From the U.S. Government Accountability Office, www.gao.gov Transcript for: How Can the Federal Government Contract More Like Private Companies? Description: Federal agencies spend more than $500 billion each year on contracts--buying everything from cutting edge military aircraft to office supplies. We talk with two federal contracting experts--GAO's Tim DiNapoli and Nate Tranquilli--about a new report that looks at how some major U.S. corporations make purchases and have improved their purchasing practices, and whether federal agencies can and have used those same practices. Related GAO Work: GAO-21-491, Federal Contracting: Senior Leaders Should Use Leading Companies' Key Practices to Improve Performance Released: July 2021 [Intro Music] [Tim DiNapoli:] There are a couple of key practices that the private sector use that really make their procurement organizations better. [Holly Hobbs:] Hi, and welcome to GAO's Watchdog Report. Your source for news and information from the U.S. Government Accountability Office celebrating 100 years, of fact-based nonpartisan government oversight. I'm Holly Hobbs. Federal agencies spend more than $500 billion each year on contracts--buying everything from cutting edge military aircraft to office supplies. It's a lot of money and important that it be used efficiently and effectively. Today, we'll talk with Tim DiNapoli and Nate Tranquilli--a director and assistant director in our Contracting and National Security Acquisitions Team, who have a new report out that looks at what the government can learn from how major-U.S. corporations make purchases. Thank you both for joining us. [Tim DiNapoli:] Thanks, Holly. We're happy to be here. [Nate Tranquilli:] Thanks, Holly. Excited to discuss the work. [Holly Hobbs:] So, Nate--which private corporations did we look at, and why did we select them? Nate Tranquilli:] So we wanted to try to get a wide variety of companies and also larger companies that could come close to approximating the size of federal agencies. We ended up settling on seven Fortune 100 companies. Some household names--AT&T, ExxonMobil, Facebook, Procter & Gamble. We also had a chance to talk to folks from four professional associations to get their insights as well. And finally, we rounded out by talking to some academics at some business schools. By doing that, we were able to get a lot of different perspectives. And that really helped inform our work as we move forward. [Holly Hobbs:] And in talking to large companies and other experts, we identified some key practices, right? What did we hear? [Nate Tranquilli:] So the three key practices really emerged as important things that companies do to improve the performance of their contracting organizations. And so the first of those three practices involved procurement leaders, contracting leaders at these companies, linking the performance metrics they use to assess their subordinate organizations to their company's strategic goals. And that allowed the contracting personnel to really understand how they were contributing to the top line goals of the companies and also to empower them to take the right steps and actions in order to reach those goals. The second practice involved collaboration between the contracting leaders and other folks within the companies that were putting in the requirements for the products or services that the contracting leaders were buying on their behalf. And specifically, it was important for them to collaborate when they were developing performance metrics. And then the third practice was that the contracting leaders would use outcome oriented metrics when they're managing their organizations. So things like, did you get a high quality product or service? Was the product delivered when the person really needed it? Did it cost more or less than they expected? And so those were really the three important practices that we heard about from most all the folks we talked to. It was a pretty consistent story. [Holly Hobbs:] So do we know whether federal agencies are using any of these key practices? [Nate Tranquilli:] Sure. So that was a huge part of the audit. After we went out and talked to all those folks I mentioned before, we went and took a look at 6 large federal agencies, the three military departments within the Department of Defense--so the Air Force, the Army and the Navy--and then also the Department of Homeland Security, Veterans Affairs, and NASA. And the good news is, for that first practice about linking strategic goals to performance metrics, the procurement leaders at all six of the agencies were doing that. But when it comes to the collaboration with the end users, when developing the performance metrics, in that instance it was only the procurement leaders at NASA that were doing the same type of things as the procurement leaders we saw at the companies. When it comes to the outcome oriented metrics I was talking about what we found was that most of the leaders continued to rely on process oriented metrics. So these types of metrics are measuring things like how often they are awarding contracts through competitions, how often they're awarding contracts to small businesses, just the number of contracts that are being awarded in a given time. And so those process oriented metrics continue to be the primary type of metrics that the leaders were using across the federal agencies. [Holly Hobbs:] And Tim, some of these process-oriented metrics--like including small business--are written into law, and they seem like differences that would make federal buying inherently different than how corporations buy? [Tim DiNapoli:] Sure Holly. Corporations have that profit margin, have that return on investment, those types of financial metrics that they can use to help make decisions. We are not in that business. But here's the thing. It goes back to the practices that Nate has talked about. It's talking about an overarching principle. Make sure you link your goals with your strategic objectives. Make sure you collaborate with the end users. Make sure you use process and outcome oriented metrics to give a holistic perspective on how well the organization is running. How you tailor those specific things to your individual organization to figure out what makes most sense for their agency. The mission for NASA is different from the mission at the Department of Homeland Security. And the other thing I'll just mention is that--we've looked at best practices in the private sector for more than 30 years at GAO. And we have found these to be consistently applicable to the federal sector, no matter what issue that we're looking at. [Holly Hobbs:] So, Nate, at the end of the day, can the federal government save money by contracting like the private sector? [Nate Tranquilli:] Well, we certainly think so. We at GAO have reported that leaders should have a balanced set of performance metrics that look at both processes and outcomes, and that really this balanced approach can help these leaders identify improvement opportunities, set priorities and allocate resources to improve operations. [Music] [Holly Hobbs:] So both Tim and Nate say there are some inherent differences between how federal agencies and leading companies buy things. But even so, the federal government could incorporate some key practices used by the private sector to improve how it buys things, and potentially save money. So Nate--did we make any recommendations for the agencies that were including in our report that would improve how they buy things? [Nate Tranquilli:] We did for sure. So, we saw everybody was linking their metrics with their strategic goals. So no need for recommendations there. But for the collaboration with the end users on the performance metrics, only NASA was collaborating in that manner. So we're making recommendations to the other 5 agencies to start collaborating with end users when they're putting together the performance metrics for the procurement organizations. And then lastly, for the third practice about using outcome oriented metrics, most of the agencies had something in process or some limited application of outcome oriented metrics. But we made recommendations to all 6 to use outcome oriented metrics more consistently when they are managing their procurement organizations. [Holly Hobbs:] And Tim--you get the last question. What's the bottom line of this report? [Tim DiNapoli:] Well, Holly, I think as Nate has outlined, there are a couple of key practices that the private sector use that really make their procurement organizations better. And we think if agencies were to incorporate that collaboration process, as well as looking at some outcome oriented metrics, I think they would be a much better position to deliver the goods and services that the agencies need to achieve their mission. [Holly Hobbs:] That was Tim DiNapoli and Nate Tranquilli talking about our recent report on federal contracting practices. Thanks for your time, guys. [Tim DiNapoli:] Our pleasure. Thank you. [Nate Tranquilli:] Thanks, Holly. [Holly Hobbs:] And thank you for listening to the Watchdog Report. 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