December 04, 2013

A Better Procurement Model

By Ben FitzGerald and Phillip Carter

Ben, you're totally right about our government contracts system. It is fundamentally un-American. In fact, when I teach on procurement issues, I usually describe it as a Soviet-style system of centralized planning, pricing, and production, with many of the same imperfections and inefficiencies. Ironic, considering that our procurement system also produced a lot of the hardware that won the Cold War.

That said, we don't have a Soviet system so much as we have an American system that reflects uniquely American political preferences. Our crazy accounting rules reflect our desire to account for every last penny of taxpayer money, categorized in ways that make political sense but not necessarily business sense. Competition requirements reflect our political desire to get the most value for every taxpayer buck, as well as a history of procurement scandals. Contracting preferences exist for everything from domestic fabric producers to veteran-owned businesses to Alaska Native Corporations -- and these too, obviously, reflect political preferences.

Unfortunately this burden falls disproportionately on start-ups and commercial firms, because they don’t have the same in-house infrastructure or long-standing institutional structures of major government contractors like Lockheed or Northrop.  The results are unfortunate in both cases.  Defense start-ups, like the firms you and I managed, must invest too much in infrastructure, overhead, and compliance, taking scarce resources away frominnovation and product development.  Truly commercial firms like Google and Yahoo often choose to stay away from the government altogether. Or, if commercial firms do sell to the U.S.government, they stay as far away from government rules as possible, often selling just those items or services that can qualify as “commercial off-the-shelf” in order to be exempt from the system’s most onerous rules.

The result is a system that tends to procure goods andservices from a fairly narrow slice of industry: the traditional governmentcontracts sector.  The government’s rules support a certain business model that is heavy on compliance and infrastructure, and often too light on risk and innovation.  Government contractors excel at meeting government requirements – but too often fall short at designing holistic solutions that go beyond government-written requirements documents to address the true contours of national problems.  The current struggles of healthcare.gov illustrate this problem, as do many other cases. 

We need a new business model for government contracting that embraces best practices from the civilian sector, delivers better outcomes, and creates the incentives for our best companies to get into the game.

(Photo Credit: WashingtonPost.com)

  • Reports
    • February 27, 2020
    Sanctions by the Numbers

    The United States uses financial sanctions as a prominent tool of foreign policy. While this tool is used with increasing frequency and popularity, there is relatively limited...

    By Johnpatrick Imperiale

  • Commentary
    • The Hill
    • January 31, 2020
    America and Europe will lose to China in transatlantic trade war

    If the United States escalates a trade war with Europe, only China will come out as a winner....

    By Carisa Nietsche & Sam Dorshimer

  • Reports
    • January 28, 2020
    Rising to the China Challenge

    The United States and China are locked in strategic competition over the future of the Indo-Pacific—the most populous, dynamic, and consequential region in the world....

    By Ely Ratner, Daniel Kliman, Susanna V. Blume, ​Rush Doshi, Chris Dougherty, Richard Fontaine, Peter Harrell, Martijn Rasser, Elizabeth Rosenberg, Eric Sayers, Daleep Singh, Paul Scharre, Loren DeJonge Schulman, ​Neil Bhatiya, Ashley Feng, Joshua Fitt, Megan Lamberth, Kristine Lee & Ainikki Riikonen

  • Podcast
    • January 28, 2020
    Bitcoin and Terrorism – How Compliance Will Shape Cryptocurrencies

    Many within the cryptofinance industry have been patiently waiting for regulatory oversight to deliver the clarity required for institutional adoption. Recent updates by the F...

    By Yaya J. Fanusie

View All Reports View All Articles & Multimedia