Promote Excellence in Vendor Performance

Promote Excellence in Vendor Performance

Background

When the government makes a contract, it takes on a privatesector
partner to accomplish a public purpose. The government must be assured
that its partner is reliable by examining its past performance.
Procurement actions should also encourage suppliers to value government
business, provide highquality supplies and services on time and at a
reasonable price, and be compatible with public policy goals.

Need for Change

Improvements in measuring and recognizing a contractor's performance as
part of contract award, as well as improvements in the government's
management of its contracts, will lead to greater value for the
government and taxpayer.

The most important means for improving vendor performance is for the
government's evaluation process in source selection to seriously
consider vendor past performance when making new contract awards.
Evaluation of vendor past performance plays a crucial role in vendor
selection in the private sector. Yet, one of the most unfortunate
features of the current procurement system is that the evaluation
process for making contract awards gives little or no weight to vendors'
past performance on earlier contracts.

Causes of poor quality. The quality of performance the government gets
from its vendors is likely to be significantly worse when:

-- a history of vendor performance is not maintained for use by the
government in awarding future contracts, and

-- the government fails to use a powerful incentive for better
contractor performance by not using information on past performance as
an important factor in making new contractor awards.

The Federal Acquisition Regulation (FAR) requires contracting officers
to consider vendor performance. Nonetheless, most contracting officers
have not used vendor performance data to maximum advantage. Vendors
often have to provide some outside references in a negotiated
procurement but may choose the references to submit. Many line managers
believe references are often not candid for fear of possible legal
liability, and the weight given to vendor references in the evaluation
scoring system is extremely small. Even when limiting outside
references, agencies deprive themselves of the other data most likely to
be accurate and that, if used, exerts the most powerful incentive on
vendor performanceinformation about vendor performance within the agency
itself.

The federal government must also improve its contract management
activities with regard to vendor performance. A Merit Systems Protection
Board (MSPB) study on the quality of the contracting workforce finds
that the distrust built into the present federal procurement system is
not effective in reducing waste, fraud, or abuse, despite its high cost.
In the MSPB study, a contractor states that "increased oversight has
become cumbersome, delayed the process, and has created an atmosphere of
fear and distrust.  This has greatly impacted the decision making
process and has increased overall costs to both the government and the
contractor."1 This one contractor's statement is representative of the
way a majority of contractors view the federal procurement system.

The costs of compliance. A recent study by the Center for Strategic and
International Studies (CSIS) indicates that contractor compliance with
government controls costs three times what commercial companies spend on
administrative costs.2 Burdens that the government imposes on its
suppliers often are translated into higher prices charged to the
government, and sometimes to commercial customers.

In many respects, the success of any procurement action hinges on how
well the contract is administered to ensure value to the government. In
broad terms, contract administration responsibilities comprise fiscal
and cost accounting methods, control of government property, quality
control, production control, pricing and price redetermination where
authorized, compliance with standard contract clauses, subcontracting
consent, and in some cases, contract terminations.

Each agency is organized differently to provide contract administration.
Within the Department of Defense (DOD), there are two specialized
organizations: the Defense Contract Management Command (DCMC) with
19,000 people looking after $750 billion under 420,000 contracts for
25,000 contractors, and the Defense Contract Audit Agency (DCAA), with
6,000 people responsible for about $260 billion in contract audit work.
Civilian agencies often rely on their contracting officer to perform
administration and their Office of Inspector General (IG) to perform
contract audits. However, most IGs use DCAA for some or all of their
audits. The interagency OMB SWAT Team Report on Civilian Agency
Contracting found certain weaknesses in the performance of contract
audit and administration functions.3 An interagency group on Civilian
Contract Administration Services (CIVICAS) was formed to assess
alternative means for heads of agencies to efficiently meet their
responsibilities to ensure performance under properly managed contracts.

Current contract administration activities are not reviewed from a
governmentwide perspective to measure output or value. Defense agencies
are being downsized while civilian agencies are looking to improve their
contract administration practices. There is no coordinating body to set
performance goals or help determine the effectiveness of contract
actions in meeting line manager needs through the contracting process.
While the Office of Federal Procurement Policy (OFPP) could establish
standards in this area, true change will come about only with a team
approach of both the government and its contractors seeking the best
means to meet contract requirements.

Examples of success. One example of the type of program that captures
the tenets of a trustcentered team approach is the ProcessOriented
Contract Administration Services (PROCAS) program developed by the
Defense Logistics Agency. This program works with contractors to
accredit internal control procedures to lessen government controls.
Another example, in the audit area, is Motorola's experience with DCAA.
In 1988, it took one year to get, review, report, and decide on overhead
rates, mainly because the contractor did not always know what the
government wanted.  DCAA worked with internal company auditors in 1989
and cut the total process to five weeks, resulting in significant
savings for all parties. Another cooperative approach to improve
contract administration is the work of the Army's Corps of Engineers to
avoid costly disputes and an adversarial environment in its construction
contracts. Under a partnering concept, which sets out how the parties
will work through any disagreements that arise under the contract, the
Corps has not had a single case of litigation. This helps keeps both
parties focused as a team on the contract goals.

The federal procurement system must take into account vendor
performance, both prior to contract award and during contract
administration, to ensure that agency needs for continuous, reliable
service are met and taxpayer dollars are well spent.


Cross References to Other NPR Accompanying Reports

Reengineering Through Information Technology, IT12: Provide Incentives
for Innovation.

Endnotes

1. U.S. Merit Systems Protection Board, "Workforce Quality and Federal
ProcurementAn Assessment," Washington, D.C., July 1992, p. 39.

2. Center for Strategic and International Studies, Integrating Civilian
and Military Technologies: An Industry Survey (Washington D.C., April
1993), p. 12.

3. U.S. Office of Management and Budget, "Summary Report of the SWAT
Team on Civilian Agency Contracting," December 3, 1992, p.  11.