The only thing larger than the paperwork it sometimes takes to win a federal contract, is the amount of complaints you hear from folks both inside and outside the government contracting community. With around $665 billion in goods and services purchased annually from outside contractors, you might expect some issues with transparency, equity and fairness to pop up. So what can be done to address those issues? A new report from the Brookings Institution looks for solutions to those problems. The Federal Drive with Tom Temin  talked about the report with Brookings Senior Fellow Darrell West.

Interview transcript:

Darrell West The federal government has grown enormously in size, and so the reliance on external contractors has grown as well. About 10% of the federal budget goes to outside contractors. That’s more than $665 billion every year. So it’s a huge amount of money. And so the way in which the government awards these moneys is very important for the overall economy. The types of firms that get these types of contracts matters a lot. And of course, we know there have been tremendous complaints about federal procurement and acquisitions policy for years. This is not a new topic. A small businesses complained that all the money is going to large corporations. Women and minority owned businesses claim they’re not getting their fair share. People say there’s too much paperwork. There’s a lack of transparency in terms of how the process operates. So we wanted to look at this whole topic, and just talk about what are the problems with federal acquisitions of policy and what can we do better.

Eric White A significant undertaking. You lay out a few possible reforms that could help address some of those complaints in the national procurement policies. Obviously, won’t make it go through every single one of them. But can you lay out the list that you came up with you and your team did?

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Darrell West We came up with a number of ideas that we thought would improve the process. I think, one of the most novel ones is when we were looking at the data, like there’s information available on which states are getting the federal money, and so we just did a quick breakdown on that. And it’s more than 60% of the external contracts go to about a dozen different states, and they are primarily states on the East Coast and the West Coast. There are a few southern states as well, just because of military contracts and their number of military bases in the south. But by and large, the typical complaint about the federal government ignoring the heartland actually is true when it comes to federal grants. When you look at the vast part of America, three quarters of the states basically in the interior, in the Midwest and the Rocky Mountain states and elsewhere, they’re not getting that much federal money. So obviously, I think that’s something we need to work on. In our report, we highlighted the problem of needing to broaden the geographic diversity of these grants to make sure that the money is more evenly spread out around the country. We know that people in the heartland feel like they’re being left behind already. That’s a big source of political problems, kind of fuels populist rage at the federal government. And so this is one concrete thing the government can do in the acquisitions area. It’s money they control, they can just do a better job of reaching out to companies that are not on the East Coast and not on the West Coast and just trying to involve a broader range of companies.

Eric White Yeah, it’s tough, though, because technology companies don’t typically base their operations in the heartland, itself. So, maybe the private sector spreading things out a little bit could help as well, or is it on them, too?

Darrell West No, you’re exactly right. It is a problem in the sense, especially in the technology area. Most of the big tech companies are either on the East Coast or the West Coast, so it’s going to be hard to diversify that. But there is this phenomenon called subcontracting. Even if a large tech company gets a $5 billion contract, they often will have subcontracts to other firms to help execute the project. And so that’s one way in which there could be a better geographic balance. When these tech companies are hiring subcontractors, they should think not just about East Coast and West Coast firms, but there’s actually quite a bit of talent in the heartland. In fact,  because of COVID and remote work, you don’t have to work in Seattle anymore to have tech expertise. So there’s a lot of tech firms located in Austin and Columbus, Ohio, and Omaha that actually could serve as subcontractors on these grants. And that would be a way to achieve better geographic variety.

Eric White We’re speaking with Darrell West, senior fellow at the Brookings Institution. And so I imagine training of government procurement officers themselves, it’s probably an area that could always use some extra training. What did you all think about that?

Darrell West This is a big problem in the federal government right now. I mean, there’s been a big retirement wave over the last few years, and that’s going to continue in the coming years. And it’s hard for the federal government to recruit, they’re not paying as much as the private sector in general. And especially in the technology area, it’s really hard for any federal agency to have the kind of expertise needed to evaluate these external contractors. If there is a request for bids, it goes out, you need technical expertise to evaluate those bids. There are a lot of agencies that want to incorporate AI in their operations. It doesn’t mean that a federal employee has to be able to code, but they need to know enough about AI that they can evaluate the bids. So one of our recommendations is the federal government needs to put much more effort into recruiting workers who have the proper expertise to actually evaluate the bids that come in. And they just need to keep training those individuals. Once those people are in the workforce, there’s just so many changes taking place in the technology area. People need to regularly upgrade their job skills so that they can keep up with the new technologies that are emerging almost every week, if not every month.

Eric White You mention AI, can the newest kind of technologies, like machine learning and things of that nature, sort of help fill in that gap where the workforce itself is unable to obtain the knowledge required to do this job?

Darrell West This is an area where the federal government actually wants to do a better job, but it’s been difficult for them to actually do it. There are all these new tools, AI, data analytics, machine learning. Kind of the latest is Generative AI, the ChatGPT phenomena, which has gotten lots of attention lately. Federal agencies need to do what the private sector has been doing for years, which is use these new tools to improve their agency operations, the way in which the agencies function, how they analyze and compile information. There’s just a wealth of data analytics tools out there, and federal agencies need to incorporate those things in the procurement process. So, for example, fraud is always a concern with a government that contracts. You can actually use AI to spot the outliers. Either bids or companies that just seem a little unusual that are not kind of operating with standard business practices. It doesn’t necessarily mean they’re guilty of anything, but when you can use AI to spot outliers, you can then subject those bids to human review to see is there actually a problem here. Is there fraud? Is there corruption? Is there incompetence or inefficiencies of one sort or another? So we do think if the federal government can start to incorporate AI, data analytics and machine learning, it would improve their ability to evaluate bids, it would improve their ability to evaluate the performance of these companies when they actually have the contracts. Are they delivering on what they say they’re going to do so? Are they being both efficient and effective in how they operate? So I think these new tools would actually make a big difference if the federal government was able to incorporate them in their operations.

Eric White And I imagine that if they were able to do that, that would also help with the complaint of the mountains of paperwork that it takes to obtain a federal contract. Is that true?

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Darrell West Absolutely. Certainly there is a huge amount of paperwork, because with government contracts, people rightfully are worried about fraud, corruption or just outright inefficiency. And so there’s a lot of paperwork designed to ferret that out. But then, of course, that poses a lot of problems. It limits the types of businesses that can actually apply for these grants. If you’re a small firm with 20 or 25 employees, and you have these very detailed federal request for proposals that come out. Your company, it’s going to be hard to have the personnel actually to supply all the paperwork. But there are new tools that could be helpful, that can kind of create a more level playing field across small and large businesses. And so it’s a way to create greater equity in the process and make sure that the whole process operates more thoroughly and efficiently.

Eric White And what about other countries? It’s tough to compare systems just because, as you mentioned, the U.S. is so vast, we’re a big economy as well. But there are some forward leaning nations that have taken steps that are similar to what you’ve suggested. What did you all find?

Darrell West Many countries are struggling with exactly the same thing the U.S. government struggles with in dealing with outside contractors. We are not alone in having a heavy reliance on businesses outside of the government. So we did look at what other countries are doing, the types of reforms that they are incorporating and then what kind of results that they are getting. And the interesting thing is, if you look at the United Kingdom, Germany and other places, some of the types of reforms that they have developed is, all these countries want to improve sustainability, so they want kind of a focus on environmental factors reducing the carbon footprint of their operations. There’s a lot of kind of interest in pursuing those types of goals. So there are countries that have incorporate sustainability as a criterion on which they’re going to evaluate federal bids and give greater weight to companies that actually are promising sustainability, in terms of how they execute government contracts. And the interesting thing is, when you actually look at the results, we’re finding and these other countries have found that if you focus on sustainability as a criteria, you start to get more bids that actually emphasize that and have the ability to execute on that. The same thing is taking place in regard to innovation. Every government wants to be more innovative, more efficient and more effective in how they do things. So countries are now prioritizing innovation as a criterion on which to evaluate external bids, and rewarding companies that are truly being innovative in the products they use, how they operate, their organizational structure and so on. So when you look at other countries, they are starting to achieve good results on the criteria that are important to them, and those are criteria of sustainability and innovation that also should be of great interest to the United States.

Eric White The federal procurement system itself is one that takes its time, in general, and I’m sure that that’s true for reforms to the federal procurement system, itself. Where do we go from here, I guess, is the question. Are these changes that could be implemented at the stroke of a pen? Or would it take actually some action from maybe Congress or some laws getting written as well that would add to the timeline?

Darrell West Some of these things are recommendations that can be implemented pretty quickly. The interesting thing is we put out a report, which for people who want more details that’s available free online at Brookings.edu. We also did an event a couple of weeks ago where we had some of the top officials who handle and oversee federal procurement on. They heard our recommendations, and so we had a direct channel to them. They talked about their interest in actually doing many of the things that we talk about. And in some cases, they actually have reforms underway that actually are going to do this. The Biden administration has prioritized getting more money out to small businesses, having more contracts go to women and minority owned businesses. So they are making progress in the sense of setting goals for themselves and then trying to push towards better implementation.

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