Fixed Price Contracting for a Total System: An Attempt – Part I of 2 - Executing The Government’s Plan.

In the aftermath of the 'Obamacare' rollout problems, there has been renewed talk of using fixed price contracting as a solution to some of the Federal IT community's contracting woes. " Why can't the government just specify what they need, then let the contractor just build it without interference"?  "The government just needs to get out of the way of the experts".  Here's what happened when we tried it.

This is a true story.  And I was a manager and technical contributor deeply involved in it from beginning to end.

A Federal agency wanted to evolve their claims processing from a totally paper and mostly manual process one to an automated standardized one. While there was some automated record keeping such as case tracking, the problems with the existing capabilities and recordkeeping were many.  There were district offices that processed claims differently, some produced with much better speed and quality than others.  At the high level, neither headquarters nor anyone else could ascertain the status of a claim without finding the physical inbox and file folder of whichever claims examiner in whichever district office was responsible for the case. And there was much unjustifiable and legally unsustainable inconsistency in claims decision making.  We were hired to analyze the problems and design and specify an automated system in collaboration with the agency.  The specification would be put out for competitive bid.

Over several years, before everything was moving at ‘internet speed’, we visited and assessed key district offices, documented and applied the best practices and methods, noted the best practices that we found and thoroughly analyzed the policies and procedures manuals, as well as the legislation, regulations and other internal policies, manuals and memoranda.  I don't remember the numbers from back then, but now the program has a nearly $3B budget, and processes millions of claims each year. It was never a trivial program.

While one of our two teams developed extremely detailed technical specifications, the other team worked with the government on creating the other documents that specified the deliverables that would be required from the winning contractor.  In addition to the request for proposal documents, we developed the specifications for testing, training, user manuals, maintenance manuals, code documentation and other technical documents.  We specified literally every document that the government wanted and required.

The governing philosophy was that we would specify ‘everything’ and the contractor would ‘only’ need to provide the hardware and write the program code following the specifications. And complete all of the required documentation following the government’s specifications. Behind this philosophy was the program’s mandate that this effort needed to be a fixed price effort. This would help protect the program’s funding for the system if the funds were obligated through a fixed price contract rather than through a cost-reimbursable type contract.  The contracting office (and others including me) were very resistant due to the lack of a history of successful fixed price software development projects.

As a condition of approving the overall fixed price approach, the contracting officer mandated that we develop ‘liquidated damages’ (LDs) essentially for every deliverable to protect the government against non-delivery,  and to send the message to the contractor community that fixed price indeed meant FIXED PRICE.  It was an attempt to dissuade bidders from the usual behavior of underbidding then using a change process to earn back revenue.  This ‘get well’ strategy was (and is) typical in government contracting.

The resulting printed notebooks of technical specifications were in boxes about four feet high and were written in a pseudo code called Program Design Language (PDL).

Program Design Language (or PDL, for short) is a method for designing and documenting methods and procedures in software. It is related to pseudocode, but unlike pseudocode, it is written in plain language without any terms that could suggest the use of any programming language or library. ¹

The other specifications for documents were in a few more boxes, and were closely in alignment with the standards being used by the Department of Defense at that time.  We considered this a ‘best practice’ of its time.

The Request for Proposal document(s) were written and reviewed over many months until all issues were resolved between the program managers, contracts shop, legal folks, and executive leadership.  A part of the contract document that received much ‘design’ and review were the Liquidated Damages section of the RFP.  We created a matrix where the rows contained EVERY deliverable and the columns contained potential compliance faults (e.g. unacceptable quality; non delivery; late delivery; and other fault scenarios).  For each cell we developed legal language and penalty formulas tied to the value of the deliverable (each of which was to be priced by the bidders) and a formula for the damage that the government would sustain if the deliverable was not received in accordance with the government’s specification and the winning bidder’s proposed schedule.

The RFP was announced and published.  All documents made available in a reading room. Copies provided upon request.  Briefing sessions were conducted with all interested parties.  All vendor community questions were answered in writing.  Adequate time was allotted for vendor responses.  Requests for an extension to the proposal due date were granted.

We tried to limit the government’s risks of cost and ‘scope creep’ while virtually eliminating the contractor’s unknowns.

¹ http://en.wikipedia.org/wiki/Program_Design_Language

Next: Part 2 of 2 - How The Plan Worked Out

Privatizing Government Functions: Is it working?

In 1996, under the rubric of ‘reinventing government’, the Clinton-Gore Administration decided that some functions of government that were previously defined as “inherently governmental” were now appropriate to be outsourced to the private sector.  At that time The Office of Personnel Management (OPM) was responsible for conducting security clearance investigations for most Federal agencies.  This function was selected for privatizing.

According to Bloomberg.com:

….The unit, originally known as U.S. Investigations Services Inc., was privatized in 1996 as part of then-Vice President Al Gore’s effort to “reinvent” government by reducing the size of the civil service, according to a 2011 report by the Congressional Research Service.

Contracting out security reviews was designed to help save the government money and secure new work for about 700 investigators who would no longer be needed because of a declining security clearance workload due to the end of the Cold War.

USIS was given a non-competitive, three-year contract for investigative work with the government personnel office and granted free access to federal computer databases that weren’t available to other firms.

The Carlyle Group LP, a Washington-based private equity firm, and New York-based Welsh, Carson, Anderson & Stowe LP invested in USIS. They agreed in 2007 to sell USIS to Providence, Rhode Island-based Providence Equity Partners for about $1.5 billion. ¹

That was then.

Now, it appears that USIS may have been cheating on the investigations².  To meet the contract performance criteria (and to earn executive bonuses), it is alleged (by a whistleblower and the Department of Justice) that they engaged in practices that did not fully complete the work on investigations, perhaps on as many as 600,000 investigations.  They allegedly provided false information to OPM, and to the agencies that made the final decisions about granting clearances to candidates.

It appears that USIS conducted the clearance investigations for the Navy Yard shooter as well as for Snowden.  The Navy Yard murderer of 12 federal employees and contractors, had enough documented derogatory information about his military misconduct, arrests, and mental problems that should have been discovered through a THOROUGH investigation.  The same level of quality work may also have been true for Snowden.  At this point these specific allegations have not been proven, but it will be played out in court in the coming months.  However, there have been proven fraud cases involving USIS and other investigation contractors where employees filed false reports, including one that claimed to have interviewed a person who died 10 years earlier.

So, here we have ‘reinvented government’ using contractor employees and managers who earn bonuses, and investors who earn returns by ‘just’ doing the job that federal employees formerly did ‘just’ for their GS-salaries.  So, it isn’t necessarily CHEAPER. The lure of bonus money and returns on investment for this now - $1.5+ billion dollar industry doesn’t necessarily yield BETTER results either. It seems to me that the only thing that has been achieved are the political bragging rights for appearing to have “reduced the size of government”.

Before we fix or reinvent a dysfunctional thing, we should make sure we understand the root cause of the thing’s dysfunction, before we get on the Road to Abilene³.  Clinton-Gore put us on the road.  I’m not sure if you agreed to go.  I didn’t, but here I am, looking for a way to get back home from Abilene.

1 http://go.bloomberg.com/political-capital/2013-09-19/usis-navy-yard-shooters-background-check-wasnt-ours-others-silent/)

2 http://www.justice.gov/opa/pr/2013/October/13-civ-1158.html

3 http://en.wikipedia.org/wiki/Abilene_paradox

CMS, Healthcare.gov, and a ‘contractor partner’: Here we go again!

So CMS has decided to give a contract to Accenture to ‘maintain’ the healthcare.gov ‘website’ (I found no mention of a competitive bid and award process). The word  ‘website’ is in quotes, because the end-to-end system is much, much more than a website.  The website is only the entry point for millions of users to shop and enter their information.  The rest of the system interfaces with 8 or 9 other government systems for eligibility and subsidy determination; accepts plan information on thousands of plans from hundreds of insurance companies; and makes payments to the insurance companies (presumably matching customers’ payments and the matching government subsidy where there is one).  I’m sure that there is much more, but that will do for this discussion.

According to The New York Times article of a few days ago, CMS and Accenture have not yet agreed on the scope of their work.

http://www.nytimes.com/2014/01/11/us/us-parts-ways-with-contractor-for-troubled-health-website.html?nl=todaysheadlines&emc=edit_th_20140111&_r=0

That also means that neither party knows the price or cost.  History would tell us that the government will attempt to minimize cost as the ‘contractor partner’ tries to maximize price and revenue.  Even if they agree on an ‘initial cost estimate’, as the contractor gets better insight into the system, the team will discover more areas of work to be done.

Here is what I think will happen:

Upon initial examination of the system turned over by the prior contractor Accenture will find a myriad of ‘issues’ with the current architecture.

CMS will acknowledge that there are problems, but tell the contractor to proceed with patching and maintaining while getting ready for the next open enrollment period next year.  After all, they can’t afford or run the risks of another build or re-building and launch effort.

Accenture will put its best and brightest on the job assembled from around the world.  Staffing costs exceed original projections

After about 4 months as the Accenture management and staff better assess the technical challenges, they make another push on government to swap out some of the components for more modern and efficient ones.  CMS relents on some components, holds fast on other key elements that worked well during initial rollout.  Cost of replacement components are high, and the cost of integrating them exceeds original projections

In the summer, in preparation for the 2014 open enrollment season, it becomes clear that performance is still slow, requiring higher speed and more reliable computer and communications equipment.  Costs of acquisition and integration of the new components exceed original projections.

Government attempts to stem the tide of unanticipated cost growth by having serious executive meetings with the contractor’s highest level executives.  The contractor advises the government of all of the residual risks to a successful enrollment season (all contained in monthly progress reports and other documents that the government may not have fully deciphered and appreciated.  Further, the executives inform the government that the firm cannot be held responsible for any negative results unless the government fully implements it’s recommendations.  The costs exceed original projections.

If the Congress hasn’t been paying attention up to this point, with elections on the horizon, there will be hearings.  More that C-SPAN can air.  GAO will have provided the Congressional committees with some version of the above scenario.  Outrage exceeds original projections.

To avoid this or similar scenarios, CMS must end it's misconception that the contractor is a PARTNER (with shared risks, values, money or skin in the game).  The contractor is a contractor seeking to maximize revenue, and make bonuses  The contractor must be managed and controlled by a knowledgable contracting officer and an astute program manager.