8 Strategies for Cities to Make the Most of Contracting
By applying a strategic lens to the procurement process, local governments can transform how they partner with the private sector.
Contracts are often a linchpin to successful cities. It's typical for contractors to be responsible for road construction, waste collection, grounds maintenance and a wide range of social services, from sheltering the homeless to workforce development. Increasingly, cities also are contracting with IT companies to modernize core functions and develop robust data-analysis capabilities.
Yet despite the centrality of these common partnerships to city life, cities tend to neglect the procurement function and take the path of least resistance to contracting, which is rarely the optimal route. To avoid lengthy procurement processes, for example, cities simply renew existing contracts whenever possible. Contract managers' sole focus tends to be ensuring compliance with municipal and state regulations -- as long as all of the boxes are checked, poor contractor performance goes mostly unnoticed or unpunished.
As part of Bloomberg Philanthropies' What Works Cities initiative, the Harvard Kennedy School's Government Performance Lab (GPL) has been helping 26 U.S. cities transform how they partner with the private sector by applying a strategic lens to planning, structuring and managing at least one of their highest-priority procurements. Seventeen of the most successful projects are featured in the GPL's new Results-Driven Contracting Solutions Book. Eight strategies underlie these projects:
1. Clearly articulate goals and/or problems to be solved. Mesa, Ariz.'s program to reduce blight offers a great example. The RFP for a partner organization to provide home rehabilitation services specified that the city sought to support residents "in creating a clean, safe, diverse and economically vibrant place where residents and businesses are engaged, informed, and take pride in their community." The partner organization is not only tasked with delivering home rehabilitation services but also with educating residents on maintenance to sustainably reduce the effects of home and property neglect in the neighborhood.
2. Design the procurement to align contractor interests with achieving those goals. A case in point is how Boston structured its procurement for an IT system to improve how the city manages $120 million a year in construction projects. Boston described the challenges it wanted to address and specified the essential functions that it expected from the system. The city then invited vendors to suggest additional features based on their expertise. With this structure, Boston has the option to adopt more advanced functionalities during the course of the contract based on initial user feedback, evolving needs and experience with the vendor. This incentivizes vendor performance and guards the city against the potential spiraling of timeline and costs.
3. Provide direction without being overly prescriptive. In its previous RFPs for grounds maintenance and landscaping, Wichita, Kan., specified not only the daily tasks contractors were to perform (down to the depth of mulch chips) but also the equipment contractors were required to use and even the size of the lettering of the company's name on that equipment. This focused the parties on process rather than outcomes, leading to regular complaints from residents about the condition of parks. In its new RFP, the city avoided specifying inputs and outputs and instead described its larger goal of having well-maintained grounds with measurable standards to track vendor performance.
4. Engage the marketplace to understand vendor capabilities and leverage competition. This was a key strategy in how Tempe, Ariz., approached its procurement for an employee wellness program. Tempe was eager to use the procurement to adopt the latest innovations in employee wellness programs and technology. To learn about the latest trends, the city released a request for information that drew responses from 12 vendors offering a variety of program models. That engagement with the vendor community generated significant competition for the contract once the RFP was issued: The city received 18 proposals.
5. Track progress toward contract goals. Seattle set up a performance tracking system to provide actionable information about the city's homeless population and program performance. Instead of just counting activities, such as how many showers or meals were provided, providers would also measure meaningful changes to people's lives, such as how many individuals moved into stable housing. Six of the most important metrics were included in all homeless-services contracts.
6. Consider tying payment to performance. San Francisco is using this strategy to encourage local one-stop workforce-development providers to focus more of their services on the highest-need populations, such as those without a high school diploma, with limited English proficiency, or with a criminal record. Ten percent of payments to these providers will be tied to the placement of high-barrier individuals into jobs that pay significantly more than the minimum wage.
7. Use performance data to make future procurement decisions and manage ongoing contracts. Boston restructured its asphalt resurfacing contracts to focus more holistically on desired outcomes, beyond just the number of miles paved, to take in such goals as maintaining steady workflows and minimizing residents' inconvenience. In addition to introducing a performance-based payment, the city will be awarding additional work that becomes available during the season based on a comprehensive evaluation of vendor performance.
8. Strategically manage all key procurements and contracts. Creating one-off model procurements is just the first step. The next big challenge is for cities to fix their procurement systems to more strategically prioritize, resource and manage their contracts. Louisville, Ky., was the first city to request What Works Cities' support in establishing a strategic procurement system. The city is selecting its highest-priority procurements and expiring contracts on a quarterly basis, allowing enough time to assess past performance and challenges as well as to employ results-driven contracting strategies.
Over time, employing these eight strategies can improve the quality and cost-effectiveness of contracted products and services and encourage better alignment of contracted spending with a city's needs and priorities. Transforming the culture around procurement is a fundamental element of this: Instead of approaching contracts as tools for transferring government responsibility to the private sector, cities need to embrace contracts as opportunities to partner with the private sector, sharing accountability for results and shifting to a focus on outcomes.
As they move toward transforming that culture, cities can learn a lot from each other, and the Results-Driven Contracting Solutions Book is an effort to make that happen. The challenges facing cities are seldom unique, so when one city discovers a solution, sharing it can prevent others from reinventing the wheel -- or continuing to operate with broken wheels.