Three Hard Truths for Government Procurement Reform

Advancing the innovation agenda within government often means confronting the harsh reality of the government procurement process. This is not a new problem, and there are a number of initiatives underway in governments around the country aimed at “streamlining” or “overhauling” the government procurement process to support the acquisition of new technologies and projects that engage smaller and more nimble companies with new solutions.

The City of Philadelphia, in particular, is engaged in some progressive efforts to use the government procurement process as a means to develop an ecosystem of smaller companies that offer innovative new ideas to longstanding city problems. If the goal of using the procurement process to stimulate (or at least not hinder) innovation inside government is to be realized, reformers in Philadelphia and elsewhere will need to face some hard truths about procurement reform.

Balancing Values

[M]any of the factors that make government procurement processes complex and slow are also things that are intended to produce desired outcomes.

The arguments in favor of reforming the government procurement process bear a striking similarity to arguments used by advocates for overhauling the federal income tax system. Both sets of advocates point to the problem of unnecessary complexity as an element that can stifle innovation or even harm participants. In many instances, the same verbs are used when calling for reform—words like “overhaul” and “streamline” can be used almost interchangeably when talking about tax reform and procurement reform.

The federal income tax system is a useful reference for talking about procurement reform. It is often used by governments as a vehicle for achieving desired outcomes that (as many economists will quickly point out) have nothing to do with an efficient tax system. We imbue our tax code with certain provisions that, we hope, will help achieve outcomes deemed to have broad societal value.

A perfect example of this is the federal income tax deduction for mortgage interest. As a country and a society, we value homeownership over other kinds of investments, so our tax system “rewards” this investment with a special deduction. The objective is to encourage more homeownership because it is highly correlated with desired outcomes, like higher property values and more stable neighborhoods. This deduction comes with a cost, however: it increases the complexity of tax forms, and it increases the effort required both to process these forms and to audit taxpayer compliance.

There are many other examples of income tax provisions that are specifically engineered to produce outcomes with broad social benefits—a myriad of deductions and credits for married couples, particularly those with children; deductions for contributions made to charities; and deductions for interest on student loans. Each of these examples shares two characteristics: they are designed to encourage specific outcomes, and they increase the overall complexity of the system. On an individual level, the cost of these broader societal benefits manifests as more time and effort to comply with income tax requirements.

Procurement processes are similar in many ways. Governments imbue these processes with requirements and other stipulations that they hope will lead to outcomes that are deemed desirable. Each of these requirements adds to the complexity of the process and the burden of firms that choose to respond to government RFPs.

For example, almost every government has purchasing requirements for minority- and women-owned businesses, and many have requirements that local companies receive preference over firms from outside the jurisdiction. The objective is to drive more government procurement dollars to minority- and women-owned businesses and to local businesses that create local jobs and pay local taxes.

There are also larger, overarching values embedded in the procurement process. For example, fairness and transparency are values that inform requirements like the public posting of bids and related materials, ample public notice of vendor meetings, and the clear specification of when and how bids must be submitted.

Risk aversion is another value that impacts the complexity and cost of the public procurement process. It is this value that informs requirements like performance bonds, vendor insurance, scrutiny of company financial statements, and requirements for financial reserves—all things that seek to reduce the risk assumed by governments from engaging with a company to provide a good or service. Each of these requirements can make the procurement process more complex and burdensome for bidders, particularly smaller companies.

All of this underscores the point that many of the factors that make government procurement processes complex and slow are also things that are intended to produce desired outcomes. These features of the procurement process were designed with a specific intent, and few people would argue with the laudable goals they seek to encourage. Yet, one of the side effects of these requirements is that they make the process slower, more complex, and harder for smaller and more nimble firms to participate in.

Efforts to overhaul or streamline the procurement process will undoubtedly run up against the provisions just discussed. Are there ways to streamline the procurement process that don’t require provisions of this type to be relaxed or removed, or are there ways to relax these provisions without compromising the laudable outcomes they seek to encourage? This remains to be seen.

Nimbler Doesn’t Always Mean Better

Simply making the government procurement process “simpler” won’t guarantee that better IT decisions get made

One of the great myths in government IT is that the private sector is always way ahead of the public sector in how technology is used.

In between two tours of duty in state and local government, I spent about ten years in the private sector working for both large and small technology firms. Before joining Code for America as Director of Government Relations in 2011, I worked for four different technology companies headquartered in places as different as Horsham, Pennsylvania; Blacksburg, Virginia; and San Francisco, California. I learned a lot about technology and how to be a software developer during this time, but I also learned that—as far as technology is concerned—the grass is not always greener on the other side.

There are plenty of examples of poor technology decisions in the private sector. We just hear about them less often because they are usually not a matter of public record or visible to the public through a budget submission or legislative hearing.

To be sure, governments around the world have issues with implementing technology, but some of the things I’ve seen in the private sector have been shocking—inexcusably bad decisions made by people who should know better, a complete lack of strategic thinking about how technology is used to benefit the company, and dragging old legacy technology along far past its point of usefulness simply because upgrading would be tricky and complex—the list goes on. The private sector has all of these problems and more. We just don’t hear about them as much.

What my experience in the private sector made exceedingly clear to me is that it is entirely possible (and not very unusual) for private sector organizations, unshackled by complicated procurement processes like those used by governments, to make lousy choices and invest poorly in technology.

Simply making the government procurement process “simpler” won’t guarantee that better IT decisions get made. Governments will still need to think more strategically about how they invest in technology and become better at learning how it can be used to make the delivery of public services more efficient and effective.

A Dearth of Makers Inside Government

If the people who work for government don’t have a clear enough sense of how things get made, they are ill-equipped to evaluate RFP responses from individuals or companies that want to do work on behalf of the government.

My experience working as a software developer for several years, and continuing to work with other developers from a variety of disciplines for years after that, has affected the way I approach problems. Whenever I hear about an application or service or an idea someone has for one, I’m often privately thinking (as I think most people who have worked as developers are), how would I build something like that? This is probably true of most people who have built things for a living.

Understanding how things work and how to build them can be a useful skill when evaluating the level of effort required to perform a service or to solve a problem. This is something software developers do often—estimate the amount of time it will take them (or their team) to complete a series of tasks they have not yet begun. It’s hard to do well. Even software developers who do this often will sometimes underestimate or overestimate the amount of time required to complete a task.

The ability to translate a problem into a series of steps that a person can imagine herself doing is the specific byproduct of making things. This is a problem in government, where, in general, there is a woeful lack of awareness about how things are made and what resources and materials are required to build things. In short, there is a critical lack of makers in government.

This problem is particularly acute when it comes to technology and how governments acquire it, even for needs that should be simple and relatively cheap, like content management systems for websites and web-based applications. The web is now an essential component of how governments deliver services and communicate with citizens, and yet, there are far too few people inside government (including those in the technology discipline) who have a solid understanding of how the internet works.

In just the last few years, the world of software development has seen a sea change that has transformed how web and mobile applications are built. Never before has it been easier or cheaper to build these applications. Yet governments continue to overpay for them (or the services of those firms that build them) because there is very little in-house knowledge of how these things are built.

This is not to suggest that effective websites and useful web applications are easy to build and don’t require skill. They certainly do, but without a fundamental understanding of what the technologies behind these applications are, how they work, and how they are changing, governments cannot distinguish the skilled vendors offering reasonably priced solutions from the shysters.

If the people who work for government don’t have a clear enough sense of how things get made, they are ill-equipped to evaluate RFP responses from individuals or companies that want to do work on behalf of the government. This is especially important for technology procurement, where new software development paradigms can evolve rapidly.

Governments need to place an emphasis on recruiting and hiring people who have experience making things. In addition, governments need to focus on developing the “maker skills” of existing employees. This, by extension, will enhance the ability of governments to evaluate the estimates for work provided by respondents to RFPs.

[Note – this content appeared as part of a chapter I wrote for the book “Beyond Transparency.” If you want to read more, check it out.]

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