Government vs. Private-Sector Procurement: An Unfair Comparison

In part one of this three-part series, we look at why we can't always point to the private sector as the model for best practices in government.

by Jack Miles, former Secretary for Florida's Department of Management Services / August 29, 2014

The travails of HealthCare.gov threw the spotlight once again on government procurement, providing the public and pundits alike plenty of fodder for criticism.  

But let’s put things in perspective. The high cost and lack of performance of the HealthCare.gov website is not the sole responsibility of the current administration. It’s just the latest installment in an ongoing series that has brought us the $600 toilet seat, the $100 hammer and the $900 control switch. 

Before we jump to conclusions about government ineptitude and corruption, we must realize that the bigger problem is the system itself. Comparing public and private procurement is not fair, as they are two different processes -- and we get the outcomes our process drives. 

What drives these kinds of outcomes? Having been in both corporate and government procurement, I chalk it up to four things: budgets, management, RFPs and the protest process.

Public vs. private budgets

Government budget constraints sometimes have the opposite of their intended effect because they don’t allow for flexibility. Everybody knows that the economy changes, and business conditions change. In the corporate world, you have more flexibility to respond. You can often move dollars from one budget line to another.

It doesn't work that way in government. Many budgets involve money earmarked for certain things. There is no latitude to move money from one bucket to another, even if doing so could result in efficiencies or cost savings. 

Private-sector management vs. public-sector management

Rigid, procedure-heavy public-sector management makes it nearly impossible to run procurement as fluidly and efficiently as in the private sector. 

In the private sector, procurement works with executive management and a board of directors, maybe 10 or 20 people who have hired the procurement chief for his or her expertise and delegated authority over the function to that person. 

In government, procurement has to deal with a legislative body made up of hundreds of people, all of whom have a say and believe they know how to do the job better. 

In the private sector, rules are in place governing what you can and can’t do -- but some rules can be modified and exceptions can be made. In government, however, the rules aren't just rules -- they're laws, and bending them can land you behind bars. If you don't agree with the rules, you have to work with the legislature to get them changed, which is a crusade unto itself. 

RFPs created in a vacuum

There's really no getting around the rules in government procurement, and this makes for RFPs the size of War and Peace, which often raise more questions than they answer. As we have seen in recent programs such as the Department of Defense’s helicopter fleet procurement, the cost and complexity of responding to these tomes can reduce competition right from the get-go. 

The other dirty little secret is that sometimes RFPs are written with specific suppliers in mind, and the ability of the open market to respond may be limited. 

You also have to contend with the protest process, which puts a chill on collaboration. Because of the protest process -- a challenge to the award or proposed award of a contract -- there’s a tendency to view suppliers as the enemy and avoid them, to avoid opening yourself to charges of corruption or favoritism. So suppliers who bid on a government RFP are essentially taking their best guess at it.

The protest process

Once you understand the protest process, you can quickly understand how the federal government winds up buying $600 toilet seats. In fact, once you understand the protest process, you might wonder why anyone would do business with the government at all.

The way it works is, after a procurement process is conducted and a supplier is awarded the contract, if any of the suppliers who failed to win the contract are unhappy, they can throw a wrench into the works by filing a protest. That stops the award and freezes the entire contract while the protest hearing process takes place. 

“Unhappy” is the operative word. There are certain criteria for filing a protest, but they're pretty broad. One example? That the process was “not fair and appropriate.”

What happens then -- and you have to love lawyers for this -- is through the discovery process, the protesting supplier gets to hunt through all the documentation, which they can then use to prove their hypothesis. The burden of proof is on the government, not the unhappy supplier.

These protests can go on for a very long time. In 2011, for eample, Boeing won a $35 billion contract for replacing aerial fueling tankers after nearly a decade of multiple back-and-forth protests with European Aeronautic Defence and Space Company, the maker of Airbus airplanes, to settle the matter. 

Once the contract is awarded and execution begins, all the unanswered questions surrounding the RFP must be resolved. The supplier and the procuring agency finally get to have conversations with one another, and they start to rationalize what was requested. The actual bidding of the contract may have been competitive, but there's no more competition when it comes to the extras and changes.  

The moral of this story? You can’t make a fair comparison between procurement in the public and private sectors. It’s not a level playing field. Over time, we’ve created a very cumbersome, inefficient system that governs the public procurement process. This bureaucracy has become an entity unto itself, independent of either political party, and it will take both parties working together to change it.

This story is the first in a series of three. Check back for part two, The Government Procurement Protest: There Are No Winners, next week.

Jack Miles is the former secretary for the Department of Management Services for the state of Florida and served as the chief procurement officer of several Fortune 100 firms. He serves on Coupa Software's Visionary Council.

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