The federal procurement system badly needs reform, but asking bureaucrats to act like businessmen won't make it happen.
Conservatives like to suggest that if we ran the government more like a business, we could eliminate much of the waste, sloth, and pettifoggery that characterize federal agencies and the people employed by them.
In a government run like a business, the emphasis would be on getting the job done, not on writing regulations defining allowable ways to do the job. Mid-level bureaucrats, like managers in the private firm, could make independent, sometimes bold decisions. Bright and ambitious men and women would move quickly up through the executive grades. Poor performers would be fired.
Donald Sowle, chief of the White House Office of Federal Procurement Policy (OFPP), has something like that in mind when he talks about reforming the government's procurement system.
On an average day, that system involves 130,000 government workers spending $423 million in 48,000 separate purchases of computers, catsup, cleaning services, aircraft carriers, carbon paper, cots, combs, and the countless other things it takes to run a country. That works out to about $110 billion a year, or roughly 4% of the gross national product. The federal government is the country's single largest consumer. Not the brightest, just the biggest. If the government were a better shopper, it could save, according to Sen. John C. Danforth (R-Mo.), as much as $20 billion a year without tightening its belt one notch.
To make the government a better shopper, Sowle proposes to give government procurement personnel the same kind of authority and flexibility exercised by purchasing agents in private firms. He would eliminate or streamline the current tangle of regulations and substitute, instead, the judgment of individual procurement officials.
But the flaw in Sowle's plan is the assumption that government can behave like a business. It can't.
If Sowle's reform plan is adopted as offered, within five years we'll be looking for a new one. In the meantime, the government will waste more money, not less, on shoddy or inappropriate goods, and sweetheart deals between big business and procurement agencies will drive small business and competitive bidding out of the government marketplace.
"Government and business firms don't make decisions," says economist James T. Bennett of George Mason University. "Individuals make decisions. Both the public sector and the private sector procurement executives are thinking about the same things: 'How do I get a raise? How do I get a promotion? How do I look good?"
Because the ultimate accountability in a business firm is to the bottom line, says Bennett, the private sector purchasing manager will achieve those personal objectives -- the raise, the promotion, looking good -- by saving his employer money.
But in government, though the White House talks about cutting budgets and saving money, the incentives for the individual procurement official just aren't there, Bennett says. "Suppose that your agency has a budget of $1 million," he explains. "If you don't spend all of it this year, it's difficult to go back and ask for $1 million again next year. If the individual nonetheless breaks his back and buys something for $500,000 instead of $1 million, he doesn't pocket a bit of the savings. He only makes it more difficult for his agency to grow, which is how success is measured in government. It's completely perverse system."
Bennett thinks Sowle has the right idea but isn't going about it the right way. If Sowle wants businesslike decisions in the federal procurement process, he should bring business in to make the decisions. "I'd like to see the procurement itself contracted out," says Bennett. He hasn't worked out the details of such a plan, but it's an intriguing idea.
Suppose, for example, that the government paid $25 for each of the Army blankets it bought last year. Next year it could let private firms bid for the privilege of buying Army blankets for the government. The winning company would be the one that offered to pay the government the most for the contract -- say, $1 million. In return, the government would let the firm keep half of everything it could save by shopping wisely for Army blankets.
The private firm would have every incentive to buy blankets for the government at the lowest possible cost and absolutely no incentive to favor one supplier over another for any reason but cost. And the Treasury would collect $1 million whether the firm saved any money or not. More important, the government could then return to buying its own Army blankets with a better idea of what they should cost. Almost every product the government buys could be subjected to this kind of private-sector audit from time to time.
The same idea, Bennett suggests, could work with welfare programs. The people least likely to identify waste and fraud in the food stamp program are the bureaucrats who run it. Let a private company bid to run the system for a year. The company would pay the Treasury the amount of its bid up front, then get to keep, say, 30 cents of every dollar it saved in rooting out waste and fraud. If there is as much waste and fraud as conservatives claim, the contractor could make a killing. Of course you'd have to protect food stamp recipients from arbitrary and capricious decisions by the firm. To do so, make the firm liable for court costs and attorneys' fees, and for providing back food stamps to any recipient who proved he was wrongly denied benefits.
Bennett's idea seems to fit nicely with the Reagan Administration's drive to "privatize" welfare and to rely on the private sector to do those things that it does better than government. And it makes more sense than OFPP administrator Sowle's suggestions that his proposed reform plan will turn 130,000 procurement bureaucrats into hard-bargaining buyers. Bennett's idea deserves consideration.