The U.S. model for reform

Like New Zealand, the United States government also transitioned away from a lowest-cost bidder approach for technology and other complex purchases in the 1970s. Leaders recognized that straight low cost bidding was too often not producing the best solution to solve issues and improve government service.

The U.S. now uses the Performance Based Acquisition method, similar to New Zealand’s system. Its goal is to generate “[b]etter value and enhanced performance, less performance risk, and a variety of solutions from which to choose,” according to the U.S. government’s Seven Steps to Performance Based Services Acquisition Guide, developed by the Department of Acquisitions and other public and private organizations. The government has used the guide to set goals, such as one in 2006 that 40% of acquisitions costing over $25,000 for the total life of the contract be conducted using the PBA approach. The intent of this process is to shift the paradigm from traditional “acquisition think” into one of collaborative, performance-oriented teamwork with a focus on performance, improvement and innovation.

This guide provides good insight into how to make more effective government acquisitions. Here is a summary of the seven steps:

  1. Establish an integrated solutions team. The public entity needs to ensure senior management involvement and support to clearly define a project’s purpose and goals and obstacles in the way and prevent turf battles within an organization. It’s important to identify stakeholders within the organization and answer: “What do they need, when do they need it and how do we know if it’s good?”
    The U.S. system calls for providing incentives to the acquisition team, in which acquisition performance is linked to members’ performance. Tap multidisciplinary expertise. Members from the core area that is making a purchase, finance and primary users, who will rely on the solution to perform their jobs, should be part of the procurement team. This is in contrast to the traditional method of having IT or the procurement area exclusively run technology acquisitions.
    Define roles and responsibilities. “The team is responsible for ensuring the acquisition satisfies legal and regulatory requirements, has performance and investment objectives consistent with the agency’s strategic goals, successfully meets the agency’s needs and intended results, and remains on schedule and within budget,” the guide says.
  2. Describe the problem that needs solving. The procurement team should ask: Where do we want to go and how will we know when we get there? The contract should improve the agency’s mission and performance goals and objectives, according to the guide. It should define at a high level the desired results, such as fewer defaults on federal loans, reduction in benefit processing time, broader dissemination of federal information, or reduced time to get relief checks to victims. The procurement team should also define what constitutes success.
  3. Examine private-sector and public-sector solutions and let them examine you. The procurement team should do the due diligence to learn about the distinguishing characteristics, strengths and weaknesses of each provider. The federal guide emphasizes focusing less on what the providers say and more on past performance.
    Invite private-sector providers to interview the team. “Competing providers must have access to the integrated solutions team and program staff so that the contractors can learn as much as possible about the requirements,” the guide says. This shows how the different competitors can use their technical ingenuity to best solve the problems and add value.
    Hold one-on-one meetings with the industry. Understand the market positioning of each competitor. Verify if there is any additional information needed to make the best proposal. Let them drive the direction and use this as a means to preliminarily evaluate them.
  4. Select the process. The procurement team should develop a Performance Work Statement (PWS) or Statement of Objectives (SOO). A key is to not specify the requirements so tightly that each competitor submits the same solution.
    In the traditional performance based approach, the PWS, which is more standard, starts with a needs statement. That is followed by a performance work statement and quality assurance plan. An alternative method is to require competing contractors to develop the performance work statement, performance metrics, measurement plan and quality assurance plan – all of which should be evaluated before the contract is awarded. In this method, the SOO is incorporated into the RFP and states the overall solicitation objective. Both processes share a focus on results and outcomes, measurable performance standards and acceptable quality levels. A key is that they provide the objectives to be attained but do not mandate the solution on which to bid. This ensures that contenders will submit innovative and streamlined approaches to accomplish the objectives. As in New Zealand, the U.S. federal system uses a matrix approach to decide the winner. The matrix must capture the following information from the prospective providers:
    • What is to be accomplished as the end result of the contract?
    • What task must be accomplished to give us the desired result?
    • What are the performance standards for completeness, reliability, accuracy, timeliness, customer satisfaction, quality and cost?
    • How will success be determined and measured?
    • What carrot or stick will be offered to the providers and how will standards be enforced?
  5. Decide how to measure and manage performance. Performance should be evaluated by how well the bidder solves the problem outlined in Step 2 and follows the process in Step 4. The federal government recommends using a specific methodology for creating an overall performance and management approach. (See Appendix C)
  6. Select the right contractor. The contractor must have history of performing exceptionally well in the field and have the processes and resources in place to support the mission. The federal guide to Performance Based Services Acquisition recommends using five keys in selecting contractors: (1) oral presentations by the contenders, (2) emphasis on contractors’ past performance in evaluation, (3) consideration of the “best value” in selection of a solution, (4) checking for conflict of interest and (5) management of the contractor’s performance through integration into the solutions team. For more detail on how to conduct each of these steps, see Appendix D.
  7. Manage Performance. The last step of the seven steps of performance-based acquisition is important. There is an increasing realization that “the real work” of acquisition is in contract management. This requires that agencies allocate sufficient resources, in both the contracting or program offices, to do a job well done. Some tasks, features, and best practices are: learn more, keep the team together, adjust roles and responsibilities, assign accountability for managing contract performance, add the contractor to the team at a formal “kick-off” meeting, apply the Six Disciplines of Performance-Based Management™, regularly review performance in a Contract Performance Improvement Working Group, ask the right questions and report on the contractor’s “past performance.”