Governments Need to Get to Know Their Vendors

Before contracting out a government function, a jurisdiction must have solid information about a firm's performance.
 

There's an ongoing and vigorous debate about when it is appropriate to contract out various government functions -- and when it isn't. The issue is extremely complex, and we've generally thought that the men and women who fall at the extremes of this discussion are being overly simplistic in their approach. Seems like a case by case question to us. But one thing seems crystal clear:

If a city, county or state is going to contract anything out, they should make absolutely sure that they're hiring a contractor who is in a position -- and is likely -- to do a good job.

Sadly things don't work that way all too often. A few months ago, a report from the Environmental Protection Agency's (EPA) Office of the Inspector General noted that 83 percent of contractor performance evaluations required for American Recovery and Reinvestment Act projects hadn't been completed on time. "As a result, EPA awarded $109 million in Recovery Act funds to contractors with cost control and other performance issues," the Inspector General's office wrote.

Among the most important things a government should know about a potential contractor is its past history. In the contract selection in many places, past performance is a criteria. But documenting and sharing past performance in a timely, consistent and useful manner is a big challenge. "It's a very tricky legal matter to try to take past performance data and comments and use that to prohibit a contractor from bidding or to not take their bid if they do bid on the project," says Steve Hotovy, administrator of the Nebraska Department of Administrative Services Task Force for Building Renewal.

Some years ago, this wasn't such an issue, as local contractors tended to dominate their own markets and there was reasonably good knowledge about them for the governments involved. But as large firms have reached out for contracts from coast to coast, that easy familiarity no longer suffices.

Unfortunately even a careful check can leave serious problems undetected. Of course, the world is a pretty simple place when the contractor has done a terrific job. It's easy and without peril to laud an effective corporation's history. But when that's not the case, life gets more complicated. John Turcotte has directed legislative performance evaluation shops in Mississippi, Florida and now North Carolina. "It's hard to be candid when you're talking about one of these big, huge contracting firms," he says. "These firms are litigious. They're very political. It's intimidating."

Typically when a governmental entity contacts another one about former contractors under consideration, most use standard questions, followed by open discussion about the firm's performance. "Although I provide a candid assessment," Turcotte says, "I have never felt comfortable doing this for subpar firms because I am concerned about attribution of my assessment and aftereffects."

Another complication: Frequently the "name" contractor handles all the presentations, but subcontracts a good deal of the work to other firms. Less experienced contracting entities can easily be unaware that though the large firm is managing the contract, subcontractors or smaller firms, through joint venture agreements, may do the bulk of the work. As a result, to do a proper reference check, the entity must inquire about the individuals listed on a proposal and not just the firm's overall capability.

But there are some solutions. One often mentioned notion is that entities should maintain carefully kept databases that show all prior experience with a contractor in past years. Nevada seems to have taken this issue in hand -- with good results. An October 2001 audit revealed multiple problems in the state's contracting systems. A summary at the time noted that the state "should have a larger database to track contracts. One agency in isolation contracts with someone and they do an inadequate job and another agency awards a contract ... there should be more statewide contract information and ... policies and procedures to insure consistency."

As Nevada's Legislative Auditor Paul Townsend said, "If there was a poor performer, they wouldn't know if they'd contracted with the state in the past."

A contracting database initially was scheduled for completion at the end of 2003 and finished about a year later. The database has served the state well as a way for agency managers to identify contractors who have done work in the past. But it was up to them to follow up and ask the right questions about contract performance. Now an actual "vendor rating worksheet" is in development. The plan is to come up with a numerical rating that agencies and the public can access with evaluation categories that include customer service, timeliness, quality, technology, flexibility and pricing. Documentation is required and the vendor or contractor can see the rating and provide additional information.

Keeping databases like this up to date is a challenge. An April 2009 report from the U.S. Government Accountability Office found that of 24,409 federal contracts that required an assessment, less than one-third had one.

Of course, systems like this require training for the people running them. And ultimately, government know-how is at the heart of problems in contracting out. Often, government agencies simply don't have nearly as much experience with contractors as contractors do with clients. Any effort to reduce that inequity is a good thing.

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