The mouse and the hippo: Solving problems in procurement

By Steven Koltai 10 October 2016

Laptops accessing the internet. Photo by: Ministerio TIC Colombia / CC BY

Recently, the core members of my small consulting firm — with five graduate degrees among us — wasted several days struggling to renew our “entity registration” in the System for Award Management, the U.S. government’s portal for federal contractors. Raise your hand if you’ve had to slog through this clunky interface yourself. Raise your hand if some other procurement process, bid stipulation, or reporting requirement has brought you to your knees.

The burden of SAM renewal may seem petty, but it testifies to a broader truth: The contracting and procurement processes governing how the U.S. government does international development are grossly broken. Fixing how the U.S. selects and hires contractors to provide goods and services is probably the single most effective thing the government could do to improve the performance of economic development policies and programs abroad.

The primary problem is what I call a “mouse-dancing-with-a-hippo” situation. Our government’s procurement process is so complicated and burdensome that, generally, only heavily resourced large firms can bid for and win work. Yet these firms are usually less experts in economic development than they are experts in how to win government contracts. Smaller firms with real expertise in a substantive field or region lack the administrative capacity to even bid for a government contract, let alone meet the reporting requirements that follow.

Here’s a piece of evidence. U.S. Agency for International Development hires contractors to carry out projects in some 40 sub-Saharan African countries; India; China; Southeast Asian and Central Asian countries, including Afghanistan and Pakistan; up and down South and Central America; across the Caribbean; throughout Eastern Europe and the former Soviet republics; and in the Middle East. These projects cover a near-infinite range of fields: Education, health, micro-finance, micro-irrigation, women’s empowerment, governance, trade, agriculture, etc. But, as Devex has reported, just three organizations collected over one-third of USAID’s contract funds in 2015; nearly 75 percent goes to only 20 firms. So much work; so much varied and geographically diverse work; yet so few contractors.

A small collection of usual suspects carry out the bulk of international development efforts, but I submit that these “Beltway bandits” are in the business of winning contracts, not effectively executing contracts. Examples litter all areas of government. A congressional commission has estimated that up to $60 billion of $206 billion of contracts and grants — many to the big boys — has been lost to waste and fraud in Iraq and Afghanistan (just from 2008 to 2011). Browse reports from USAID’s Office of the Inspector General for examples of contractors meeting “less than 2 percent of its performance targets for job creation and income generation” and “$10.4 million … spent with few results.”

When it comes to economic development, and my specialty of entrepreneurship promotion, it is imperative that more firms — especially small, nimble firms — have access to the contracting game. More firms means more competition, which means higher quality bids. And more innovative bids. Only by opening up economic development work to all can the U.S. government tap the private sector expertise and experience capable of generating new solutions where old development hands are rutted in failures. This even more true as the U.S. and other donors turn to private sector solutions to development challenges.

Ah, but don’t those Beltway bandits search out the niche expertise I’m talking about as subcontractors? Sometimes, yes, but they are playing the same hippo-and-mouse game — this time the small firm is crushed on the dance floor by the colossal contractor.

Contractors are in the business of squeezing as much work from their subs for as little money as possible, because these giants are in the business of ensuring contracts are lucrative, not in the business of providing expertise. Large contractors have an adversarial relationship with smaller sub-contractors because their overall goal is to land the largest portion of the contract for themselves while doing as little of the work as they can.

How might we inject the hallmarks of business and entrepreneurialism — flexibility, innovation, boundary pushing, the ability to “work around” an obstacle — into government contracting? I worked for a decade in the entertainment industry where I saw hippos dancing with mice all of the time. Large studios, such as Warner Bros., my former employer, do everything in the movie and television business — except make movies and TV shows. Content is actually created by small production companies that work symbiotically with studios to finance and distribute their materials. They work under a variety of contracting mechanisms (output deals, housekeeping deals, multi-picture deals, first-look deals) that allow “hippos” and “mice” to co-exist. Maybe there are some contracting lessons in Hollywood for the Beltway.

I cannot claim expertise in procurement, and I urge the experts to come forward, but I can offer a few ideas:

• Most important, enable small firms to bid for contracts. Perhaps small firms can enter “rent-a-prime” arrangements with large firms who handle onerous bid preparation and management — without the squeeze of today’s sub relationships.
• Subject matter experts need a greater hand in writing Requests For Proposals, Terms Of Reference, and Statements Of Work. In entrepreneurship promotion, it’s clear to me that these are often written by people without exposure to the for-profit world.
•  Such experts might also participate in the bid selection process, ensuring that subject matter expertise and ability to execute are the foremost qualifications for securing a contract, rather than a beltway address or bandit-size compliance staff.
• Procurement needs to be elevated as a respected career track in government, with better pay, more training and more room for advancement. Private sector procurement offices often outgun their public counterparts on these fronts.

Contract and procurement may not be sexy, but today, more than ever, it is the tool of policy implementation. We need to fix the tool.

Stay tuned to Devex for more news and analysis of U.S. aid, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.

About the author

Green shirt portrait
Steven Koltai

Steven R. Koltai is a fellow at New America, successful repeat entrepreneur, and former senior adviser for entrepreneurship in Hillary Clinton’s State Department. This piece derives from his new book, "Peace Through Entrepreneurship: Investing in a Startup Culture for Security and Development".


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