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Contracting in the New Economy


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If you buy services, then the one of the most important books in your professional future is Contracting in the New Economy: Using Relational Contracts to Boost Trust and Collaboration in Strategic Business Partnerships, by Frydlinger, Vitasek, Bergman, and Cummins (Palgrave Macmillan, 2020). The forward was written by Oliver Hart, winner of the 2016 Nobel Prize in Economic Sciences for his work on contract theory.

The book is neither well organized nor well-written. It too often comes across as a typical consultant self-promotion sales pitch. But it is full of important ideas and references. And so, if you are going to be involved and interested in long-term and complex service acquisitions, you simply must read it, or at least scan it.

The ideas in it are not new. I wrote about them in September 1999 in The Nash & Cibinic Report, in a guest article entitled, "Long-Term Service Contracting in the Year 2000 and Beyond," and in November 2001 in "The Service Contracting Policy Mess." Professor Nash and I wrote about them in Defense Acquisition Review Journal in September 2007 in an article entitled, "A Proposal for a New Approach to Performance-Based Services Acquisition."

The overarching idea is that of relational contracting. The germ of that idea was born in two famous articles: "Non-contractual relations in business: A preliminary study," by Stewart Macaulay, published in the American Sociological Review in 1963, and "The Many Futures of Contracts," by Ian R. Macneil, published in the Southern California Law Review in 1974.

Today we dwell in a stone age of government services acquisition. We are stuck with an acquisition process that is mired in 19th Century ideas. Ill-informed politicians, ill-informed Executive Branch acquisition policy officials, and an ill-informed workforce have a stranglehold on the acquisition process. There is no acquisition brain trust worthy of the name.

Acquisition is essential to government. Government is essential to our national well-being.

We are in trouble.

Start reading. Then start thinking.

 

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  • 5 months later...

@Vern Edwards Several months ago I came across a 2006 letter from the Procurement Roundtable that was sent to OFPP regarding Relational Contracting. Somehow, and I'm not super proud to admit this, that was the first I had heard of it. I have thought about it a lot since then and spend this afternoon reading the articles you cite in your post. The current state has not improved since 1999; in fact it is probably far worse.

A growing number of people working as 1102s today received their professional education in contracting after 1999. The "Orthodox Ideas About Service Contracts Not Suited to Long-Term Relationships" have further calcified in the bureaucracy. I hear them regularly, typically in some form of "Why can't they define their requirement?" We've been trained to demand precise specifications up front without ever asking ourselves if that is even possible. What a mistake. 

It has all sorts of obnoxious knock-on effects. "They want to raise the ceiling again!?!" Facts and circumstances will vary, but what if that is a sign of a success rather than a sign of financial and program mismanagement? E.g. We did not anticipate four years ago that we would need to fully integrate two-factor authentication into our IT security systems and it wasn't free. The contractor was able to integrate it successfully, on-the-fly, even working within a staffing structure that was developed four years prior. Great job everyone! 

More and more I think we need a comprehensive re-imagining of what Government procurement can be. (Financial assistance, BTW, is in similarly poor shape.) However, rather than problems being solved, they are proliferating. (Check out this publication from yesterday about research security...good grief: https://www.whitehouse.gov/wp-content/uploads/2022/01/010422-NSPM-33-Implementation-Guidance.pdf) It's no wonder that the average taxpayer doesn't understand or appreciate what government does. Government procurement is a gated community and the 1102s aren't even gate keepers. We are the traffic cops inside the gates tasked with (superficially) enforcing ever more draconian traffic laws. 

Maybe it is just the date, but sometimes it feels like we are in the dying days of the republic. Government procurement is just one piece of the structural failure.  

 

ProcurementRoundTable.pdf

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Ralph Nash and I wrote that paper for the Procurement Round Table. It was republished under our names in the Defense Acquisition Review Journal of September 2007.

https://www.dau.edu/library/arj/ARJ/arj45/ARJ45_complete.pdf

Employer-provided professional education (as opposed to training courses) for acquisition personnel is virtually nonexistent. DAU and FAI are failed organizations. I doubt they will get better.

But acquisition personnel can self-educate through reading and discussion groups. Read, read, read. Think, think, think. Discuss, discuss, discuss.

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