The outrage du jour over government spending is the alleged $16 muffins that were purchased for a conference in Washington D.C. hosted in 2009 by the federal government for immigration lawyers. An article in the latest Bloomberg BusinessWeek catalogs the furor: "Word of the $16 muffin ricocheted around the Internet. A grim-faced Joe Biden called for an immediate change to the government’s procurement practices. He ordered all government agencies to review conference spending and said a deputy secretary should personally approve such expenses while the review is under way."

All very noble and proper, and it appears as if a senior administration official has taken decisive action to curb the problem, but that action will more than likely ultimately result in more expensive muffins (and other procured items), not less.

This fiasco is the latest episode in our current fiscal crisis, in which all players are trying to gain political points, and no one is really minding the hen house. Joe Biden has been tasked by the Obama Administration to head up the official "Campaign to Cut Waste." As the Washington Post reports, "As part of the new anti-waste campaign, officials said, Biden will lead an 11-member oversight board tasked with helping federal agencies cut back on waste and fraud… the new board will be comprised of federal watchdogs, deputy secretaries, agency chief financial officers and officials from the Office of Management and Budget. Biden will also lead regular meetings with Cabinet members, and top agency officials will be required to submit new quarterly progress reports to the White House, officials said."

This is good in one respect, in that the project has been assigned high-level executive sponsorship, which we at Source One believe no strategic sourcing project can be successful without. But unless that board is ready and willing to engage in true change management and overhaul the way the federal government conducts procurement, this only adds a layer of bureaucracy, which will ultimately raise, not lower, costs.

The Republicans are on a similar warpath. Tom Coburn, senator from Oklahoma, is focused on cutting waste, fraud and abuse in the Medicare and Medicaid programs. According to website NewsOK, Coburn and another senator have "urged the congressional ‘super committee’ last week to incorporate their plan to reduce waste and fraud in Medicare and Medicaid. In a letter to the 12-member panel working on a deficit reduction plan, the senators said their legislation could save tax dollars through tougher penalties for fraud; stronger prevention strategies; curbing theft of physician and beneficiary identities; and other measures. ‘Each year we don't reform Medicare and Medicaid, tens of billions of dollars will continue to be lost to waste, fraud and abuse,’ said Coburn."

Again, noble and proper, and it appears as if Coburn is being a good steward of taxpayer money, but once again, without a commitment to change management and overhauling federal procurement procedures, the net result will be more bureaucracy and higher costs.

The problem lies in the federal government’s natural tendency to focus and rely on procedure, rather than effective and creative procurement methods. Everything has to be done "by the book." Canny suppliers know that and take advantage of that, while others who are truly interested in saving the government money with lower prices and better service levels are confronted with a monstrous wall of procedure that kills initiative and creativity.

The Bloomberg BusinessWeek article illustrates this effectively: "At least on paper, public employees are bound by an abstruse set of rules that govern even the smallest expenses and actually make you feel kind of sorry for the government’s muffin procurement officers. No, they aren’t called that, but most federal agencies do have employees dedicated to overseeing conference spending and contracts. Their bible is the Federal Travel Regulation (FTR) 41 Code of Federal Regulations (CFR) Chapter 300-304 Conference Planning (Subchapter D). Essentially, it says they have to call around to get an idea of the going rate in the area and then put out a request for bids, allowing conference centers and caterers to compete to provide their services for the lowest price."

The two essential procurement problems here are a) the onerous burden of following minute regulations, which adds time and therefore cost to any project, and b) the "3 bids and done" approach to issuing requests for bids, which in our experience is the quickest way to guarantee paying a premium price for your goods or services.

In a previous incarnation, I was the Business Development Manager for a fledgling aerospace company, responsible among other duties for preparing RFPs. The sheer burden of registering with Central Contractor Registration with reams of tangential and irrelevant information, filing long Representation and Certification forms every year, responding to RFPs with endless questions and requirements that had little to nothing to do with our ability to fulfill the contract, and all the other bureaucratic requirements I regularly dealt with dissuaded us from bidding on all but what we considered sure-fire wins. Even then, we didn’t win 90% of the contracts we bid for. In many cases those RFPs are "wired," meaning they're geared toward a specific supplier, if not actually even written by the targeted supplier, so that only they can apparently fulfill the requirements, and correspondingly jack up the price.

Dealing with this bureaucratic burden with little chance of winning any given bid represents a huge burdened cost to a business that has to be recouped somehow. Beyond that, we rarely got the opportunity to interact with the procurement officers and respond creatively to the RFP; it was a winner-take-all scenario. This only benefits the major players who can afford the overhead to manage such a process, and they are most definitely passing the costs of this overhead along in the pricing of their bids.

Hence, $16 muffins. The muffins themselves probably cost a dollar or two to make, but all the other fully-burdened costs of dealing with the government are rolled into that unit cost. It is the government and its onerous requirements, not the supplier, that is adding the cost.

The Washington Post article tells us that "Though the Obama administration doesn’t support privatizing federal entities, it has worked to end the use of no-bid government contracts, recoup improper payments made to fraudulent federal beneficiaries, divest excess federal properties and consolidate thousands of computer data centers owned or leased by federal agencies."

All well and good, but that’s still just tinkering around the edges, especially when there is no plan or desire to incorporate best practices from private enterprise. Unless true change management of procurement processes is initiated by this or any future administrations, Democrat or Republican, in the future, a $16 government muffin will be a bargain.
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Alex Howerton

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  1. This looks something that is not unique in US only.

    In this part of the world (Malaysia) during this year, the government had spend about USD 3,000 plus for one street signboard.

    Apparently the type of this signboard was made of 2 poles about 10 feet high and the signboard itself a piece of aluminium measuring 3 x 5 feet).

  2. I think central procurement system plus stricter internal audit would help reducing this kind of problem.