Who is to blame when government contracts go astray?
by RICHARD CRUME
When issues arise with government contracts, the contractor is not always at fault. Better monitoring and oversight of government contracts can help avoid problems and improve performance.
Main points
•Problems with a contractor’s performance can often be caught early and corrected with better government oversight.
•Providing routine review and feedback, anticipating problems before they occur, and acting quickly to resolve issues, are all examples of good oversight.
•Equally important is shifting the focus from a reactive, administrative style of oversight to a proactive, strategic, and collaborative style.
•Improved contract oversight, especially early in the life of the contract, can help to avoid serious problems later on.
In the past year, the news media has run numerous stories on problems with government contracts. Cost overruns, delayed schedules and poor performance are often cited as endemic problems, and have caused some in the US Congress to call for investigations and tighter controls on funding. More often than not, the contractor is blamed for poor management while being accused of reaping huge profits and big executive bonuses.
Having worked for both government contractors and a government agency, I have some insight into the behavior of both types of organizations. While it is true that contractors sometimes mismanage their programs, the government may also be at fault for a lack of attention to performance details during the implementation of a contract. In many cases, a more proactive and engaged style of contract oversight by government employees can help to avoid serious problems during the life of the contract.
In this article I review the role that government contractors play in today’s society, factors at play when contract problems occur, and 10 steps for contract management success.
Government contractors in today’s society
It goes without saying that contractors are critical to many government programs — from social services to highway construction to national defense. Contractors provide specialized expertise often missing from the government ranks, and contractor personnel frequently make up the majority of the workforce on government sponsored projects. By relying on contractors for technical expertise and staffing support, government employees can devote more time to setting priorities, formulating policy and managing their projects.
Most contracts are awarded in a highly competitive business environment, and winning bids ordinarily offer the greatest value to the government — that is, the best combination of high quality and low cost. Because contractors must optimize their operational efficiency to achieve the highly competitive costs needed to win a government contract, they often understand the critical importance of scheduling, budgeting and resource management even better than their government counterparts. Managers at contracting firms know all too well that even a minor delay or overrun can tarnish their company’s reputation and affect the bottom line.
Many contractor personnel have prior experience as government employees, work under contract to their former agency and maintain close personal relationships with their government colleagues. This allows contractors to better understand their clients’ needs and respond to the requirements of the contract. However, it also creates challenges for government employees needing to maintain a professional distance from their contractors — as a result, objective review and assessment of contractor performance can sometimes be difficult. The need to maintain appropriate professional relationships between US government employees and contractor personnel is addressed in the Federal Acquisition Regulation, Part 3 — Improper Business Practices and Personal Conflicts of Interest (www.arnet.gov/far/). Most state and local governments also have codes of conduct for contractor relationships.
A variety of contract types are in use in government today, varying according to the degree of responsibility assigned to the contractor and the amount and nature of profit incentive. Generally, government contracts can be grouped into two categories — fixed-price and cost-reimbursement — as described below.
Fixed-price
Establishes a price not subject to adjustment for actual cost in performing the contract.
Places maximum risk upon the contractor in assuming full responsibility for all costs and the resulting profit or loss.
Provides an incentive for contractor management to control costs and maximize performance efficiency.
Cost-reimbursement
Provides payment of allowable incurred costs, as prescribed in the contract.
Establishes an estimate of total costs and a cost ceiling that may not be exceeded without government approval.
Allows for situations where uncertainties in contract performance prevent costs from being estimated with accuracy.
Within these two categories, there are a number of variations that provide the government with added flexibility in managing contract terms and deliverables. For example, fixed-price contracts can allow price adjustments under certain circumstances (when the commercial price of some item increases or labor indices change) and may provide award fee or other incentives for bettering cost or scheduling targets. Similarly, cost-reimbursement contract variations include cost-plus-fixed-fee, time and materials, and indefinite delivery. Purchase orders, letter contracts, and purchase cards may be used for smaller purchases.
When problems occur
Unfortunately, no matter how good the contractor, something will probably go wrong during the life of the contract. The problem could be as simple as missing a delivery date or overrunning a task budget — or, it could be much more severe, such as constructing a critical engineering component that is later found to be out of specification. When problems occur, there could be a number of causes:
Was the contractor cutting corners to meet an overly aggressive cost proposal?
Were the work requirements poorly specified in the contract?
Did the contractor properly prepare for the work at hand?
Was there an improper post-signature change to the scope of work?
Were the contract terms realistically achievable, or was the contractor set up for failure?
Regardless of the cause, it is likely that the problem could have been caught early and corrected, if not entirely prevented, with a more proactive and engaged style of contract oversight.
For most large government contracts, the contracting officer authorized to commit the government agency by signing the contract delegates oversight to a representative. For example, oversight for a contract to build a highway bridge would probably be delegated to an engineer in the highway department who has lead responsibility for the required work. Various titles are in use for individuals providing contract oversight, including contracting officer representative (especially at the federal level); project officer; work assignment manager, and project manager. (I use the term project manager below.)
Project managers often have technical expertise but little experience with contract administration or oversight. Furthermore, in today’s government business environment, where tight budgets and overworked staff are the norm, many project managers are preoccupied with multiple projects, endless meetings, and an excessive volume of email. Who has time to monitor a contractor’s work? It is often easier for project managers to forgo regular oversight, instead trusting that their contractors will perform responsibly and report problems as they occur. This is a flawed strategy.
Most contractors care about the quality of their work and know that their bottom lines depend on customer satisfaction. For this reason, contractors value client feedback and depend on regular oversight to help them stay focused and on target for their services and deliverables. More than once, while working for a contractor, I have been frustrated when the project manager left my draft report lying on his desk for several weeks because he was too busy to review it.
While proactive oversight of contractor work is necessary, improper business relationships that could raise questions about objectivity and conflict of interest must be avoided. In particular, project managers should be careful to stay away from situations involving personal services — where contractor personnel are given direction as if they were government employees. Even the mere appearance of a personal service must be avoided. Otherwise, project managers risk being reprimanded and even losing their jobs.
Ten steps for contract management success
Although good contract oversight requires attention, it does not have to be complicated or overly time consuming.. The following 10 steps can help project managers take a more proactive approach to contractor oversight:
Ensure that the contract scope of work has sufficient detail, including periodic milestones against which progress can be measured (for example, deliverable dates, interim results, and draft reports).
Take time to understand the terms of the contract, especially cost and labor mix parameters that can be compared with actuals in monthly progress reports.
Perform close monitoring and oversight of all tasks by conducting regular progress review meetings and phone calls, reviewing interim reports, and routinely following up on all scheduled activities.
Communicate often, doing so in a direct and professional manner, with candid feedback on performance issues and praise for work well done.
Avoid micromanaging the project details, focusing instead on critical milestones, performance measures and quality objectives.
Stay focused on the goals of the project, and do not become distracted by side issues or personal research interests that are not in the scope of work.
Let the work plan guide the project effort, ensuring that any changes in direction are clearly documented, communicated through appropriate channels, and coordinated between the project manager and the contracting officer.
Refrain from unnecessary changes and unreasonable demands that can dampen the contractor’s enthusiasm and create extra paperwork in the contracts department.
Act expeditiously on the contractor’s requests for review and guidance; never assume that the contractor can work out problems on its own.
Anticipate problems before they occur, and either manage a way of avoiding them or implement corrective actions quickly to keep the project on track.
One final recommendation: Insisting that the project manager be involved in pre-signature negotiations can help ensure that the final scope of work reflects the desired business objectives, and that these objectives are clear and unambiguous for everyone involved. Frequently, project managers have valuable insights to offer during final negotiations, based on their experience with other procurements.
Good contract oversight not only involves providing routine review and feedback, anticipating problems before they occur, and acting quickly to resolve issues, equally important is shifting the focus from a reactive, administrative style of oversight to a proactive, strategic, and collaborative style. Attention to contractor performance from the very beginning will pay off for both the government and the contractor during the life of the contract.
Richard Crume, rvcrume@ncat.edu Richard has worked as an environmental engineer and program manager in both the public and private sectors for over 25 years. Additionally, he teaches a graduate level course on air pollution assessment and control at North Carolina A&T State University. His is registered as a Qualified Environmental Professional with the Institute of Professional Environmental Practice and as a Hazard Control Manager with the Board of Certified Hazard Control Management.
