Nearly everything important that city governments do combines the efforts of city employees with goods and services acquired from the private sector. Based on the Government Performance Lab’s work with cities, the Harvard Kennedy School Government Performance Lab’s Director Jeffrey Liebman and Assistant Director Hanna Azemati write about the top ten contracting and procurement challenges that stand in the way of cities achieving their high-priority goals.
October 6, 2016 – As part of Bloomberg Philanthropies’ What Works Cities (WWC) initiative, we at the Harvard Kennedy School Government Performance Lab are helping at least 20 cities implement results-driven contracting strategies to improve the outcomes of some of their most challenging procurements. Based on discussions with city officials as well as analysis of the data that some cities make public on all of their contracts, we have created a top ten list of procurement challenges facing cities (in no particular order):
1. Strategic management of the overall portfolio of key procurements. We have not identified any city that strategically develops a list of the most important procurements that are coming up for renewal over the next couple of years and uses that list to prioritize which procurements should receive the most attention to try to improve the value they deliver. Instead, contracts tend to be renewed at the last minute, year after year, without consideration of past performance or of whether a new approach might result in better outcomes. In fact, most policy and program staff perceive the procurement process not as an opportunity to take advantage of but instead as an obstacle that needs to be overcome.
2. Optimizing basic procurement processes. Many cities have requested our assistance with basic systems reengineering, including development of common procurement templates and guidance on optimal procurement processes. These efforts are aimed at ensuring the integrity of the vendor selection process, streamlining the procurement process to encourage potential vendors to submit bids, and speeding up the procurement review process. Cities are also eager to institute vendor report cards so that they can use data on past performance to inform future contracting decisions across the city. Finally, cities are interested in learning about model procurements from other jurisdictions and adopting best practices.
3. Improving vendor diversity. Many of the cities we work with seek to improve the racial and gender diversity of vendors to ensure that contracted dollars are also supporting the cities’ equity goals. These efforts to improve vendor diversity heavily overlap with cities’ interest in having their residents win a greater fraction of procurements. To improve vendor diversity, cities need to increase their outreach to Minority and Women-Owned Business Enterprises (MWBEs) and streamline procurement processes to reduce the transaction cost for vendors seeking to conduct business with the city. If the pool of MWBE vendors is limited, cities also need to help build vendor capacity.
4. Driving outcomes of human services contracts. Cities have a difficult time seeing the connection between spending on social services and progress in addressing major social problems. In areas like homelessness, cities find that they are spending more and more on services, yet the problem keeps getting larger. Often there is little coordination between different funders focused on a given problem to make sure that the overall funds are efficiently allocated and that needy individuals don’t fall through the cracks. Cities often fail to track results of the services using meaningful metrics. At best, cities monitor processes, such as how many beds were occupied at a homeless shelter. It is rare for cities to track outcomes, such as how many individuals were placed in stable housing. As a result, cities are unable to manage their social service contracts to improve outcomes.
5. Managing routine construction and maintenance contracts. Cities are frustrated that these contracts, particularly those for road construction, repeatedly run over budget and behind schedule. These contracts can require close coordination with other entities to make sure, for instance, that a utilities company doesn’t dig up the road to repair a pipe the day after the road was repaved. Unpredictable environmental conditions, including soil and weather, can further complicate managing the performance for these types of contracts. Finally, there is little focus on how services can be implemented while minimizing the burden on citizens, who have to deal with noise and rerouted traffic.
6. Negotiating contracts for large construction projects. Cities report frustrations with procuring and managing large multi-year construction projects, such as building new tunnels and bridges. There is often insufficient information about the costs and scopes of work necessary for properly completing such projects at the time of the procurement. During contract negotiations, each party tries to transfer as much risk as possible to the other party without considering which party is actually best positioned to detect and manage the particular risk. These factors, in turn, limit the contractor’s ability to complete the project within the agreed-upon budget and timeline.
7. Managing very large contracts where there is little competition. For big contracts, such as for school transportation and trash disposal, cities struggle with both performance and pricing. They find it challenging to write contracts that incorporate good performance incentives. And they find that they have little leverage over vendors because there are only one or two local vendors that are qualified to provide the service.
8. Promoting innovation through contracts for new technology products and services. Choosing the right procurement strategies and the right vendors for innovative products and services, such as new software solutions and mobile apps, is often a challenge. For new technologies, cities cannot simply search for existing solutions since the solution may not yet exist. Standard procurement processes require specificity in the procurement and contract and do not permit flexibility from those specifications later on, which is challenging given the fast-changing nature of technology needs. Standard procurements processes also do not allow customers and developers to collaborate closely in creating the specifications for a product, even though this is often crucial for ensuring that the product addresses the needs of its ultimate users.
9. Managing procurements for IT systems. In purchasing Enterprise Resource Planning (ERP) systems, human resource management systems, and other major IT systems from national companies, cities often run into the challenge of being locked into ongoing customization, implementation, and maintenance contracts while being unable to adapt the systems to meet their needs. “Vendor lock” is created due to the technical barriers and high costs associated with shifting to a new vendor.
10. Increasing competition for professional services contracts. Procurements for professional services, which include financial, advertising, and legal services, can be challenging. While such services are often seen as highly specialized, they are often adaptable to different contexts. Yet due to the lack of standardization in the language used to describe such services, vendors often assume that they are not qualified to bid on certain procurements (such as for a city department other than the one they usually work with). This exacerbates a lack of competition and hinders cities in combining purchases of common professional services across departments to obtain high-volume pricing.
By providing technical assistance to cities that are participating in WWC, we are helping them develop solutions for each of these challenges and ultimately helping cities improve the results they achieve for their citizens through their most important procurements. To learn more, please see our chapter, “How Cities Can Improve Their Procurement of Goods and Services,” in the Manhattan Institute’s newly published book (available online), Retooling Metropolis.
Jeffrey Liebman is the Malcolm Wiener Professor of Public Policy at the Harvard Kennedy School where he directs the Taubman Center for State and Local Government, the Rappaport Institute for Greater Boston, and the Harvard Kennedy School Government Performance Lab. He can be reached at email@example.com. Hanna Azemati is an assistant director at the Government Performance Lab. She leads the Government Performance Lab’s role in the What Works Cities initiative.
The Government Performance Lab at the Harvard Kennedy School conducts research on how governments can improve the results they achieve for their citizens. An important part of this research model involves providing pro bono technical assistance to state and local governments. Through this hands-on involvement, the Government Performance Lab gains insights into the barriers that governments face and the solutions that can overcome these barriers.