Procurement and Government Waste

"Use it... or lose it."

The world of federal government procurement covers a realm so esoteric, arcane, and complex that it makes our tax code read like a Dr. Seuss book. The Federal Acquisition Regulation (FAR) serves as the gateway into this world of rules and regulations meant to ensure economy, efficiency, and effectiveness in the procurement of property and services by the federal government.1 Not only is the FAR full of details that most businesses competing for government contracts must adhere to, but individual federal agencies may have their own set of special procurement rules in which contracting businesses are required to comply with.2 An incredible amount of inter-agency "cover your ass" exists with procurement in order to maximize fairness, transparency, and to settle any future disputes that may arise. For example, the Office of Management and Budget (OMB) must approve collecting information from more than 10 people by federal agencies as part of the Paperwork Reduction Act of 1980 (updated in 1995). This has resulted in over 9,000 current requests (as of January 2016) to the OMB for such approval or to amend current requests covering everything from tax questions to a website's "Contact Us" form.3

This level of CYA exists, in part, because the federal government is the largest benefactor of private corporations in the world, spending trillions of dollars in taxpayer money on current and future contracts for products and services by the private sector.4 When you have have the Department of Defense (DoD) expected to spend $1.5 trillion on 80 major defense acquisition programs- some of which the Government Accountability Office (GAO) labels "high risk"- some measure of accountability needs to be maintained.5 All the CYA in the world doesn't solve the problem. Because government procurement is an inter-agency affair, usually spanning at least three agencies (OMB, GSA, and whatever agency is procuring), finding data to hold groups accountable becomes a Sisyphean task in making sure everything is legitimate. Even then, you might run into the problem of everyone involved blaming everyone else for project woes6 Worse still (or not, depending on your perspective), firing an inept contracting officer or project manager is much, much more difficult than firing a poor performing private sector worker; only government appointees are easy to replace.7

On top of the CYA factor, cost overruns, project delays, and poor estimating result in more waste of taxpayer dollars. Analysis of cost growth factors relating to weapon systems shows us that the majority of projects went over budget.8 Outside of weapon systems, we see tons of cost overruns in the realm of IT- from websites built at ridiculous expense to poor planning with the purchase of computer equipment and consumer off-the-shelf (COTS) products.9 Technology is needed to move our nation forward, but between DoD cost overruns, late cancellation of projects, and traditional IT ineptitude, procurement and maintenance of government systems results in billions of dollars in wasted taxpayer money each year.

I would estimate that at least $100 billion of taxpayer money is wasted each year because of procurement and inefficiencies. It's quite possible that two, three, even five times that amount is wasted thanks to Congress' budgeting system. Let's cover some of the details to try and understand where all this waste comes from and, more importantly, how we can try to fix this. Below I go through a number of specific areas of concern, then I follow it up with possible solutions, and finally give you a very rough cost estimate of potential savings and additional revenues justified through those solutions.

Use It or Lose It
Quality of Projects & Cost Growth
Contractor Costs Soaring
Fragmentation, Overlap, Duplication, and Incompatibility
Commercial Item Pricing Is Not What It Seems

Solutions

Potential Cost Savings

Use It or Lose It

"Use it or lose it" represents the budgetary spending mentality across all government agencies outside of the Department of Justice (DoJ). The thinking is that an agency must spend all of the money allocated to it by Congress by the end of the fiscal year or they will lose it; unspent money is to be returned back to the Treasury. When an agency doesn't spend its entire budget, this also signals to Congress that budget cuts are acceptable, thus potentially reducing budget allocation for the next year or future years. This becomes a problem if you didn't need a multi-million dollar project in 2016 but know you will 6-9 months into 2017.

Research, with the aid of the website usaspending.gov, tells us that end-of-year spending surges across most federal agencies.10 Only the DoJ and Department of Energy (DoE) don't see this spending increase because the DoJ is allowed to rollover unused IT budget while the DoE functions as more of a research/maintenance agency that can more easily plan/deal with projects of that type. If an agency planned properly, budgets would be spent evenly throughout the year and we would see contracts awarded on a relatively even basis- around 8.3% of the yearly budget per month. However, with the government's fiscal year ending on September 30th, the rise in contracts awarded in the months of August and, especially, September increase tremendously. Between 2003 and 2013, across all agencies, 16.9% of contract expenditures occurred in September, more than double what it should have been.11 Here is a chart showing August and September expenditures for FY2003 - FY2013 by agency12-

FY2003 - FY2013 Contract Expenditures in August and September by Agency

As can be seen, the trend over this decade of time has been to rush spending at the end of the year. What's even more strange about this is how the Department of State (DoS) continually spends more than 1/3 of its budget in the last month. Now in fairness, the possibility exists that DoS' end-of-year spending is not wasteful, but rather a result of world uncertainty and needing to make sure funds remain for last minute emergencies. However, I don't agree with that line of thinking. If such was the case, we should see a ramp up in spending over the last quarter as a whole, not in the last 30 days of the year. Furthermore, if there was such a pressing fiscal need for foreign policy reasons, Congress could pass a supplemental appropriations bill to cover expenses. On top of that, news articles about wasteful DOS spending have popped up on occasion, deteriorating my belief that such EOY spending may really be "not wasteful."13 The DoS had a $52 billion budget in 2013, so based on the above chart, about $19 billion would have been spent in the last month of the fiscal year. That seems strange, doesn't it?

Quality of Projects & Cost Growth

The mentality behind "use it or lose it" leads to a bigger problem for taxpayers: the quality of projects procured at the end of the fiscal year is often worse than contracts throughout the rest of the year. Again, we turn back to research to understand the dilemma. Quantifying all contracts is difficult- if not impossible- due to our lack of knowledge concerning final product of most government purchases. We can discern quality in one area fairly well: IT. Most every agency embarks on major IT projects at some point, providing a window into data that is relatively consistent across the federal government landscape. The government's IT Dashboard website provides a host of metrics related to costs, contracts, and quality evaluations. Researchers looked at this data which includes quality metrics measuring on-time/on-budget/CIO ratings along with dates of projects to determine how EOY IT spending stacks up. The result isn't pretty, even if the data is from 2010 and earlier14-

EOY IT Quality Ratings vs Rest of Year Quality Ratings

Almost half of IT projects from EOY spending result in poor quality ratings. Year end projects were 2.2 to 5.6 times more likely to fall below the median value of IT projects compared to the rest of the year.15 That is not an efficient or effective way to spend taxpayer dollars.

Outside of IT, quality becomes more difficult to ascertain. No other system is setup to measure "quality" in the same way as the IT Dashboard does. We can, however, look at cost growth factor (CGF) for, say, major defense acquisition programs (MDAP's) that the DoD embarks on. Remember, these are large, multi-year, multi-billion dollar contracts; expecting an accurate estimate up front is impossible. But it is possible to judge costs and estimates as progress is made on projects, which is partially why the DoD has a Milestone Decision Authority that is responsible for all MDAP's.16 The three Milestones which they attribute to all MDAP's are A, B, and C-

  • Milestone A - where potential solutions to a needed capacity are evaluated. This includes looking at a wide array of options for mission effectiveness, operational suitability, cost over the life of the program, risk reduction is conducted, etc.17
  • Milestone B - ensures the technology involved is mature, that the project is still affordable, that a plan exists for continued funding, and the program is certified as being highly likely to fulfill its intended mission.18 Engineering and manufacturing begins so that full systems integration occurs (ie, if a new plane has 12 different systems, all 12 get put into the single plane... in theory).19 All sources of risk are supposed to be sufficiently mitigated to justify full commitment to the program.20
  • Milestone C - this is where the seeking of approval to begin full-on production occurs. It covers supply-chain management, design stability, program lifecycle costs, quality control strategies, and more.21

Or, for those who like picture explanations22 -

DoD Acquisition Process Milestone Process, GAO explanation

CGF typically comes into play during Milestone B, but sometimes occurs in Milestone C once the "kinks" are worked out. A number of reports have looked at DoD CGF, but let me share this chart from a 2008 RAND report on the Source of Weapon System Cost Growth23 -

RAND Cost Growth Factor char for 46 completed MDAP projects

The majority of the completed weapon systems looked at came in 25-150% over expected cost with almost a quarter of those projects more than double. We can't say for sure whether this is all "waste" but, generally, if a project is more than 25% over budget, I take the view that something has gone wrong in the efficiency category.

That was 2008. Consider a more recent report by the DoD in which they cover Nunn-McCurdy breaches.24 Nunn-McCurdy assessments have been in use by the DoD for decades to measure cost overruns. Two types of breaches are reported by the DoD; a significant breaches occurs when cost is 15% higher than the current baseline projection or 30% higher than the original projected cost while critical breaches occur when costs are 25% higher than the current baseline projection or 50% higher than the original projected cost.25 Since 1997 there have been 90 total breaches and since 2006 there have been 43, with an average of 5.4 breaches per year.26 The DoD says it's too early to see if the decline in breaches from 2013 means they're on a downward trend.27 Here's a partial chart from the DoD's 2014 performance report28-

DoD Nunn-McCurdy Numbers from 2014 Performance Report

It should be said that programs with a breach of 50% or more should be terminated by Congress. However, these days, all the Secretary of Defense has to do is notify Congress of the breach, present a plan to correct the program, and certify that the program is essential to national security- a process which occurred back in 2010 with the F-35 Joint Strike Fighter program.29 The F-35 program has gone from a breach of 57% to 89% as reported to Congress in 201430 (though, in fairness, costs have since stabilized a bit).31 Not all breaches are bad. Sometimes a breach may occur because the US orders more of a product/service, such as with the Joint Direct Attack Munitions program which saw a 13% (~$939 million) increase due to the ordering of 31,509 more tail kits for the weapons to combat the Islamic State.32 Still, all breaches and costs need to be taken seriously with the public being made fully aware of the quality of the product in relation to the costs incurred.

The GAO looked at DoD Selected Acquisition Reports (SAR's) in 2011 to determine sources of Nunn-McCurdy breaches across MDAP's. Almost half (48.7%) of factors cited as being responsible for program breaches since 1997 fall in the categories of engineering/design issues, schedule issues, or revised estimates.33 A full chart taken from the 2011 report (the latest I could find) is below34

DoD cited factors for Nunn-McCurdy breaches in MDAP

Revised estimates are factors that relate to other issues. When an engineering/design issue arises such as the assumption of COTS radio technology being available for a program when that was not the case at all (which is what happened with the Army's WIN-T system), cost go up which causes estimates to go up.35 In short, a good chunk of the problem is either poor definition of the requirements in the first place and/or unrealistic goals from a functionality/timeline perspective. I can tell you as a developer that these issues also exist in the private sector. It's one of the more difficult problems to address. But we must try!

Fragmentation, Overlap, Duplication, and Incompatibility

Another major point I wish to bring up before tackling solutions are those involving fragmentation, overlap, duplication, and incompatibility amongst federal agency efforts. Starting in 2011, the GAO released annual reports detailing opportunities the Executive Branch and/or Congress could engage in for cost savings and/or revenue enhancement. The fifth report was released in April of 2015. GAO's definitions for fragmentation, overlap, and duplication are as follows-

  • Fragmentation - circumstances in which more than one federal agency (or more than one organization within an agency) is involved in the same broad area of national need and opportunities exist to improve service delivery.36
  • Overlap - when multiple agencies or programs have similar goals, engage in similar activities or strategies to achieve them, or target similar beneficiaries.37
  • Duplication - when two or more agencies or programs are engaged in the same activities or provide the same services to the same beneficiaries.38

Since 2011, the GAO has identified about 440 actions that can be taken by the federal government to bring about increased efficiency and effectiveness. They even developed the GAO Action Tracker website for opportunity/action lookup. In the GAO's 2015 report, 86 actions and 20 new opportunities are discussed ranging from consumer product safety oversight fragmentation across multiple agencies to duplication in the DoD's US Family Health Plan (USFHP) and TRICARE Prime benefits. I won't list out all the actions and opportunities from the report, but needless to say, there are tens of billions of dollars in potential cost savings and revenue generating areas that can help government operate like it should. I highly recommend reading to report- or skimming it at the very least.

Incompatibility is not a category the GAO addresses, but it is one I want to mention. The ability of systems to integrate and talk to one another in the IT world is critical; our government's infrastructure is no different. When IT projects are developed, there doesn't seem to be any care given for compatibility with other agency systems. This leads to procurement problems and government waste. It also can leave us with a poor system infrastructure for years until the next contract.

As I mentioned in my healthcare reform thesis, the DoD recently procured an electronic health record (EHR) system. They went closed-sourced with a solution. This presents a problem as the VA uses a totally different EHR system, which results in healthcare woes for veterans and military service members. It's been labeled a "high risk" area by the GAO with over $500 million spent on trying to make compatibility work before both agencies gave up on the order.39 It remains a critical component to making military healthcare more efficient and less costly, something our current and former patriots absolutely deserve from their government.

The DoD and VA are not alone in the incompatibility department. Government agencies as a whole tend to live in microcosms. The left hand doesn't necessarily know what the right is doing. Incompatibility in the world of IT yields increased overheard, mixed system use across organizations, and little care for data interfacing. The Obama Administration, to its credit, has taken the initiative with their data.gov push and CIO hires.40 But more can- and should- be done.

Cost of Contractors

It's no secret that the federal government spends billions of taxpayer dollars on contractors. What is less known is the pricing paid to said contractors. The GSA's "startup" group, 18F has built a nice cost calculator for all government and non-government managers to review in determining "market rates" based on awarded hourly rates from various GSA schedules. This tool is available at https://calc.gsa.gov/. I use the term "market rates" loosely because, upon reviewing the calculator, I see some outlandish pricing for some contractors. SEO Level 1 folks billable at $806/hr? Transcription services for $826/hr? There are rates listed here for high school graduates that have no experience for over $300/hr. I can't think of anyone who just graduated high school that should be paid that much money on a contract. Maybe that's the cynic in me. In case you were curious how these rates compared to the rest of the country, the Bureau of Labor Statistics (BLS) shows the highest mean hourly wage as only $118/hr.41

Worse still, Congress has taken it upon themselves to be more wasteful and more free with taxpayer money concerning contractor compensation. Caps on compensation had more than doubled since 2004, from $432,851 to $952,308 in 2012 thanks to the conditions dictated in 41 USC §112742 and nearly quadrupled between 1997 and 2012 before the NDAA brought it back down to $487,000 in 2015.43 The cap amount is determined by reviewing compensation for the 5 most highly compensated employees in management positions at each home office and each segment of the contractor.44 Everyone is aware of income inequality concerns and this type of compensation cap doubles down on both inequality and waste of taxpayer money at the same time. The Obama Administration has asked for Congress to cap such compensation across the board, but Congress doesn't seem to feel that to be an issue after the last time it was lowered.45 Maybe it's because of the lobbying problems, or again, maybe I'm just a cynic. Either way, it needs to be fixed.

Commercial Item Pricing Is Not What It Seems

The current DoD Defense Federal Acquisition Regulation Supplement (DFARS) uses a definition of "commercial item" to mean a good or service offered to the general public, but not necessarily sold to the general public or offered at current market prices. This leads to billions in DoD procurement waste as, for example, when the Air Force spent $860 million on "spare parts."46 Outdated pricing models instead of current market values undermines the tax dollar. The DoD sought comment on establishing reasonable pricing for commercial items, but unfortunately, in December of 2015, closed the issue.47 Congress's recent National Defense Authorization Act (NDAA) for FY2016 currently includes provisions that allow for prior costs of commercial items procured to be considered valid for subsequent purchases.48 In other words, if the DoD spent $1 million on new tech in 2008 and that tech has evolved to the point where it can now be had for half that price, $1 million will still be considered "reasonable" for commercial item procurement purposes.

Solutions

To quantify every single possible solution for every actionable item that makes government more effective, more efficient, and less wasteful is impossible for any one man to do. I apologize for that. But we can discuss overall solutions along with some specifics to convey the general direction solutions should take. I am happy to say that government over the last five years has already been taking steps towards improving procurement and eliminating waste. Let's continue down that path:

  • Keep Up with GAO Reports - the GAO releases an annual report with actionable items and opportunities to improve government efficiency, effectiveness, and even to enhance revenue. These are items that need to be addressed by both the Executive Branch and by Congress. Billions of dollars in savings and revenue are available without having to cut or raise taxes. That's a good thing. Address them.
  • Allow Limited Rollover of Budgets - EOY spending sprees waste money, but agencies will lose what they don't spend as mandated by Congress. Worse, Congress may lower budgets in subsequent years under the perception that an agency does not need that much money the didn't spend it all in the first place. The result is excess spending on projects and worse quality due to last minute "needs." My recommendation is to allow 20% of the allotted budget to the rolled over into the following fiscal year, separate from regular budget allocations. This special rollover fund must then be used in the following fiscal year or it gets returned to the Treasury. This keeps agencies from stockpiling allowances while preventing most EOY spending sprees (more time to spend said money). Mid-year budget reports would be required to discern what kind of rollover- if any- agencies are looking at along with the budget management levels of sub-agency groups. If a sub-agency constantly comes in under budget or over budget, that would be made known for remedy.
  • Develop MDAP Metric for Quality - we already have Nunn-McCurdy breaches and research discussing CGF in MDAP's, but there is no metric that exists for measuring overall quality like there is for IT projects. Cost is only a partial metric, given that CGF and Nunn-McCurdy breaches don't cover specifics (ie, we don't know if orders were increased which lead to CGF increases). This metric should be more encompassing. Perhaps a multi-part metric issued at Milestone B and Milestone C. This way we can review a MDAP's complete picture. Projects failing to reach a certain threshold of quality would be terminated, without the SecDef being able to justify said program for national defense.
  • Terminate MDAP's with Critical Nunn-McCurdy Breaches Not Related To Quantity - as mentioned previously, when the government increases orders of a product, the cost estimates increase over baseline. This can lead to a Nunn-McCurdy breach. That may or may not be acceptable, depending on the product, how many extra units were ordered, etc. Breaches that occur outside of the product quantity realm showing a cost per unit increase of over 50% from baseline should be terminated. To estimate that poorly either means the product and/or components behind the product aren't mature or someone is terrible at their job, neither of which are good for multi-million/billion dollar contracts.
  • Reform Contractor Compensation Cap - the current compensation system wastes taxpayer dollars thanks to the huge increases in executive compensation. $250,000 in 1997 was already a lot, $950,000 in 2012 was too much, and the current rate of $487,000 is still ridiculously high. I thus propose a cap of $230,700 across all contracts (civilian and defense)- the same salary as the Vice-President of the United States. Exemptions could be made on a case-by-case basis, in writing and available for public review. Americans helping America should be compensated, but also shouldn't stick it to their fellow countrymen. That amount is still plenty of month for a nice home in the DC Beltway area.
  • Fix "Commercial Item" Price Reasonableness - the DoD should not have caved to lobbyists in foregoing rules on price reasonableness. Just because someone paid $2,000 for a television in 2008 doesn't mean the contracting officer should consider such a price today as "reasonable." Congress is also to blame for this problem with the FY2016 NDAA. The change I'm requesting is simple: anything designated as a commercial item (good or service) must be actually offered to the general public and contractors must include "uncertified" pricing or pricing data when certified cost or pricing data is not required. Additionally, any consideration for "previous procurement" that the NDAA or similar laws have should be limited to the past 3-5 years. This gets to the spirit of the proposed DoD procurement rule that was done away with in December 2015. It will help establish reasonableness in cost and save billions of taxpayer dollars.
  • Have 18F Spearhead More IT/Data Initiatives - 18F is a GSA group focused on improving government data, development, and digital services. Relatively new (est. 2014), they have been making great strides in aggregating and offering guidance to the federal government through their modern, agile development approach. Such flexibility and openness is exactly what we need more of. Tons of information is out there to be distilled, a lot which resides on data.gov; 18F has the potential to be the federal government's "tech group" that brings IT projects of all types into the 21st century. Many improvements can be done to the data/interfaces of the BLS, BDS, BEA, and others for ease of access; more API's can be created for citizens to engage with the data directly; contracting officers and project managers could access a repository of all agency RFP's to search for similar project and learn more of what may or may not be necessary. Tons of opportunities exist here. I love what 18F has done thus far and wish to see them take the lead in future endeavors.
  • Expand Open Source Usage - this affects multiple areas of government. Open source allows for increased integration. If a system needs to behave a certain way, it can be configured as such. I cannot stress enough how much cleaner and efficient IT projects go when you aren't trying to force functionality on a project that wasn't designed for it. Open source will affect procurement because situations where agencies spend billions on closed-source systems that fail to integrate with other systems they need to integrate with, such as the DoD did with their healthcare system procurement in the summer of 2015, would no longer be a problem. This saves taxpayer dollars and improves both government efficiency and effectiveness, two critical components for reducing overall government waste. Also consider the money saved when you don't need to pay millions in licensing fees for software (operating systems, databases, etc).
  • Mandate Compatibility - the prime example of this, to me, is the DoD's and VA's troubles with interoperability thanks to their electronic healthcare choices. They spent over $500 million trying to fix the issue, only to give up and go their separate ways.49 This means our soldiers and veterans cannot get the kind of care they both need and deserve. The DoD and VA are not alone in this capacity. Our military branches waste billions when they destroy surplus ammunition even though other branches can use them.50 Again, it's the lack of interoperability that cripples agencies and leads to waste. All government agencies should be adhering to IT standards and modern development protocols in order to maximize interoperability. I would have compatibility between inter-agency "like systems" mandatory. This will be easier to accomplish with the open source drive as well.
  • Review SaaS costs and Forced Updates - the current trend in computing is "the cloud." The cloud is nothing more than servers at some other location. What's dangerous with this cloud/software-as-a-service model, is that long term cloud costs can easily outpace non-cloud costs. Worse, companies like Microsoft are moving towards forced updates and cloud models, most likely because they understand $60/yr for Office 365 yields more revenue over 5 years than $110 for a copy of Office 2007 that gets used for 5 years.51 Don't get me wrong; leveraging cloud technology and virtualization within the federal government is a must. Costly external cloud systems, however, should be thoroughly reviewed before commitment.
  • Listen to Military Leaders - Congress can sometimes be influenced by lobbyists. What ends up happening are "contractor bailouts," where our representatives mandate the DoD procure equipment it may not need. A widely reported on example of this is Congress' insistence on the Army spending $100+ million on Abrams tanks the Army insists it doesn't need, but this has also occurred with drones and ships.52 Appropriation Committees need to start listening to the military leaders instead of forcing money down their throats for services and equipment that may not be needed. Trust what those in charge of implementing strategy have to say.
  • Remove Problematic Government Employees - government work is long thought of as the most stable job possible. I've personally witnessed generals being cussed out and treated poorly on multiple occasions because removing problematic workers is difficult under 5 USC §2301.53 Most every company knows that, unfortunately, firing employees is sometimes required. It should be no different in government. I'd change 5 USC §2301 to include language that accomplishes this. What exactly that might be is tough to say; it needs to be tough but fair. I'm sure Congress can devise an accommodating policy. Such actions would create more openings, remove lazy/incompetent workers, and ensure that the existing workforce is worth the taxpayer dollars they are paid in.
  • Hire Competent Government Personnel - just like removing problematic personnel is important, hiring the right people is crucial as well. Without properly educated, trained, and/or knowledgeable staff, it becomes easy for a contractor to "convince" them that timelines on projects need to be much longer, that costs must be that expensive, and more. Even having talent capable of better planning before issuance of a RFP would go a long way in ensuring requirements don't change after the fact. Schedules and estimates need to be realistic. Getting young, fresh talent in government is difficult, but I think opportunities exist to bring those folks into the fold.54 For example, in my discussion on the cost of higher education, I offered up the ability to pay off student loans tax free for community service and/or government work. Changing the culture of government while easing the burden of (ridiculously high) student loans should go a long way towards luring smart, talented individuals into serving their country. Our military men and women protect us from foreign adversaries; let our government workers protect us from the domestic ones who put profit ahead of all else.
  • Streamline Procurement For More SME Involvement - small and medium enterprises (SME's) are the lifeblood of America. Most all job creation in the US occurs because of startups and small business. As such, providing more opportunity towards those folks in the government procurement arena is critical. It creates competition amongst existing firms and creates jobs when individuals can offer goods/services at a better value. The current procurement process through the GSA- from SAM.gov registration to GSA scheduling- needs a 21st century overhaul. The current system is ridiculously cumbersome and overly confusing. This will not be quick nor will it be easy. It may need to be done agency-by-agency over a decade or more. The cost in dollars would not be tremendous to implement, but the cost in hours is quite high as there are thousands of stakeholders and thousands of rules (good and bad) to take into consideration. Still, governing is an iterative job; we need to tackle this sooner rather than later. This is a prime example of something 18F could take the lead on.
  • Fix the Paperwork Reduction Act - this law is a product of the Carter era and, while good intentioned, yields incredible government overhead in the modern world. To design a form for a webpage could take a few hours of coding, but that same form will require weeks or months of correspondence with the OMB to ensure compliance because of this Act.55 Even use of social media is hampered because correspondence can be misunderstood as "information gathering" and incur OMB's wrath. In today's tech-driven society where valuable input is at our fingertips, waiting months to ask the public a question or request feedback is absurd. The Act as a whole needs to be adjusted for modern usage. Reform coupled with other streamlined procurement processes will remove overhead, regulations, and save billions.56

Potential Cost Savings

Quantifying an exact amount that could be saved through procurement reform and curbing certain wasteful aspects of government is no small feat. Accuracy cannot be guaranteed. Changes may lead to unforeseen consequences that reduce savings more than expected. As such, consider this a very rough ballpark figure based on the following criteria:

  • Savings from GAO Reports - $38.2 billion57
  • "Use It or Lose It" Budget Rollovers - $55 billion58
  • Reforms to DoD/MDAP Procurement - $15 billion59
  • Curb DoD Waste/Promote Inter-Branch Sharing - $5 billion60
  • Lowering Contractor Compensation Cap - $440 million61
  • Change Commerical Item Reasonableness Rule - $3 billion62
  • IT Procurement Reform/Better IT Practices - $10 billion63
  • Paperwork Reduction Act Reforms - $30 billion64

Total Estimated Savings: $151.64 billion / year

While not enough to fix major concerns in America (healthcare and education costs) by itself, it's a decent start! That's $151 billion in budget savings without raising/lowering taxes or making changes to necessary programs like Medicare and Social Security outside of fixing wasteful parts outlined in GAO reports. Remember, this is just a very rough ballpark estimate. It could be lower or it could be much higher. My guess would be higher considering the revenues available from proper IRS tax enforcement the GAO outlines and down-the-road efficiencies we will setup ourselves up for.

 

(1) See The Office of Federal Procurement Policy Act of 1974

(2) For example, the Department of Housing and Urban Development has its own 100+ pages of procurement legalese on top of the FAR's while the DoD has the DFARS or Defense Federal Acquisition Regulation Supplement.

(3) OMB provides a XML formatted report (updated daily) on their website for all such requests. Given it's machine readable and not human readable, I loaded it up in Visual Studio and checked for tags. There were 9,372 such tags on 01/02/2016. See OMB XML Report page for source files. To understand what kind of information needs to be collected, see The Paperwork Reduction Act and Informations Collections Policy from the Department of Commerce who explains it pretty well.

(4) Consider that the federal government currently brings in over $3.4 trillion a year in tax revenue, spends most of it on social security and healthcare (Medicare/VA/DoD healthcare/etc) programs, and then uses a large chunk of the remaining amount to procure new systems, update current ones, or pay for existing contracts. Contracts might be for a new website, some medication, bulk orders of printer ink, gasoline for fighter jets, or even just blank paper.

(5) See DOD Weapon Systems Acquisition under the GAO 2015 High Risk Report.

(6) See Everyone blames someone else as classified military smartphones lack patches. This story is procurement related because the US military needs reliable and secure smartphones and the contract for such (in this case, cheap Android phones) failed due to patch delays for said phones. Military personnel blame the mobile carriers, the mobile carriers blame suppliers (ie, Samsung), the suppliers say they already provided the fix, and so on. Meanwhile, security is at risk and over $1 billion in taxpayer money is being handled poorly due to this situation.

(7) Under 5 U.S. Code §2301 - Merit system principles it says "Employees should be retained on the basis of the adequacy of their performance, inadequate performance should be corrected, and employees should be separated who cannot or will not improve their performance to meet required standards."

(8) See Historical Cost Growth of Completed Weapon System Programs by RAND, PERFORMANCE OF THE DEFENSE ACQUISITION SYSTEM 2014 ANNUAL REPORT by the DoD, Sources of Weapon System Cost Growth - Analysis of 35 Major Defense Acquisition Programs by RAND.

(9) Recovery.gov is a good example. It cost $18 million over 5 years. As a tech guy, when I see that much money going towards a website that just has to read and render data already in existence (which was the case here), I can't imagine what all that money went to. It should have been under $1 million, easily- unless SharePoint licensing and integration costs drove up the price. Healthcare.gov is another website where costs transcended anything "real world" developers in the private sector could imagine, costing anywhere from $600 million to $2.1 billion depending on who you ask. The federal government as a whole spends over $50 billion each year on IT (hardware, software, telecomms, security, and professional IT services) through tens of thousands of contracts and orders, resulting in fragmented, inefficient procurement. See Recovery.gov Version 2.0 $18 Million Contract Awarded and this redacted contract document for recovery.gov, then How much did HealthCare.gov cost? (Part 2), and finally Building on Progress: Improving the Way the Government Buys IT.

(10) See Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal Procurement from the National Bureau of Economic Research. See also Curbing the Surge in Year-End Federal Government Spending: Reforming "Use It or Lose It" Rules from George Mason University's Mercatus Center which is a little more up-to-date research on the topic.

(11) See Curbing the Surge in Year-End Federal Government Spending: Reforming "Use It or Lose It" Rules from George Mason University's Mercatus Center.

(12) Ibid.

(13) See State Department Buys Million Dollar Granite Sculpture from Irish-Born Artist for several year-end examples of questionable spending.

(14) See Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal Procurement from the National Bureau of Economic Research.

(15) Ibid.

(16) See Milestone Decision Authority (MDA) for a more detailed explanation of MDA's and their role with MDAP's.

(17) See Materiel Solution Analysis (MSA) Phase for more details. AcqNotes' Milestone A page also provides mandatory requirements for the Milestone.

(18) See Materiel Solution Analysis (MSA) Phase for more details. AcqNotes' Milestone B page also provides mandatory requirements for the Milestone.

(19) See Defense Acquisitions: How DOD Acquires Weapon Systems and Recent Efforts to Reform the Process for a more detailed explanations.

(20) Ibid.

(21) See Milestone C from AcqNotes for a more information. Defense Acquisitions: How DOD Acquires Weapon Systems and Recent Efforts to Reform the Process also has information on Milestone C requirements.

(22) See DOD COST OVERRUNS - Trends in Nunn-McCurdy Breaches and Tools to Manage Weapon Systems Acquisition Costs from the GAO (2011).

(23) See Sources of Weapon System Cost Growth - Analysis of 35 Major Defense Acquisition Programs by RAND.

(24) Named after the sponsors of the legislation- Sam Nunn and Dave McCurdy. See Nunn–McCurdy Amendment on Wikipedia. The measurements are meant to signify awareness of cost overruns and, ultimately, project termination.

(25) See PERFORMANCE OF THE DEFENSE ACQUISITION SYSTEM 2014 ANNUAL REPORT by the DoD.

(26) Ibid.

(27) Ibid.

(28) Ibid.

(29) See F-35 Joint Strike Fighter (JSF) Program from the Congressional Research Service.

(30) Ibid.

(31) See F-35 Costs Stabilize, Army Program Breaches.

(32) Ibid.

(33) See DOD COST OVERRUNS - Trends in Nunn-McCurdy Breaches and Tools to Manage Weapon Systems Acquisition Costs from the GAO (2011).

(34) Ibid.

(35) Ibid. According to the report, the cost was understated by $1.3 billion or about 160% as of mid-2008.

(36) See Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits from the GAO 2015 Annual Report.

(37) Ibid.

(38) Ibid.

(39) See High-Risk Series - An Update from the GAO.

(40) See Open Government Directive from the White House (2009).

(41) See May 2014 National Occupational Employment and Wage Estimates United States from the BLS. This is the most current estimate.

(42) See Contractor Compensation Cap per Statutory Formula from the White House Office of Management and Budget.

(43) See Federal Register / Vol. 78, No. 233 / Wednesday, December 4, 2013 / Notices for the OMB notice about compensation. It was capped at $250,000 in 1997,

(44) See 41 USC §1127: Determining benchmark compensation amount.

(45) See Federal Register / Vol. 78, No. 233 / Wednesday, December 4, 2013 / Notices for the OMB notice about compensation. It was capped at $250,000 in 1997,

(46) See Commercial Contract for Noncompetitive Spare Parts With Hamilton Sundstrand Corporation (D-2006-122).

(47) See Open DFARS Cases as of 12/7/2015. The issue was 2013-D034, "Evaluating Price Reasonableness for Commercial Items."

(48) See Text of the National Defense Authorization Act for Fiscal Year 2016, Section 851 on Procurement of commercial items.

(49) See Outcome-Oriented Metrics and Goals Needed to Gauge DOD's and VA's Progress in Achieving Interoperability from the GAO.

(50) See Report: Pentagon to destroy $1B in ammunition. The anecdotal stories of soldiers who go on "spend ex" exercises at the end of the fiscal year are also numerous. Those are when all excess ammunition is shot in order to ensure the next year's order doesn't get cut. But when a request from one military branch needs to be written and then re-digitized into another branch's system in order for a surplus exchange to occur, you know there are interoperability problems.

(51) See Skylake users given 18 months to upgrade to Windows 10. Microsoft is pushing towards Windows 10 upgrades, going so far as to say newer CPU's won't be supported on earlier Windows versions. That's absurd in my mind and limits the federal government from an IT standpoint, unless more money is spent on upgrades. The goal should never be forced government spending.

(52) See Pentagon Tells Congress to Stop Buying Equipment it Doesn't Need and Senate Panel Funds Ships, Drones Military Doesn’t Want

(53) As mentioned in an earlier endnote, under 5 U.S. Code §2301 - Merit system principles it says "Employees should be retained on the basis of the adequacy of their performance, inadequate performance should be corrected, and employees should be separated who cannot or will not improve their performance to meet required standards."

(54) See U.S. Struggles to Draw Young, Savvy Staff.

(55) See The Paperwork Reduction Act: Research on Current Practices and Recommendations for Reform. The delay in approval is considered an indirect cost, with this paper reporting delays of 6-9 months on matters for public comment.

(56) See Paperwork Reduction Act (PRA): OMB and Agency Responsibilities and Burden Estimates from the Congressional Research Service (PDF hosted by the NY Times). See also INFORMATION COLLECTION BUDGET OF THE UNITED STATES GOVERNMENT from the White House. Using the 2013 hours estimate of 9.45 billion hours at the $40/hr rate from the CRS, that's about $378 billion spent on paperwork/information collecting. The majority of this is due to the IRS and tax collection.

(57) Achieved by adding up and estimating the various cost savings as determined by Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits in the GAO 2015 Annual Report

(58) With the rollover effect, it's estimated that 13% of budget outlays could be saved. With about $1.1 trillion in discretionary spending for 2015, assuming not all of that is part of the budget outlays for various reasons, I settled for 5% of the total to represent the 13% theoretical savings. It could easily be more.

(59) These savings would be a result of quality control mechanisms, better planning, and more realistic milestones. Halting projects with Nunn-McCurdy and quality breaches would probably save $1-5 billion a year by themselves if not more.

(60) Not only does this involve the exchange of excess supply, but also changes to the culture that allows for better planning in the first place (unrelated to procurement/MDAP's)

(61) While not a "billion" dollar number, $440 million is still a lot of money. This estimate is based on the GAO's Information on the Impact of Reducing the Cap on Employee Compensation Costs report from 2013.

(62) DoD waste alone shows many incidents where hundreds of millions are spent due to bad pricing mechanisms. Factor in waste from other branches to get my estimate on savings.

(63) It's said that the federal government spends more than $9 billion on software purchases each year as part of their $50+ billion IT budget. Couple that with the tens of billions spent on maintaining legacy systems (hurray, COBOL) and not only is IT antiquated, but it wastes money. Even if it costs $5 billion to fix, that's less than it would cost to maintain and repair old systems. Of course this assumes the "fixes" are done in a proper fashion, not with traditional government procurement involving hundreds of millions on websites. This estimate I give for savings is probably on the low side.

(64) A 10% reduction in hour burdens together with streamlining/quickening OMB approval processes will make everything more effective and more efficient. I took 10% of the 2013 hours times $40/hr (recommended by the Congressional Research Service)

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