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Thursday, September 16, 2004


The Producers:

Part One


State Performance Recommendation SO #71 for Performance-Based Contracting



At first, it just doesn’t seem to make sense. Every place you look in California’s State Performance Review the impressive claims are backed by falsified evidence. The recommendations would give der Gövernor lots more power, but they plainly won't produce the money that's needed to lift the state out of its fiscal swamp. It’s as tho der Gövernor and his hench-gröupies *wanted* this project to fail. Could it be that they stand to gain from having government reform turn out to be a FLOP instead of a HIT?

Consider, for example Recommendation SO #71, which says California can save $970 million over the next five years by adopting Performance Based Contracting ("PBC") so as to "specify outputs rather than inputs". In order to accomplish this, Der Gövernor is supposed to order state agencies "to promote the use of performance-based contracting where applicable", to place P-B contract samples on the Internet, and "to convert at least 10 percent of new and renewal service-related contracts to performance-based contracts by Year 1; 20 percent by Year 2; 40 percent by Year 3; and 50 percent by Year 4."

Is this Four Year Plan for PBC really a Great Leap Forward in public administration? Or is it just another management fad, rich in new buzzwords, but otherwise worthless? And where does that $970 million figure come from?

"Significant savings ranging from 15 percent to over 18 percent are possible using performance based contracting.[12] The number of contracts and projects that use this approach will be relatively small at inception, but will grow as the policies and processes are developed to fully implement this program. Estimated first full-year savings could range from $45.2 million and $91.2 million based on $7.6 billion of annual state purchases of goods and services. Savings over a five-year period could range from $684 million to nearly $1.36 billion. The table below assumes total spending on goods and services of $7.6 billion with an estimated 11 percent savings per year."

Damn! More footnotes! It looks like Arnold Schwarzenegger wasn’t kidding when he said "My favorite fiction writers are studio accountants." I suppose we'll have to see what Footnote 12 really says:

"Office of the Under Secretary of Defense, ‘Performance Based Service Acquisitions’, by Michael W. Wynne (Washington, D.C., August 19, 2003), http://www.acq.osd.mil/dpap/Docs/Performance%20Based%20Service%20Acquisitions.pdf (last visited June 10, 2004)."

A click takes us to the Pentagon, to this memo from the Acting Under Secretary of Defense for Acquisition, Technology and Logistics. The memo asks Senior Acquisition Executives to increase the use of "Performance Based Service Agreements" in service contract awards and to schedule training for those who prepare the contracts. It also gives the military brass what they want most -- room to maneuver. Contracts with low PSBA opportunities - the memo mentions research and development, environmental cleanups, ship repairs, medical and educational services, purchases and rentals of structures and facilities, etc. -- will be excluded from performance calculations and won’t show up in the progress reports.

But -- Wait a minute. Where’s that bit about "saving 15% or 18% or more"? It’s not there! It's not in the memo! It’s not there at all! It appears that some printer’s devil or ventriloquist’s demon saw the words "15% savings" and "18% higher satisfaction" on a different page of the Performance Review (Chap. 7, p. 1761 referring to a test PBC pilot project back in 1994-96.) That mischievous sprite must have lifted the words off the page, jumbled them up, and planted them next to footnote [12] to make it seem like the Pentagon recently endorsed the claims of substantial savings from PBC. But it just isn’t so.

The Pentagon memo was a follow up on the recommendations from a high-level Federal review of PBC. The procurement experts in the Office of Management and Budget (the folks with their thumb on the government’s cash) had set up a working group representing the major service contracting agencies. In its July 2003 report, the group recommended that performance-based contracting methods be tightened up, and that they not be used for certain types of contracts (R&D, etc.) Although OMB had waxed enthusiastic about PBC back in 1998, in a "Best Practices Guide" showcasing pilot project results, the working group report called for scrapping the Guide and improving the level of practical assistance. The new report concluded that performance-based contracting can improve the quality of results and customer satisfaction when properly done, but it specifically dispelled any notion that there are pots full of gold at the end of the PBC rainbow:

"The working group thinks that the acquisition community should work together to re-shape the expectation that PBSA will save money. While it may be possible to save money on non-professional types of services, or by the use of share-in-savings techniques, the government spends most of its service contracting dollars where contractors are chosen by "best value" techniques, not low price. There is little current data to support monetary savings, and if such data did exist, it would be extremely difficult to isolate the exact reasons the savings occurred. The working group does agree that we are seeing improved quality of performance and improved customer satisfaction."(p. 13)

Anyone reading the Pentagon memo would surely have noticed the reference to the working group report. PBC is useful, but it’s not a magic wand. Yet the State Performance Review offers Californians an illusory billion dollar savings from recycling failed bureaucratic magic. And since Billy ("Yoda") Hamilton and the other Reviewers are veterans of management fads, they must know that the projected savings are bogus. Why are they doing this? Why do they propose to reform state government in a way they know is bound to fail?

In Hollywood, they still talk of Joe E. Levine -- The Guy Who Produced Mel Brooks’ Film "The Producers"

After agreeing to finance the film, Embassy Pictures chief Joseph E. Levine met with director Mel Brooks. "Levine was a child of the Depression," assistant director Michael Hertzberg recalled, "and in his office he kept a bowl of apples. So when Mel goes up to see him, Joe says, 'Mel, my job is to get the money for you to make the movie. Your job is to make the movie. My job is to steal the money from you. And your job is to find out how I do it. Here, have an apple.'"





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