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  • How the HHS Buyer’s Club is making procurement a little more personal

    Bloomberg Government regularly publishes insights, opinion and best practices from our community of senior leaders and decision-makers. This column is written by William D. Eggers, Director for Public Sector Research at Deloitte. 

    Government contracting has some well-known problems. There are the underbid projects rife with change orders, the delays, the massive risk when contractors invest in proposals. Winners are chosen not necessarily because they will do the best job, or even a good job, but because they are the cheapest, or have the right mix of small business set-asides, or can navigate the byzantine requirements of a procurement process.

    Take Efraim Diveroli and David Packouz, the “stoner arms dealers” who despite being barely old enough to drink and knowing virtually no one in the arms business, submitted low bids, and won millions in Pentagon contracts to supply weapons to Afghanistan. “There were a lot of suppliers who didn’t know how to work FedBizOpps as well as we did,” Packouz told Rolling Stone. As you can imagine, they mostly shipped illegal or shoddy products, and after collecting a few million dollars, ended up in jail.

    So what’s going wrong? Why is the contracting system so broken? There’s no one answer, but it’s increasingly obvious that the current method traditionally used for procurement and development—which is essentially a very expensive blind wedding—plays a big role.

    Mark Naggar, who manages the innovative new Buyers Club at the Department of Health and Human Services (HHS), describes the conundrum. “It’s basically, ‘Congratulations, you won the award,’ then they drop the mic and walk out of the room. And in six months you get something and realize it’s not what you wanted.” He adds that the energy spent preparing to award big contracts distracts from implementation. It should come as no surprise, then, that implementation is where most projects break down.

    Public sector approaches to procurement are rightly designed to make sure that public money is well spent. This must continue, but in the digital age, money is wasted not by failure but by failing too slowly.  Flaws are inevitable in digital projects but revisions are relatively cheap.

    For procurement officers, the calculus of risks has completely reconfigured.

    Success no longer means finding the cheapest version of a standard product. It means maintaining communication with a contractor, testing regularly, and completing smaller tasks in faster cycles.

    Flexible, fast contracts are a goal of the HHS Buyer’s Club. The Buyers Club is an internal community dedicated to redesigning procurement, especially along the principles of agile development. Members share one quality, says Naggar: they “subscribe to the notion that there are better ways to buy IT services than currently exist.” These innovators are breaking procurement into modular steps, reducing time for proposals and developing deeper relationships with contractors.

    In one case study, a group at HHS needed a new web content management system. Typically, the agency would procure this software in just one stage, pulling the trigger based on reviews of doorstop-sized proposals.

    However, requests for detailed 30-page proposals place a huge burden on contractors, as well as on the agency which reviews all of them. So Naggar’s team instead used what’s called a two-stage downselect approach. This is in effect a deep courtship, a way to distinguish a contractor with a nice story from the real deal.

    How does it work? “In the first stage, all we asked for was an eight-page concept paper and cost proposal,” he said. “After selecting five vendors to go on to the second stage, we gave each a $10,000 purchase order, and asked for a revised cost proposal, a 20-page performance work statement, and a prototype.”

    This means even contractors who lose a bid emerge having made some money and developed an idea. Because modular “bake-off” procurement requires contractors to cooperate with each other, good relationships are important.

    The process is similar to what the Defense Advanced Research Projects Agency (DARPA) has been doing for decades. The agency operates more like an investment firm than a government agency, rewarding the best and most promising ideas with seed money. DARPA’s approach is to ask teams to compete based on an initial design concept. Shortlisted teams are given funding to conduct additional feasibility research or development. Based on their conclusions and concept research, teams are once again narrowed down for a prototyping phase.

    This approach has not just proven to be successful but is also wildly popular. “The evaluators of the program were blown away. They’re used to just reading and reading and reading and not really seeing much,” says Naggar. “Now they can see which contractor better meets their needs, and which one really understands their organization.”

    Of course, all of this has been shared within the Buyers Club. Procurement and development managers across government can read about this use case and study its best practices online—as well as share similar experiences of their own.

    The opinions presented in this column are those of the author and do not necessarily reflect the opinions of Bloomberg Government or Bloomberg LP.