Wednesday, January 15, 2014

Federal Contracting Part 1: Lucrative Failure

This is Part 1 of my Federal IT Contracting series. Please be sure to check out my Introduction posting that includes a disclaimer about my past relationship with CGI Federal, the original primary contracting firm responsible for the Healthcare.gov project.

This Washington Post opinion piece is accurate in its success through failure assessment. Where it fails is in not going deep enough into the cause, focusing instead on the visible symptom of executive advancement despite failure. I want to go deeper.

In Federal IT services procurement like what the government conducted for the Healthcare.gov site, failure is often viewed as equivalent to success in measuring the strength of individual staff members. When submitting a proposal for a government IT project, contracting firms are usually required to submit Past Performance, or a set of company references that demonstrate good results in relevant project areas, and Staffing, a list of those individuals who the firm proposes to include on the project. While the government Contracting Officer (CO) may validate Past Performance, I have never heard of any CO vetting Staffing experience. To be fair, government COs are chronically overworked and sometimes manage multiple contracts, likely resulting in them doing the bare minimum in evaluating contractor proposals. Individual staff members are usually evaluated only on their relevant experience without regard for success. Quantity trumps quality when it comes to proposed staffing.

Government contracting firms know this and often pad Staffing with those individuals that the potential customer either knows best (Known Good) or that have the most relevant technical expertise (Relevant Good). Known Good individuals are usually the more senior folks who are known in the halls, those who have the most relevant customer relationships but who generally engage at very minor performance levels (10% or less). Relevant Good individuals are usually those folks who will have the most impact on project management. But, because their experience isn’t scrutinized, those staff members may include their project failures as equivalent to their successes with regard to relevance. If at first you don’t succeed, fail, fail, again.

What’s worse is that most staff that a firm proposes for a project will never even work on the project. Those Relevant Good individuals who the firm proposes are often demanded most for the same reasons that they look good to a CO, their supposed breadth of experience. Also, since government IT procurement decisions often span months following proposal submission, firms cannot be reasonably expected to hold staff in waiting during the process. Proposed individuals, especially Actual Good ones, keep going on with their current work and may be unavailable to support a new effort despite being included.

Once the government accepts a proposal, the contracting firm scrambles to find staff to fill the necessary roles. Tragically, the majority of people available to do the work are the less desirable individuals, those that only have the minimum experience and/or are the poorer performers. I wouldn’t go so far as to call it a bait-and-switch because there’s no way that a firm can make stronger staffing commitments without a win guarantee. But, it contributes to any environment that tolerates less-than-stellar individual performance.

A rational view may argue that contracting firms would naturally weed out poor performers. While this does happen (though those individuals often just go to another firm, again based on unvetted experience), the government contracting environment is susceptible to rewarding inefficiency with new funding, which in turn causes poor performers to be successful. In all but the most egregious failures, the government will always pay its bills. Since contracting firms define success financially, even poor performers can succeed.

The government IT services procurement process being as it is, projects come out of the gate on bad footing. Firms propose the best people that they can for the work, wait for months to have a decision, and then count on the project manager to run the project effectively. But, those managers are set up to fail from the beginning because they have to kick the project off with only those staff members that are available at that time, a high percentage of whom are only available because they are either unwanted by other projects or are considered expendable. Note that high-performing contributors never fall into either category. The project managers do what they can with what they have, but success is a bit of crap shoot where the odds rarely fall in their favor.

On one project where I was a project manager, I remember sitting in one instance of a weekly meeting where the government director was berating both major contracting firms for performance problems early into a multi-hundred million dollar infrastructure effort. As a supporting manager of one of many domain areas, I didn’t have a ‘seat at the table,’ both figuratively and physically, but was instead a wall flower hiding in one of the cheap seats that lined the large boardroom-like conference room. During his tirade (that started at the o-dark early time of 7 AM), the director pointed to me and said, “Now Michael, he gets it. Not only is his team delivering results, he’s telling me the information that I need to know. I don’t like what he’s telling me, but at least I know that I can trust him to get done what needs to get done. In fact, he doesn’t even need to be at these meetings anymore.” “Score,” I though to myself, “I can sleep in now.” I was thrilled to get called out like that. That public display of support won me a lot of bonus points within the contracting teams.

The director had no clue what I was dealing with on the back end. Of a team with around a dozen direct reports, only a third of them did anything valuable. The rest were simply billing their time and making a profit for the executive that approved the project. When I looked at my financials, my high performers were hurting me to the tune of a -10% profit. I improved that to -1% within several months. Despite performing well for my customer, I was dealing with the constant stress of being unable to achieve any reasonable level of profitability, frequently forced to answer to my executive management chain for the failure. Client success does not equal firm success. To turn things around, I had to either replace my high performers with cheaper, less experienced individuals, or I had to convince my customer to increase how much we were paid.

This is where the ‘best value’ designation mentioned in the Post piece comes into play. Loosely translated, ‘best value’ is determined by getting the most skilled contractor resources for the least amount of money. To win the project, a firm needs to be as competitive as possible, without regard to whether it can effectively staff the project at the proposed financial levels. Since the government almost always pays its bills, winning the work is more important than actually performing it under the proposed financial metrics. At worst, the firm gets paid what it proposes to get paid. At best, a good project manager is able to get the customer to pay more than the proposed amount. This inevitably leads to a culture of rewarding inefficiency. Those project managers and executives who practice the most inefficiency without completely failing make the most money for the firm.

But, what happens when they do fail? For major projects like Healthcare.gov, insidious inefficiency and poor performance is realized too late in the project for the government to really do anything about it. For the government director, starting over is worse than hoping for the best. In most cases, the contractor simply continues to get paid in hope that it can turn things around.

Healthcare.gov is exceptional not because of the epic failure, but because of its visible failure. Without that factor, contracting firms like CGI Federal just proceed with business as usual. For them, as long as the government will continue to pay the bills, failure is a pretty lucrative business strategy. Those managers that are best at getting the most out of the government are handsomely rewarded.

Continue on to Part 2 of this series: It's Good to be a Contracting Firm.