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Feds driving harder bargain at procurement table

Jul. 24, 2011 - 04:08PM   |  
By SARAH CHACKO   |   Comments
"Given the budgetary constraints the federal government is facing today and for many years to come, it is important that GSA contract vehicles offer the best possible value," said GSA's assistant commissioner Mary Davie.
"Given the budgetary constraints the federal government is facing today and for many years to come, it is important that GSA contract vehicles offer the best possible value," said GSA's assistant commissioner Mary Davie. (James J. Lee / Army Times)

After receiving the first round of bids earlier this year from small businesses for a five-year, $10 billion governmentwide information technology services contract, the General Services Administration put the squeeze on.

It sent bidders the median price of all bids by labor category and information on the government's cost range to let them know where they stood and to press them, not so subtly, to lower their bids.

"Given the budgetary constraints the federal government is facing today and for many years to come, it is important that GSA contract vehicles offer the best possible value," said GSA's assistant commissioner Mary Davie, who oversees many of the agency's IT contract programs.

Officially, federal contracting rules encourage agencies to seek "best value," but in practice, lowest cost increasingly is king.

"In the last few years, and probably moving forward, best value hasn't been there," said Larry Allen, president of Allen Federal Business Partners, which consults with companies seeking to do business with the government. "Price or cost has re-emerged as the pre-eminent factor in most government procurements."

Allen said he expects GSA in particular will drive harder bargains with contractors because, as the largest civilian procurement agency, it is considered the standard price setter for government.

A flurry of recent federal policies is pressuring agencies to be increasingly cost-conscious at the contract negotiating.

The White House mandated that agencies cut their contract spending by $40 billion by this year. And earlier this month, it further directed agencies to cut contract spending on management support services by 15 percent by the end of fiscal 2012. If agencies can't cut contracts, they'll have to cut dollars, administration officials said.

At the largest contracting agency the Defense Department acquisition undersecretary Ashton Carter ordered staffs to further cut contract costs by striving for what services and goods should cost instead of what they have cost historically.

Army Contracting Command executive director Jeff Parsons contends that Defense Department agencies are not just pursuing lower prices. They are being realistic about how much more they are willing to pay for better value, he said.

A company's past performance and technical approach are still important, he said. "However, that doesn't mean we're going to pay a large amount of money for what could be a small increase in overall value," he said.

Parsons pointed to the Air Force's competition for the next aerial tanker, which opened with the intention of awarding the proposal with the best value.

If the bids had been within 1 percent, the Air Force said it would have made its decision on the 92 additional requirements for the plane.

But the Defense Department's final decision came down to price when Boeing's bid for the 179-plane, $30 billion contract undercut EADS proposal by more than 1 percent.

Defense agencies have also been instructed to look at multiple-year contracts, particularly those that are sole-sourced, to see what incentives can be added to drive prices down throughout the contracts' duration, Parsons said.

For example, if a contractor can reduce costs over time, it may be able to strike a longer deal with the Army, he said.

"If we can demonstrate that we continue to get better prices or better value for what we're spending our money on year after year, then the necessity to have more frequent competition may not be there," Parsons said.

While shorter-term contracts and more frequent competitions could help keep costs down, they also mean the government has to manage competitions more often and contractors would have trouble making long-term arrangements with suppliers and subcontractors, he said.

Some executives for large Defense Department contractors voiced frustration with the government's approach at a conference of the National Contract Management Association in Denver this month. Federal cost-cutting efforts have evolved into a broader campaign to squeeze company profits and increase risk for contractors, said officers from BAE Systems, Fluor Corp., CACI International and General Electric.

The group said too much focus on keeping costs low can often sour contracted projects. That's because companies often will bid low to win a project, then haggle with their federal customers over uncertainties in the requirements as a way to recoup the money they lost.

Contractor services consultant Tom Reid, who led conference sessions on negotiation techniques, told contractors to question contract terms and to tell contracting officers what the company needs in order to do business.

When managing the risk of a project, trade-offs are usually made in three areas: scope, schedule and cost, said Reid, who directs Navigant Consulting's government contractor services practice in Denver.

The three areas work like a triangle decreasing the size of one side affects the other two, he said. So if an agency is trying to decrease costs, the project's schedule and scope have to be negotiated as well, he said.

Negotiations require the contractor and agency to know each other's objectives and decide if one side of the triangle, such as schedule, is more important than another side, such as cost, he said.

Reid said that level of understanding comes only with improved communication, which has been a point of contention among contractors who say agency officials stay behind closed doors, afraid of the appearance of playing favorites.

The Office of Federal Procurement Policy has been encouraging government contracting officers to communicate better with industry before and after contract awards to better understand what is available and how it should be contracted.

The Veterans Affairs Department's Office of Acquisitions, Logistics and Construction is responding to concerns about contractors' risk by training project managers and program managers how to write requirements that clearly articulate what is expected from the winning company.

In addition to its own acquisitions school, VA started a Technology Acquisition Center staffed with contracting officers trained to manage complex IT requirements and is planning to open a Strategic Acquisition Center for other types of contracting support.

The department has also started meeting with businesses to address contract issues and is looking to establish an Industry Advisory Council to improve federal contracting methods.

Better requirements, work statements and product descriptions also ensure that the contractor can deliver on the agreed-upon price, officials said. Getting those terms in place is often a lengthy process, they said, but it pays off in the end to have clear requirements and metrics for contract performance.

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