Rufus King Speaks on Responsible Government Contracting

“My transitions from New Englander to nationalist, and from soldier to lawyer, and from Senator to Ambassador (to Great Britain), and from Presidential candidate to abolitionist gave me both hope for the success of our nation and concern that the government have the integrity to do the right things in the right way.  I am concerned that the polititians of today seem to spend as much time trying to hoodwink their compatriots and other citizens as they do in representing their constituents.  In many ways the structure of the system seems to have led to this situation.

“Overruns on government programs have been a way of life for many decades.  Numerous reasons for these overruns exist and have been explored extensively.  Solutions have been recommended, but the problem continues and continues to grow.  All parties involved contribute to these problems because the fundamental structure of the system incentivizes bad behavior.  Let me explore the parties involved and explain the incentives.

The Congress approves programs and appropriates the monies to complete them.  Their incentive is to get the best possible deal for the public.  Of course, they have little in-depth understanding of many of the complex systems they authorize and they insist on details that give them more control over where (which Congressional district) the monies are spent.  As a result when budget cuts occur they often cut areas that result in increased risk for the program.  They also insist on oversight of cost, schedule and performance of the program and sometimes penalize the program when all of these factors are not on track.  A well known saying in the world of program management is: ‘Cost, schedule, performance – pick two.’  Because of uncertainties in complex programs, it is usually not possible to get all three items predefined unless the program is over-funded (which is the same as cost being unconstrained) or the program has very modest performance goals (which is the same as performance being unconstrained.)  Further, there is little discipline in the budgeting process for future years so programs that might require substantial commitments 10 or more years after the initial funding are not adequately funded in those future years.

The using agency is the second party.  They have the responsibility to define the required performance and when they need it.  Unfortunately, world events that unfold during the course of the program often lead to changing requirements and timelines.  As a result, program changes are often made that result in cost and schedule increases.  Not all of these changes are essential and frequently a combination of minor tweaks lead to significant cost and schedule impacts.  The using agency is incentivized to get the most performance possible without killing the program, thus they tend to continuously grow performance requirements because the initial program was probably funded at a bare-bones level.

The third party involved is the acquisition agency.  Their incentive is to deliver an acceptable product within the given cost, schedule, and performance parameters.  They have to deal with both technological uncertainty and incompetence in the contractors actually performing the work.

The fourth party is the performing contractor who is incentivized to win the contract and make money on it.  Presently decisions about whether or not to bid and how much to bid can be influenced by the likelihood of contract changes after initial award – such changes are no longer competitive and can be viewed as an opportunity for the contractor to ‘get well’.  The likelihood of such changes must be driven to a very small probability if the contractor is to be incentivized to make a bid that captures the true cost of the procurement.