and debarments, and contract disputes. 

Module 4 deals with the management aspects of government acquisition, from needs assessment and market research to creating audit trails and contract administration and enforcement. At the end, the students have had 72 hours of fairly rigorous exposure to the nuts and bolts of Guam procurement.

I'm told there has been in excess of 150 students have already gone through at least one of the three modules.  Almost all of them have been government employees (albeit with a modicum of legislative incentive).  This program will eventually raise the bar of the government's handling of Guam procurement.

Government contracting would improve significantly more if the private sector took the same interest. It takes two to tango, and practice to keep off the other's toes.

We have to fix IT; we have no choice

I've previously mentioned that Information Technology is a problem child. But it is our problem child, and like our other children, it is our future. We have no choice; we have to fix IT. 

We have reared IT to be our gate keeper for all of our information and communication. Our future is presently reliant on a problem child that is outgrowing its clothes before we have the old ones paid off; growing so fast we don't even know what size to buy next. We have made it too big for its britches; we feed it, we are its enablers. We have allowed if not conscientiously designed IT to be a panacea, mission critical to almost every small aspect of our lives, let alone government contracting.

Tinkering with the procurement system will never work until we understand better what this child's own goals are. IT has it own dreams -- problems. The child needs more help than the nurturing procurement system can muster. I have taught my children that they can be anything they want, but the cannot be everything they want. IT wants to be everything, and we have to learn to reign IT in.

The discussions have begun, and in some places is well under way. Many more of us will have to know much much more about the problems before we can hope to find a solution. We cannot leave it to the problem child to determine our destiny.

Can IT procurement be saved?

Can the tens of thousands of people involved in government procurement — employees and contractors alike — absorb any life lessons for navigating the often bumpy road of large government IT projects? High-profile government procurement projects sometimes take a wrong turn or crash spectacularly into technological or logistical ditches. Sometimes they can be resurrected or salvaged, and sometimes they are scrapped. The smoldering remains can be attributed to the myriad miscues, oversights or missteps in a hugely complex system.

In other words, bungled launches didn't start with HealthCare.gov, and the Obama administration's Department of Health and Human Services is hardly alone in its stumbling. In 2006, the Department of Homeland Security picked Boeing to oversee its $1.9 billion program dubbed SBInet, which sought to revolutionize border security by integrating infrastructure, technology and border security agents. Unfortunately, it didn't work.

Complex federal procurement rules can contribute to the failure of advanced IT systems such as HealthCare.gov or SBInet, but Amey contends that even a wholesale overhaul of those rules probably wouldn't help much. Others say spending cuts and budget uncertainty have sped up an erosion of the federal procurement workforce. Still others blame rules they say place a crippling emphasis on getting the lowest price at the expense of what might work best.

Ultimately, said Roger Waldron, president of the Coalition for Government Procurement, successful federal contracts happen when the government understands what it wants and what it is asking of bidders, and bidders understand how to work with the government. It's not just about getting to yes — it's about getting to yes, I know exactly what I want, and here's how I want you to give it to me.

Testing, predesign decisions and planning are essential to successfully integrating legacy systems, said Jay Shah, executive vice president of Octo Consulting Group. One key, he said, is not to rush the procurement process. Budget pressures are forcing agencies with legacy systems to "think incrementally and not transformationally" when it comes to implementing new systems, he added, but agile development is not a silver bullet.

"While most government agencies love the idea of agile, the [federal] procurement process and capital planning [are] counter to what agile espouses," Shah said. Rep. Anna Eshoo (D-Calif.), who represents a swath of Silicon Valley, wants to make the system more open and accessible. "My sense is that there are inside-the-Beltway contractors that know the current system very, very well, and they are the ones that are awarded the contracts," she said.

5 areas to start IT procurement reform

“There’s a beauty and a tragedy at this critical inflection point, in regard to people and technology,” said Stan Soloway, the president of the Professional Services Council. “We have a once in a multigenerational opportunity to do this.” Few envision such a complex system will change with one sweeping gesture.

Here are five broad areas of reform experts suggest as a place to start:

1. Put someone in charge
Numerous agencies weigh in on technology procurement, but no one carefully monitors the entire process. “Part of the problem with procurement is no one is taking a holistic view with the entire supply chain,” said Clay Johnson, a former presidential innovation fellow and current chief executive officer of the Department of Better Technology. [We need an IT czar? One?]

2. Prioritize people
The federal procurement process depends on contracting officers. “The government continues to struggle mightily to attract IT talent,” PSC’s Soloway said. [Note this is an argument for bringing more IT decision making in house via people who are trained to understand the problem well enough to fashion a solution, rather than outsourcing it to purveyors of legacy based systems.]

3. [Omitted by the administrator of this blog, revealing a lack of knowledge of principles of procurement (IT maybe, procurement no), and beating an old horse rather than seizing a once in a mulitgenerational opportunity as promised.]

4. Don’t fear the woodshed
Any real reform to federal IT, experts warn, must allow for ingenuity. “These guys are scared to death because if they make a wrong decision, they are going to get taken to the woodshed,” Safavian said. “Leaders need to become better risk absorbers,” Soloway said. “You can’t have a system where everyone thinks they are going to get hammered.” [Problem children need love and discipline.]

5. Throw away the rules
A complex tangle of regulations sometimes upends its very purpose. [And here I thought they were going to mean, start with new code and open architecture.]

Have ideas on government procurement?

The Department of Finance would like your feedback to help improve communication between government and industry during the procurement process.

Lessons for Procurement from IT Vendor Management: Audits, Inputs, and Competitive Spirit

Starting with audits, Erickson-Harris suggests that vendor management organizations “incorporate the right to conduct audits to gain a first-hand look at operations periodically” in part because “showing up tells the service provider that you take the relationship seriously.” [And want to be taken to lunch.] These audit rights should include contract penalty clauses that have teeth. [Problem children respond well to standing over them with a stick and a dog with big teeth. And auditors know all about the IT you're struggling with.]

Erickson-Harris suggests: “Asking vendors what measures they can put in place to ensure quality." [We hired these guys to do it because we didn't know how. We didn't even know how to spec the contract. And we expect the contractor to tell us how to do it better in a completely disinterested way that's going to save us money? How would be know?]

Finally, keep up the competitive spirit. To wit, “keep the vendor on its toes and the situation competitive". I might suggest tempering this recommendation, after all, you don’t want to find yourself using the threat of leverage or competition with a critical supplier when the vendor knows that you don’t really have other options. [On second thought, just ask him what we need and be thankful we have him on payroll.]

Government Tech Problems: Blame The People Or The Process? [Or something else, maybe, like the underlying assumptions of need?]

What should be done about government's tech issues depends on what you see as the source of the problem. And that's where there's disagreement among the "People Who Think About Procurement More Than You And Me."

Stan Soloway heads the Professional Services Council, which represents federal contractors who are hired to build these projects. He told The Times he sees the problem as the "punishing and punitive" environment of government. "It's the human capital, the way the government buys services, the way the government determines its own requirements, the lack of collaboration within government, the lack of collaboration between the government and the private sector, the outdated systems within government," Soloway told the newspaper.

Clay Johnson, who has been fighting for procurement reform since before it became cool, takes issue with that argument. "Bad clients exist everywhere. Blaming the client is the oldest trick in the book. It's toxic." Instead, he sees the issue as being an environment that doesn't favor competition, which boosts incumbents who do mediocre or even poor work.

Determining what's at root will drive future policy decisions. President Obama has said again and again that government needs to improve the way it procures and uses technology. But so far, the White House hasn't put out any specific plans to tackle the issue.

On the legislative front, the bipartisan bill to address part of the problem — the Federal Information Technology Acquisition Reform Act (FITARA) — passed the House last June but got axed from the Senate version. That bill did not centrally take on the competitive environment, but it would have given more power to technology officers inside government so they could better project-manage the work of contractors and developers.

Obama Calls for IT Procurement Reform

Obama said, “I personally have been frustrated with the problems around the website on health care. And it’s inexcusable.”

[He then offered excuses:] The president said part of the problem was simply managing an operation as large and complex as the federal government. “What I want to just remind people of is that this government is an enormous enterprise,” he said, “and so even as sometimes we see ourselves getting stymied at the congressional level, at the administrative level, in the work that we’re doing, all kinds of changes are happening.”

CGI's Contract to Help Run Health Site Won't Be Renewed

CGI Group Inc. said federal officials won't renew its contract to oversee key parts of HealthCare.gov, the online insurance marketplace that launched with major defects on Oct. 1. The Centers for Medicare and Medicaid Services said in a statement that it chose Accenture become the lead contractor. People close to the project said they were "blindsided" when they learned of the decision Friday.

TechAmerica: Congress key to effective procurement reform

The problems afflicting federal IT acquisition system are not incurable, according to TechAmerica's newly installed Senior Vice President for Public Sector Mike Hettinger, but they could use a strong dose of legislative medicine. TechAmerica is working to foster congressional efforts to change acquisition rules beyond simple knee-jerk reactions to those particular failures. Hettinger said he is looking to educate lawmakers on the intricacies of federal IT acquisition practices and facilitate a dialogue across industry, legislative and executive branch lines. He also said the intricate nature of federal IT acquisition means only a handful of lawmakers have a full grasp of the process.  [But they likely have a better grasp of the IT acquisition process than of the IT process itself. which is a more easily exploitable weakness.]

Proposals to create a new agency that would manage large IT projects and boost the federal government's ability to hire IT specialists from private industry are steps in the right direction, he said. [Yes, revolving doors are good, for someone.]  But for effective reform, Congress must be involved, Hettinger said.

And he knows that legislative territory.

TechAmerica named Hettinger vice president of its public sector group in mid-December as the organization began a legal battle with rival Information Technology Industry after several former TechAmerica public sector executives, including former Senior Vice President for Global Public Sector Trey Hodgkins, left abruptly for jobs at ITI. TechAmerica alleges some of those former employees stole valuable membership information.

Hettinger said his new employer assured him the organization was committed to its public sector operations and that he had no reservations about taking on the new job. "The reason I'm here is because this is the premier association. TechAmerica is doing things no one else can." He also noted that TechAmerica is in the process of hiring three additional public policy group personnel in the coming weeks who will work with him. [See there? The key to problem is with Congress, not the IT industry, and all it needs is a good lobbyist or three to set things straight. Yea!]

Procurement reforms du jour

Scotland.  Local preference and training.

Scottish procurement reform bill sent to Parliament

Changes to public procurement rules in Scotland that will make it easier for small businesses to bid for public contracts have moved closer, as a reform bill goes to Parliament. The Procurement Reform Bill sets out how European legislation will be interpreted and put into practice in Scotland.

First minister Alex Salmond said the bill would generate new training and employment opportunities. The Bill will require public bodies to consider how procurement activity can improve the economic, social and environmental wellbeing of local communities.

“Our Bill here in Scotland will give Parliament the opportunity to go further than Wales, by taking the power to regulate how companies are selected to bid and how their suitability should be assessed,” he said. “These regulations will address blacklisting, working within the framework of EU law.”

Namibia.  Centralization and effective review.

Namibia introduces legislation as part of procurement reform

The country seeks to streamline large public sector procurement, help SMEs and reduce loopholes.

Namibian procurement reform edges closer

The Public Procurement Bill would create a Central Procurement Board to centralise the management of high-value contracts across the public sector, while a review panel would give aggrieved bidders a route for redress without having to go to the courts.

Minister of finance Saara Kuugongelwa-Amadhila said as she tabled the bill: “The intention is to provide for the speedy resolution of such complaints, which will minimise the frequency of bidders’ recourse to court actions.”

The bill also seeks to stimulate economic growth by giving preference to local businesses and socially disadvantaged groups, according to the state-owned New Era newspaper.

The new law also repeals the Tender Board Act of 1996, which is described as “no longer sufficient or adequate to achieve the country’s developmental objectives”.

Unlike the tender board, which dealt with almost all public sector contracts, the new board would only deal with contracts over a certain threshold value, with lower value contracts dealt with by the public body concerned.

Singapore.  Integrity enhanced.

Trust in public service crucial to success of govt policies: PM Lee

Singapore Prime Minister Lee Hsien Loong has emphasised that a major determinant of success in implementing government policies that improve the lives of people is trust in the government, and in particular, the public service. He said it is important that Singaporeans trust that the government understands their needs, is committed to the people, and will remain a steward of the public good.

He said: "Ultimately, integrity is not about systems and processes but values. The government must have a culture that doesn't tolerate any wrongdoing or dishonesty and the public officers must have the right values -- service, integrity, excellence -- and each officer and the service as a whole must take pride in being clean, incorrupt. "This is your command responsibility, you cannot devolve it to your subordinates, you cannot leave it to your procurement or financial officers. You are the boss, you are in charge."

Mr Lee also stressed that critical to maintaining public trust is upholding the highest standards of integrity -- something which has been painstakingly built up over many years. Mr Lee said because there is integrity, businesses can compete fairly instead of relying on improper influence. And because there is integrity, public officers can be given the discretion to exercise judgement when managing multi-million dollar projects.

The Prime Minister emphasised that one reason why Singapore has been able to maintain a clean system is that it pays public servants properly in line with the quality of the officers and the value of their contributions. He stressed that this policy will continue. In return he said, Singapore insists on the high standards of performance and integrity, and if an officer is discovered to have been dishonest, he will be punished to the full extent of the law.

Mr Lee said this principle will be maintained even when it may be embarrassing to the government. Mr Lee acknowledged that the past year has seen a string of high-profile cases involving public officers, including some senior ones in sex for favours scandals, procurement lapses and fraud cases.

He said beyond these individual cases, the public service must strengthen its systems to uphold reputation for integrity and incorruptibility, and dispel any doubts that standards have fallen. Head of Civil Service, Peter Ong, said Mr Lee's presence at the annual seminar was a clear demonstration of the type of leadership he is encouraging public sector leaders to show - that is to lead by example and model the right values for staff.

Singapore officials to declare casino trips after graft scandal

Singapore civil servants must declare casino visits starting Tuesday, authorities said, months after a senior anti-graft official was charged with embezzling state money to fund his gambling habit. Civil servants must declare within seven days if they have visited the city-state's two casinos more than four times a month, or if they purchase an annual pass that allows unlimited access, the government's Public Service Division (PSD) said.

Government officials in certain positions where "misconduct will have significant reputational risk to the Public Service" must declare every visit within seven days, it said in a statement. Singapore pays its civil servants some of the highest government salaries globally in what it says is a deterrent to corruption.

Civil servants involved in gaming enforcement as well as others who represent the government in business dealings with the two casino operators will remain barred from visiting the casinos unless in an official capacity.

The agency said it was also bringing in compulsory job rotations and block leave for some officials holding positions that "are more susceptible to being suborned and exploited if the incumbent were to remain in the same job for too long". "Officers are expected to maintain the highest standards of personal conduct and integrity, and their actions must not bring the Public Service into disrepute or call into question its impartiality," PSD said.

The move follows a string of high-profile corruption cases in the city-state, including one involving Edwin Yeo Seow Hiang, an assistant director at the Corrupt Practices Investigation Bureau (CPIB), the country's graft-busting agency. Large-scale graft cases remain rare in Singapore, a thriving business hub and financial centre, and the government has jealously guarded its reputation as among the least corrupt in the world.

New Zealand.  Uniformity.

New government procurement rules come into effect

The new rules replace 44 different pieces of legislation, Cabinet directives and miscellaneous guidance released by a multitude of government agencies over many years. The emphasis will shift from who can deliver the lowest upfront costs to who can deliver the best value for money and other direct financial benefits over the life of a contract.

“By... making the tendering process consistent across the public service, we expect to make our procurement business more accessible to smaller local firms who previously may have been discouraged by the process,” Economic Development Minister Stephen Joyce said in April when announcing the changes.

The new procurement rules will apply to all Public Service departments, the New Zealand Police and the Defence Force. Other State Sector agencies and the broader Public Service will also be encouraged to adopt them.

Procurement Reform Bangledesh, Round II

Bangladesh: Transforming Procurement Outcomes Through Capacity Development and Performance Monitoring

The capacity development program is now recognized as an emerging model because of its unique features. These include developing a critical mass of about 35 national trainers; establishing a procurement faculty at a local institute; implementing procurement training for about 20 different audiences, such as policy makers, procurement practitioners, bidding community and auditors; providing three-week training to about 2100 staff of the four agencies in a way so that each procuring entity within those organization has at least one trained staff; and introducing a built-in incentive mechanism for the top-performers (international procurement accreditation by the Chartered Institute of Purchasing and Supply, UK and Masters programme in procurement).

Despite a challenging context, Bangladesh has been transforming its procurement environment for better outcomes in public contracting with improved efficiency, effectiveness, and transparency at key sectoral ministries and agencies. This has been demonstrated by: reduced procurement delays; improved competitiveness; and enhanced transparency. About 65% of small value large number of contracts at decentralized level are now awarded within initial bid validity period, the average number of bidders has increased to six, and around 60% of the contract awards are published in the website.

Results:

• Improved efficiency and effectiveness of procurement with reduced procurement delays: About 65% small value contracts at decentralized levels have been awarded within the initial bid validity period in 2012, up from only 10% in 2007.
• Enhanced transparency: About 60% contracts awards in 2012 were published at the Central Procurement Technical Unit (CPTU) website, up from only 15% in 2007. Invitation for bids published in newspaper has increased to almost 100% in 2012 from 70% in 2005. In addition, complaints handling mechanism using the independent review panel’s approach and administrative reviews has contributed significantly in improving the accountability of public sector organizations. This has brought about better confidence of the bidding community in the public procurement system. Furthermore, all policy related documents are available on the website of CPTU including laws, rules, bidding documents, guidance notes.
• Increased competitiveness: The reform has resulted in more competition among bidders as demonstrated by increased number of bidders; average number of bidders at the key sectoral agencies increased to six in 2012 from four in 2007.
• Improved capacity development: Developed a core group of about 35 national trainers; provided three-week procurement training to over 2900 officials; about 35 staff received international procurement accreditation in core competence from the Chartered Institute of Purchasing and Supply (CIPS/UK), MCIPS, and all of them are also completing Masters in Procurement and Supply Management from a leading local university (BRACU- Institute of Governance).
• Increased electronic tendering: Four key agencies, after completing the pilot phase, has rolled out the e-GP across all of their procuring entities, and as of December 2012 covered at least one e-GP tender in 50% of the procuring entities of each agency.
• Increased stakeholder participation: Public-private stakeholders committee (PPSC) made fully functional; government-contractors forum established; communication workshops held in all districts.

"Bidders have a right to know that any procurement process is fair, transparent and run with integrity"

Business complaints over public sector procurement contracts soar by 167%

The coalition has always looked to the private sector to run hospitals, schools and other frontline services but new contracts are often at low margins as the government looks for cost-savings. This puts bidders under pressure to win more work to compensate for reduced profits.

All of this puts significant strain on business, says David Isaac, head of the advanced manufacturing and technology services sector at Pinsent Masons. "Bidding for public sector contracts requires substantial upfront investment with no guarantee of return. In that context, bidders have a right to know that any procurement process is fair, transparent and run with integrity."

According to an FoI request our firm sent to the government, business complaints over how public sector contracts are awarded soared by 167% in the last 12 months to 196 – up from 73 in the previous year.

One tactic that some businesses have deployed is to challenge the procurement process and litigate if their bid is unsuccessful. That is not to say all complaints are motivated by a commercial agenda: at times there may be cause to challenge the process. However, a significant increase in the number of complaints being made indicates that something else is going on.

Complaining to the Cabinet Office is one way to stop a rival gaining an advantage in the procurement process. For example, businesses will complain about the procurement strategy that a public sector body is following if they think that strategy favours their competitor. Another way to gain an advantage is to look to external expertise for advice on submitting a successful bid. We have witnessed an increasing number of private sector bidders looking to their lawyers for this type of advice.

But does complaining work? Complaints to the Cabinet Office can sometimes lead to the bidding rules for a government procurement contract being changed while bidding for the contract is still progressing. Making a complaint while the bidding process is still open can delay things long enough to give a business crucial extra time to prepare and submit its bid, although a court challenge would be needed to actually overturn a contract that has been signed.

Simon Colvin, a partner at Pinsent Masons who advises central government departments on national IT outsourcing projects, points out that contracting authorities are increasingly conscious of market pressures. "Time invested at the outset of a procurement is key to ensuring that processes are fair and transparent. This approach together with ongoing monitoring as the procurement progresses towards contract award should ensure that bidders complaints are minimised and, if they do arise, can be handled effectively."

While the pressure to protest is obvious, it is not in anyone's interest to protest in ignorance. Ignorance of facts may always be a justifiable excuse to protest, but ignorance of the legal requirements for procurement, which are often not intuitive to non-government contractors, is not. It is as imperative that the private sector know the rules of government contracting as the public sector. Knowledge of the rules of the road will not only temper expectations of the desperate business person, but minimize their costs by knowing when not to chase shadows or rainbows.

By the way, the ABA Model Procurement Code also recognizes the need for a fair, transparent procurement system run with integrity. In a comment to MPC § 3-201, it is declared "fair and open competition is a basic tenet of public procurement. such competition reduces the opportunity for favoritism and inspires public confidence that contracts are awarded equitably and economically".

What's the point of having rules?

Out of Singapore, we have this globally recurring theme:

Procurement lapses due to individual officers' failure to follow rules: MOF

The Auditor-General's report scrutinized the expenditure of government ministries and statutory boards for the last financial year and was released on Wednesday. Several ministries were cited for various oversights.

[The StraitsTimes reported, For instance, the Media Development Authority negotiated with a vendor for a revised proposal to organise the $4.57 million Film Festival. This was after the request for proposal exercise had closed, and contravened government rules. Another tender by Republic Polytechnic was not conducted in an open and fair manner, Auditor-General Willie Tan said. The tender was for a $19.14 million project to develop an integrated academic system."]

The Ministry of Finance said it has reminded all permanent secretaries and heads of government agencies to pay close attention to procurement issues.

Government agencies are also urged to undertake regular reviews of procurement processes and ensure vigilant supervision throughout all stages of the procurement process.

The ministry stressed that it is essential that the public service and its officers remain fully accountable for the use of public funds and uphold the integrity of public procurement.

To further strengthen government procurement as a whole, the ministry said it has already stepped up the training of public officers, as well as requiring all agencies to conduct regular internal audits to provide an independent check.

Work is also in progress to develop a procurement specialist track, with professional development opportunities and proper career pathways.

MOF explained that the procurement specialist track will help professionalise the practice of procurement by giving officers greater recognition and more opportunities to develop deep skills and knowledge.

The ministry said while it cannot expect to be able to completely eliminate lapses in a system with over 80,000 tenders and quotations annually, the public service is committed to take every effort to avoid them or promptly rectify them when they are detected.

Kick me

A frivolous protest is one, in my opinion, with no legal basis.  Why then, I ask government procurement staff, make it so easy?  Take off those "kick me" signs worn around your necks and you'll reduce the amount of protests you get, frivolous or not.

The following excellent Bloomberg report covers more ground that just this topic, so you should read the whole thing at the link, but it also does a great job of highlighting and elaborating my point.


Shrinking Budgets, Acquisition Workforce Mistakes Drive Bid Protests, Experts Say

Total federal spending on contracts fell to $516.8 billion in FY 2012 from $538.6 billion in FY 2011, according to USASpending.gov. Spending rose only 19.6 percent from $432.1 billion in FY 2006. At the same time, contractors filed 2,475 protests, cost claims, and requests for reconsideration with GAO in fiscal year 2012, a five percent increase from FY 2011 and a 94 percent increase from the 1,274 protests filed in FY 2006.

Protests started rising quickly in FY 2008--up 17 percent from FY 2007--with the downturn in the economy, according to GAO. As the commercial market contracted, companies focused on their government customers. “It became more important to win each opportunity that came out,” McKenna Long & Aldridge Partner Jay Carey said.

“If you talk to just industry people, they will tell you all this stuff about how the government is wrong on this, wrong on that,” Guerra said. “To be fair to the government, you are throwing these people to the wolves without proper training. That encourages industry to file protests. They are making mistakes, and GAO is overturning them, so what do I have to lose?”

One factor contributing to the rise in protests is the acquisition workforce, which is becoming smaller and losing talent due to budget pressures. A shrinking acquisition workforce dealing with more complicated contracts commits more errors, several analysts said.

Among other things, staffers writing requests for proposals need more training, ImpaQ Solutions President Mark Boster said. “The vast majority of RFP's I've seen have fatal flaws, and the process itself is fatally flawed, making protests easy,” he said. “Why not go after it?”

In addition, policy makers completely fail to appreciate the complexity of federal procurements and the time and talent required from contracting officers, Boster said. As a result, COs do not get the support and training they need.

A protest is especially tempting if the agency is reluctant to say why a particular bidder lost.

Contracting officers are afraid that disclosing such information might be viewed as illegal or used against them in a bid protest, Seville Government Consulting President and CEO Jaime Gracia said. However, that reasoning can backfire. “If you're not telling me what I need to know, I will probably protest to get the information,” he said.

The situation was different 20 years ago. “There were probably fewer procurements and more experienced and better trained people,” Boster said.

Gracia agreed that many of the common problems with contract awards stem from the weak skills of the acquisition workforce.

“The requirements are bad, people don't understand what they are doing, you get a bad award and then you get protests,” he said. “It is more than numbers themselves. You must give them the skill set so that contractors have confidence that awards are done correctly.”

Skills that are lacking include “basic knowledge of how industry functions,” Gracia said. “They misunderstand what a company is looking for or what its goals are. There needs to be a lot more focus on collaboration and communication with industry and in the debriefing process.”

Increased numbers of service contracts, especially commoditized services such as software as a service and cloud computing, particularly tax the acquisition workforce, Mascoloceo said. “It's not where a lot of contracting officers and staffers have a lot of training, so the requirements are less defined,” she said.

Although it is hard to validate statistically that a poorly trained acquisition workforce has contributed to the rise in protests, Mark Colley, Arnold & Porter partner and chair of the firm's government contracts practice, said there is little doubt the workforce has been financially neglected and undertrained.

“It gets beat up,” Colley said. “It's hard to recruit and retain people when they are underpaid, abused, not given raises and promotions, and not given respect. It is becoming a thankless job.”

Protorae Law Member Devon Hewitt said the lack of workforce skills has increased the need for corrective actions in the last 18 months, especially for procurements of less than $30 million.

Agencies assign smaller procurements to less-experienced staff who make more errors such as math mistakes, undocumented discussions, or incomplete source selection documents, she said.

Numerous reports by both public and private entities point to deficiencies in the acquisition workforce.

For example, government procurement executives and practitioners cited inadequate training as a top concern in the Professional Services Council's biannual 2012 survey (98 FCR 651, 12/18/12). The root cause of problems in the acquisition community was the workforce downsizing conducted in the mid-1990s, they said.

Respondents classified negotiating skills as a major weakness of the workforce by a 7-1 margin over those calling it a strength. Front-end acquisition planning--e.g. defining requirements and choosing the correct contract type--also was cited as a significant area of weakness by a large margin.

Intense competition between agencies for personnel added to workforce woes, respondents to the PSC survey said. To entice offers, agencies hired GS-12 staff--viewed as working-level contracting professionals--as GS-13, 14, or 15 employees.

As a result, agencies lost institutional skills while unprepared workers filled higher-level positions.

GAO noted that the Defense Department's acquisition workforce got a boost in 2008 when Congress created the Defense Acquisition Workforce Development Fund (DAWDF).

DOD used the money to hire thousands of new staff but failed to spend 61 percent of the funds available in FY 2011, GAO noted in a June 2012 report (97 FCR 635, 6/26/12). So much was left over that Congress actually reduced funding in FY 2012 by $200 million.

Unfortunately, GAO has found that simply hiring more people will not automatically create a more capable workforce. GAO made the same point in a 2010 report, recommending that DOD develop additional measures to determine the capability of its workforce. DOD disagreed, stating current metrics such as numbers worked.

DOD is not an isolated case. Many federal agencies lack the resources to train staff, or even data regarding which skills are needed or the number of acquisition staff on their payrolls, GAO said in a March 28 report (99 FCR 492, 4/23/13)

The report found that 20 of 23 agencies surveyed identified obtaining adequate funding as challenging. Obtaining sufficient staff to manage training was deemed challenging by 19 of 23.

Almost half the agencies said even identifying the acquisition workforce was difficult, especially because some workers are involved in procurement as a secondary rather than primary duty. Almost one-third of the agencies said they do not track the benefits of training--not even basic end-of-course evaluations.

“The shortage of trained acquisition personnel hinders agencies from managing and overseeing acquisition programs and contracts that have become more expensive and increasingly complex,” GAO said. “As a result, the federal government is at risk for significant overcharges and wasteful spending of the billions of dollars it spends for goods and services each year.”

Out gunned and out classed

One of the big problems with government purchasing (we're only talking about just one here, not a litany), is that government purchasers and contract administrators are often times, and particularly in critical, highly technical or high budget projects, out gunned and out classed by the private sector contractors.  This can be particularly in the so-called PPP arena, which presents a huge opportunity, if not adequately resisted, for contractors to socialize costs and privatize profits of infrastructure upgrades.

We in the private sector know our beans better than the government does.  It can be a huge mismatch to the misfortune of the taxpayers, as I pointed out in cases from Sydney, in one of my other alter egos, here, here and here.

But the government does not have to be as naive as indicated in this story reported by the Hawaii Procurement Institute, Multiple procurement violations in airport project, which is based on the following report from the Acting State Auditor of Hawaii:

Procurement Examination of the Department of Transportation, Report No. 13-04, May 2013

Dependence on and accommodation of contractors subverts the public interest

Airports Division surrendered oversight and management responsibilities to contractor

Especially troubling was the pattern of recurring violations and questionable practices we found in the Airports Division (Airports), which in fiscal years 2009 and 2010 accounted for approximately 30 percent of the department’s total procurements of $417 million and $467 million in goods and services, respectively.

In 2006, Airports hired Parsons Transportation Group, Inc. to manage its 12-year, $1.7 billion program to modernize the Honolulu International Airport. According to Airports, hiring a thirdparty program manager was necessary because the project size and scope are beyond the capabilities of Airports staff. However, we found that Airports not only outsourced its management functions, it also removed itself from parts of the decisionmaking process, surrendering key oversight and management responsibilities.

This disengagement resulted in questionable allowances to the program manager, such as the provision of rent-free facilities and the reimbursement of $570,000 in office renovation expenses and $21,000 for “team-building” training.  [In fairness to the contractor, I have heard stories of heads of departments having similar projects on Guam who have, I was told, demanded that the contractor provide such "training" for staff, in Las Vegas for instance, knowing full well the cost would be passed back to the government under the contract.]

Airports is also unwilling or unable to properly administer and manage contracts that it oversees directly. Again, we found a persistent overreliance on and accommodation of contractors, which often resulted in cost over-runs, time delays, and procurement violations.

For instance, Airports did not procure a new security contract in a timely manner, allowing the original contract to be extended three times, exceeding the original contract term limit by 16 months and $37.7 million. In addition, Airports failed to do a cost analysis for the construction of field offices for projects at the Hilo, Lihu‘e, and Kahului airports. The eventual amount paid for the construction of one individual field office was nearly $1 million, almost 30 times the amount we estimated it should have cost.

It should be emphasized that this is just the executive summary. You'd learn a great deal more by reading the report at the link provided.

In situations such as this where the government lacks the in-house expertise required to ride herd on the solicitation and contract, the government should first consider engaging the services of a consultant with at least equivalent experience to the contractor, and workable knowledge of local procurement law, to advise the government, from solicitation through performance, to make sure the government gets what it has bargained for.  It is just a case of outsourcing needed services, like anything else.  If the need becomes recurring, bring the expertise in-house.

It may cost a bit more, but it may save money, it may save face for both the government and contractor, and to that extent, it would "provide for increased public confidence in the procedures followed in public procurement", in the words of one of the fundamental purposes and principles of the Guam procurement law (5 GCA § 5001(b)(3)).

Canada procurement Ombudsman issues report card

Government-appointed watchdog highlights major problems with federal procurement

A federal watchdog’s new report highlights a series of problems in how Ottawa procures some of its $20 billion in annual goods and services, including complaints about sole-sourced contracts, government ignoring its own rules, and departments doing business with firms known for producing “inferior” work.

The ombudsman’s office is responsible for reviewing complaints on the awarding of federal contracts for goods below $25,000 and for services less than $100,000 (which amounts to 90 per cent of all federal contracts). However, the office can review any complaint on the administration of a federal contract for goods and services, regardless of dollar value, as well as examine the purchasing practices of federal departments and agencies to assess fairness, openness and transparency.

The document highlights two “unexpected areas of concern” with federal procurement, including vendor performance and “the disparate nature” of procurement documents. But it also identifies problems with lack of training among procurement officials, questionable sole-sourcing of contracts among more than 100 federal departments and agencies, and concerns that government favours certain suppliers with its purchasing.

Six years after an optional certification program was introduced, only 26 of the approximately 3,200 procurement specialists working in the federal government have been certified at the program’s first of three levels, and none have been completely certified.

Some small and medium-sized businesses complained the patchwork system of procurement rules throughout the federal government is a barrier to doing business, the report says, while government officials highlighted the inefficiencies of preparing different procurement documents for similar services.

“This fragmented approach within the federal government is allowing suppliers identified as underperforming by one department to successfully bid and be awarded contracts from other departments,” the report says.

NDP deputy finance critic Guy Caron said the report highlights a troubling trend in government sole-sourcing contracts, when more competition should be promoted to ensure government receives good value for the goods and services it purchases. “The fact that we have to have competition means that we should rely less and less on those advance contracts, and we do more and more, which to me signifies a problem,” Caron said.

“What this underlies is the need for more transparency and the need to actually lower the costs of those various goods and services towards competition. I really don’t understand why government is actually going toward more of those (ACAN) contracts.”

Similar: Major flaws in Ottawa's contract bidding process

Evidence that it's not about the rules (in Singapore and elsewhere)

Following on from the last post from Singapore, It's not about the rules:

More procurement lapses uncovered

Many of the procurement lapses by Government agencies were not because of a lack of knowledge of procedures. They were due "more to administrative expediency or preference for certain suppliers taking precedence over financial prudence", according to Auditor-General Lim Soo Ping.

He cited waiving competition on weak grounds, allowing price alterations by certain bidders and not evaluating bids in accordance with specified criteria as examples of such behaviour.

Taking issue with how the agencies treated the role of the approving authorities, Mr Lim observed "quite a number of instances" where the requisite approval of an approving authority was sought after contractual commitment had been made.

"An approving authority is a gatekeeper responsible for ensuring that the principles of open and fair competition, transparency and value for money are upheld. This is not a perfunctory role and must not be treated as such," he said. "On its part, the approving authority, when considering a recommendation ... should seek to be fully satisfied that those principles are upheld and ... should exercise a measure of scepticism in its scrutiny."

The AGO's report said that a number of Government departments had been grossly overcharged for projects, primarily as a result of the inappropriate use of term contracts.

The Singapore Prison Service's enhancement work to the prison cells was one such contract. The term contractor charged SPS 1.6 times the market price for stainless steel perforated sheets and 2.2 times the market price for polycarbonate sheets. This meant that the service could have been overcharged by about S$960,000, said the AGO.

The Health Ministry overpaid a contractor S$830,000 for the foundation work and basement construction of Khoo Teck Puat Hospital. The ministry informed the AGO that it would recover the overpayment from the contractor and would engage an external auditor to check for any similar overpayments.

The Singapore Police Force was overcharged by about S$73,000 as a term contractor overstated work quantities, charged based on incorrect rates, and had submitted invoices for work not carried out. It has implemented measures, such as improving its contract management practices, to prevent the recurrence of such lapses.

High rates of non-compliance with the specifications of street cleansing contracts, valued at S$166.37 million, managed by the National Environment Agency. AGO observed "substandard work" at 15 locations, while cleansing workers did not show up at 190 locations.

In September last year, following the previous Auditor-General's report, the MHA issued a circular to all its departments setting out the principles for the use of the term contracts.

"The circular also reminded Home Team departments that while departments may engage external project managers to manage projects carried out by contractors, responsibility and accountability cannot be outsourced. The final accountability still remains with the project officer in the department," the MHA said.

In its report, the AGO recommended that the Finance Ministry introduce procurement rules to prevent the inappropriate use of term contracts and to ensure that agencies are charged at fair market prices for items not priced in the term contract.

Mr Lim reiterated that procurement officers "should be well imbued with the principles of fairness, transparency, competition and value for money".

Said Mr Lim: "It is, therefore, important that training in procurement also incorporates the imparting of values expected of public officers as custodians and stewards of public moneys. This should be reinforced by the senior management of public sector agencies setting the right tone at the top on governance and financial control matters."

It's not about the rules -- Singapore Deputy PM

Government not satisfied, will improve procurement in public sector

The government is not satisfied with the current state of procurement, Deputy Prime Minister Tharman Shanmugaratnam said.

Mr Tharman said the government is looking at how the process can be improved.

The deputy prime minister, who is also the Minister for Finance, said this means a constant review of the rules and guidelines but most important is compliance with the rules.

The rules by and large are there.

Mr Tharman said: "It's compliance with the rules (that is the issue). This is partly a matter of competence -- we've got to build up the competence of procurement officers. That means not just the way we handle large-value tenders, where the checks are very stringent, but also the other smaller value quotations. The small transactions have to be on the radar screen as well."

Program materials for Guam 2012 Summer Procurement Conference

The Guam Chamber of Commerce links to the Program Materials for Prof. Danielle M. Conway's presentations at the Guam Summer 2012 Procurement Conference are below:

Procurement Planning and Needs Assessment

Market Research & Translating Needs and Research into Effective Specifications

Contract Administration Best Practices

Infrastructure Source Selection: The ABA PIP Model

She also stressed this publication:

GAO COst Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs

The Guam Chamber of Commerce also hosts my 2011 Program Materials for the presentation on the Guam Centralized Procurement Regime:

The Mythconceptions of Procurement Autonomy

Procurement education necessary

Editorial from the Marianas Business Journal, Vol. 10 No.6. Note the link to the article requires subscription to access online.

Procurement education necessary

Kudos to those responsible for the Summer 2012 Guam Procurement Conference at the Hyatt Regency Guam held July 23 and 24. We are encouraged by reports that the conference was well attended and that participants demonstrated both their own knowledge and an eagerness to learn and improve their performance.

As well, it appears that Guam Community College is planning to boost its procurement education program from its current two-week course to, potentially, a procurement institute.

Danielle Conway, professor at the University of Hawaii's School of Law, the main conference presenter, is quite right when she says that government procurement regulations are for the protection of the taxpayers' dollar and the protection of those involved in the process. Unfortunately, though for whatever reason, the failure to comply with those regulations, or allegations of failure to comply get in the way of getting the government's business done.

The myriad of procurement problems that affect services at our schools, our hospital, our port and elsewhere reinforce our perceptions about the inefficiencies inherent in government. Government services are too often held up because seeming obvious solutions cannot be implemented while contracting irregularities are rectified.

Of course, we understand the consequences of inadequate regulation. Money that is not properly overseen is money that will be wasted - stolen outright at worst, inefficiently spent at best. The money that came from everybody is too easily treated as though it belongs to nobody.

So we're happy to see an effort to develop competent procurement professionals, capable of administering the government's procurement regulations fairly, efficiently - and correctly. We are also of the belief that simplified regulations would assist the process.

We don't doubt that she is correct, but we're not encouraged by Conway's reassurance that Guam's procurement problems are no different than anyone else's. One conclusion to be drawn is that the process cannot be improved - surely the problems would not be ubiquitous otherwise.

A more hopeful conclusion, advanced by Conway and by local procurement-education advocate John Thos. Brown, is that no one has yet launched a procurement institute such as is envisioned - potentially making Guam an example for the rest of the procurement world.

Guam Summer Procurement Conference 2012

From the Marianas Business Journal, Vol. 10 No.6. Note the link to the article requires subscription to access online.

Conference success highlights need, desire for procurement education By Frank Whitman Journal Staff

Those attending the Summer 2012 Guam Procurement Conference were "hungry for more information - hungry," said Danielle M. Conway, Michael J. Marks distinguished professor of business law and director of the University of Hawaii Procurement Institute at the William S. Richardson School of Law at the University of Hawaii, and main presenter at the conference.

"That means you have good people that have just not had access to good training and educational opportunities."

The conference was presented by the Guam Chamber of Commerce in cooperation with the Judiciary of Guam, the U.S. District Court of Guam, the Guam Bar Association and the Guam Procurement Advisory Council at the Hyatt Regency Guam on July 23 and 24.

John Thos. Brown, general counsel for Jones & Guerrero Co. Inc., a member of the Guam Procurement Advisory Council, and a conference organizer said that he was delighted with the number and caliber of attendees.

"We had people from a lot of different agencies, from desk clerks to directors," he said. "They showed that we have a strong core of people that know what they're talking about and have a desire to learn more."

Sen. Benjamin J.F. "BJ" Cruz of the 31st Guam Legislature attended the entire conference, and Sen. Shirley A. "Sam" Mabini attended parts of it.

Conway's message to the procurement professionals was to do their work properly from the beginning, she said. "Those of us who are procurement professionals are the stewards of the taxpayers' dollar," she said. "We work for the taxpayer; we have to protect and enforce that obligation. To do that means doing our job properly.

Part of doing the job properly is doing the planning it takes to do a good purchase. ... Do the homework up front instead of waiting for a problem to arise on the back end." Following the correct procedures also protects those who are involved in the process, she noted.

While Conway acknowledged problems with procurement implementation, Guam's problems are no different than those of other jurisdictions, she told the Journal. "If you step back, you realize that you're having the same or similar issues as all of the procurement professionals in the 50 states and the other territories."

Though procurement protests are often viewed as problematic, they are a valuable part of the process, Conway said. "I would hope we have challenges when agencies make mistakes," she said. "Most times industry is in a better position to understand when something has gone wrong."

During her visit, Conway was also a guest speaker at a procurement course at Guam Community College on July 24 and met with college officials afterward. The discussions included the establishment of a procurement institute, which Brown said he has been promoting.

"It's hopeful that we will have a program up within the next six months at GCC," Brown said. "So we can get the people educated who are doing all the paperwork and who are making the decisions, so they understand the rules that are there to protect them and are there to protect the taxpayer."

While no definite plans have been made for Conway's continued involvement with Guam procurement, "We have her number," Brown said.

US Iraq Reconstruction payments ok, but payment for what?

A large amount of money is at risk all along the procurement trail from the time a "need" is identified to the time it is exhausted by consumption of the goods or services procured. Strict budgeting, planning and management controls are needed to make sure the need is indeed that and properly identified. Competitive oversight via effective protest systems give real time policing of the solicitation process. And accounting and auditing work are meant to control the delivery and payments functions of the contract administration end of the procurement lifecycle.

This is a tale of that last aspect of procurement.

Final Forensic Audit Report of Iraq Reconstruction Funds (SIGIR-12-017)

Public Law 108-106, as amended, requires the Special Inspector General for Iraq Reconstruction (SIGIR) to perform forensic audits and issue a final report on all funding appropriated for the relief and reconstruction of Iraq. A forensic audit involves the systematic examination of a program’s internal controls over expenditures and financial data for indications of fraudulent, wasteful, or abusive activities.

This report summarizes the results of SIGIR’s forensic audits and investigations of Iraq reconstruction funds and satisfies the requirement for a final forensic audit report.

SIGIR audits, inspections, and investigations have found serious weaknesses in the government’s controls over Iraq reconstruction funds that put billions of American taxpayer dollars at risk of waste and misappropriation. The precise amount lost to fraud and waste can never be known, but SIGIR believes it is significant. As of June 30, 2012, SIGIR audit reports had questioned $635.8 million in costs, and SIGIR Investigations, working with other agencies, had resulted in $176.84 million in fines, forfeitures, and other monetary results.

SIGIR found few problems in the agencies’ invoice payment processes. SIGIR tested 180,000 DoD Department of Defense), DoS (Department of State) and USAID payment transactions totaling about $40 billion. SIGIR looked for problem transactions such as duplicate payments, payments to fictitious vendors, or inappropriate separation of duties of individuals in the payment process. Overall, SIGIR’s tests found that once invoices were approved for payment, the payments were essentially processed correctly and to valid vendors.

However, because of the internal control weaknesses, government agencies cannot be certain that the payments were for goods and services that (1) were actually received, (2) met contractual specifications, (3) were in accordance with the contract prices, or (4) were competitively priced.

SIGIR audit reports identified internal control weaknesses such as inadequate reviews of contractors’ invoices, insufficient numbers of, or inadequately trained oversight staff, poor inventory controls, high staff turnover, poor recordkeeping, insufficient price competition by subcontractors, and weak oversight of cash disbursements.

For example, SIGIR’s audit of a DoS contract for Iraqi police training program support found that more than $2.5 billion in U.S. funds was vulnerable to fraud and waste as a result of poor DoS oversight. Another SIGIR audit of a DoD contract for warehousing and distribution services found that the contractor’s business systems had not been adequately reviewed. Business system reviews are the government’s primary control to ensure that prices paid are reasonable and allowable.

Weaknesses in internal controls open the door to opportunities for fraud and other illegal activities. As of June 30, 2012, SIGIR investigators, working with other agencies’ investigators, have developed information used to indict 87 individuals and convict 71 individuals for fraudulent activities including bribery, kick-backs, theft of government funds and property, inflated invoices, delivery of insufficient or inferior goods, and bid rigging.

For example, a U.S. Army Captain was convicted of stealing $690,000 intended for security contracts and relief and reconstruction programs. A regional vice president of a logistics company was convicted of a scheme to inflate invoices for military shipments to Baghdad through the firm’s contract. The estimated loss to the U.S. government was approximately $1 million.

Read the full report at the link.

Audit of telecommunications payments and inventories

Audit of Management Controls Within the Network Services Division Pacific Rim Region, Federal Acquisition Service May 30, 2012 by the Office of Audits, Office of Inspector General, U.S. General Services Administration. As usual, you must go to the source for full understanding. This is just an extract.

The Federal Acquisition Service’s (FAS) Network Services Division (NSD) assists customer agencies on a broad range of telecommunication solutions/services. The goal of the NSD is to obtain the lowest aggregate prices for these services through local services acquisition contracts and other acquisition vehicles. The division consists of a Director and a professional staff of 16 area telecommunication managers who are responsible for making sound procurement decisions in fulfilling customer orders. The NSD also uses contract employees to assist in initiating customer orders.

Area telecommunication managers are required to record and complete sales transactions accurately and timely using FAS’s billing system, known as Telecommunications Operating and Payment System or TOPS. NSD’s sales are primarily from monthly telecommunication services (also known as recurring services), which are designated as B13 in TOPS. In addition, area telecommunication managers are responsible for maintaining an accurate and reliable inventory of these recurring services.

WHAT WE FOUND
We identified the following during our audit:

Finding 1 – NSD lacks inventory control procedures.

The lack of control procedures over the Region’s recurring services inventory impedes NSD’s ability to effectively manage its operations. Although NSD maintains an inventory of recurring services provided to customers, it cannot demonstrate that this inventory is accurate or reliable. Nearly a third of the customer base is impacted by errors in the inventory.

Finding 2 – NSD lacks written procedures and management controls over contract administration.

This would include: (1) providing required training to NSD employees; (2) improving personnel management; and (3) improving contract order processing.

The Fair Opportunity Clause (Federal Acquisition Regulation 16.505b) requires contracting officers to take into consideration all eligible vendors when awarding a local services acquisition contract valued in excess of $3,000. While no purchases in our sample met this criterion, we noted that NSD management does not have written policies and procedures to ensure contracting officers understand and comply with this regulation.

OMB requires contracting officers’ technical representatives to complete 40 hours of continuing education every two years to maintain their certifications. However, none of NSD’s four designated contracting officers’ technical representatives met this requirement.

NSD did not clearly define the roles, responsibilities, and expectations for the newly appointed supervisors. Prior to the appointments, two area telecommunication managers (GS-13 grade level), designated as team leaders, were expected to oversee the work of their colleagues even though they had no direct supervisory authority. As such, they are limited to providing advice on best practices but cannot compel their assign staff to follow through on that advice.

We found little evidence of contract oversight despite the fact that independent contract employees initiated 35 percent of the purchases made under local services acquisition contracts during the 9-month period ended June 30, 2011. Therefore, we recommend that management develop procedures to more effectively direct the work performed by independent contract employees.

Of the 11 new customer orders placed during the 9-month period ended June 30, 2011, 10 were placed under the higher priced tariff agreements. As a result, customer agencies are most likely paying more for telecommunication services than they should.

Finding 3 – NSD management needs to establish effective criteria for evaluating staff performance.

NSD provides no differentiation in performance criteria among grade levels and job series within the NSD’s professional staff. No distinction or differentiation exists between grade levels for NSD employees with regard to evaluation criteria. Further, no methodology exists to measure employee performance concerning client satisfaction, which represents 30 percent of an employee’s performance.

WHAT WE RECOMMEND
The FAS Regional Commissioner in the Pacific Rim Region should:
1. Conduct a comprehensive inventory of recurring services (B1) to identify errors, missing transactions, and outdated or expired services.
2. Ensure accurate accounting of the recurring services inventory by developing and implementing written procedures and management controls for training NSD employees on how to update and monitor the inventory.
3. Take action to ensure contracting officers’ technical representatives receive all required acquisition training.
4. Clearly define roles, responsibilities, and expectations for the newly appointed Branch Chiefs.
5. Develop and implement written procedures in the following areas:
a. Compliance with training mandates for contracting officers’ technical representatives.
b. Management oversight of independent contract employees.
c. Compliance with Fair Opportunity requirements under local services acquisition contracts for client requested telecommunication services.
d. Justification to award telecommunication services under tariff agreements.
e. Timely completion of customer orders in TOPS.
6. Re-evaluate and revise NSD’s Associate Performance Plans to accurately reflect employees’ skill sets.
7. Develop and implement a methodology to measure customer satisfaction with employee performance; this methodology should be included in the Associate Performance Plans.

MANAGEMENT COMMENTS
The Regional Commissioner of the Pacific Rim Region concurred with the audit report findings and recommendations.