Developing Innovative Contracting Techniques
Encouraging open communication, shared risk, and a joint commitment to achieving outcomes.
By Diane Bublak, DBA, IT&P, HEAL
Innovative contracting methods or techniques may mean different things to different organizations. Using innovative methods is neither unique to the federal government nor new to contracting professionals. Local and state government and industry contracting professionals routinely explore new ways to get contracts awarded faster to the best contractor or subcontractor and to reduce the risk of non-performance.
Innovation applies beyond agile contracting and cost-type contracts. Its techniques can be applied in the solicitation, evaluation, and award phases of fixed-price and cost-type contracts. Innovation is being deployed across industry and government and is used to buy everything from construction to research and development.
Terms and Definitions
There is no single definition for innovation. The Massachusetts Institute of Technology1 provides that it is the process of taking ideas from inception to impact. Innovative contracting techniques can decrease project delivery time, reduce construction or production time, improve safety and/or quality, and reduce costs.
The heartbeat of innovation is creating mutually beneficial relationships between the parties involved in a contract. Rather than relying on traditional, adversarial contracting methods, innovative contracting emphasizes collaboration, transparency, and flexibility. Innovative contracting creates a framework that encourages open communication, shared risk, and a joint commitment to achieving the desired outcomes. It allows us to incorporate new practices to complement or supplement traditional contracting methods.
The Federal Acquisition Regulation (FAR) provides the guiding principles for the federal acquisition system. FAR part 1 states, “The role of each member of the acquisition team is to exercise personal initiative and sound business judgment in providing the best value product or service to meet the customer’s needs. In exercising initiative, government members of the acquisition team may assume if a specific strategy, practice, policy, or procedure is in the best interests of the government and is not addressed in the FAR, nor prohibited by law (statute or case law), executive order or other regulation, that the strategy, practice, policy, or procedure is a permissible exercise of authority.”
This principle assumes the importance of interactions, collaboration, communication, and the positive responses to change that may, without repercussions, leave room for mistakes. Without these key components, we would have to rely on the directions provided in the FAR and agency supplements without deviation. We are aiming for innovation – creative contracting methods that reduce time to award.
Best Practices
What does innovation look like? Santosh Mungle et al.2 explain that transportation agencies use a variety of contracting methods for highway construction. In the case of the Minnesota Department of Transportation, the use of innovative contract techniques replaced the traditional low-bid, design-bid-build contracting method.3 The results were a reduction in construction and project delivery time as well as improved safety, which ultimately cut costs.
The Federal Highway Administration implemented a variety of roadway construction projects that deviated from the standard design process that followed the low-bid constructor award. Instead, it came up with alternative contracting methods: 1. Cost-Plus Time Bidding (A+B bidding), 2. Design Build, 3. Lane Rental, and 4. Warranty Clauses.4 These methods motivate contractors using incentives based on delivery time; selection of design, materials, and construction methods; minimal road lane closures; and placing the responsibility for a product on the contractor.
When producing a flu vaccine, the World Health Organization, Centers for Disease Control and Prevention, and the Food and Drug Administration collaborated to conduct surveillance, produce vaccines, and distribute them based on the identified flu strain. Many industry and educational institutes, funded with federal money, now can produce the vaccines when production must be ramped up.5
The Power of Collaboration
The organizations encouraged collaboration among researchers, scientists, and industry stakeholders. They facilitated partnerships and encouraged sharing of data and knowledge among vaccines developers, regulatory bodies, and other organizations. They allowed expedited clinical trials and emergency-use authorizations, which enabled vaccines to be approved and distributed faster. This discards the antiquated us-versus-them mindset. It is replaced with collaborative teamwork and partnership, which are so critical to innovation in contracting.
The Department of Homeland Security (DHS) Procurement Innovative Lab (PIL) is home to a library of resources, and a framework for experimenting with innovative acquisition techniques. The PIL presents these techniques through courses for the federal acquisition community. The PIL Bootcamp Workbook6 gives learners the opportunity to apply what they have studied about FAR flexibilities through an “Is it Required?” game providing innovative techniques. Some of these techniques are listed below:
- Oral presentations give the offeror the opportunity to present their technical proposal not just in writing. The presentations help evaluators be sure the technical proposal is coming from the company’s key personnel, executive, or the teams responsible for executing the solution.
- Product or technical demonstrations give the offeror the opportunity to demonstrate their product versus writing volumes about its capabilities. Buyers can see, touch, and test product capability prior to purchases.
- Confidence ratings are an alternative to adjectival ratings. There are three ratings versus five, so the process is simpler. By assigning confidence ratings, the evaluators can quickly identify areas of the proposal that are strong and those that need improvement.
- On-the-spot consensus evaluation skips the laborious task of individual reports and gets immediately to consensus. During oral presentations or demonstrations, evaluators take informal notes to aid in consensus.
Combining the techniques in an innovative evaluation scenario might unfold like this: Offerors perform oral presentations or product demonstrations. Evaluators ask questions, explore the products, and assign confidence ratings on the spot. At the conclusion of each presentation or demonstration, the evaluators reach a consensus for that offeror. When all presentations or demonstrations are complete, the evaluation team can document the rationale for the decision.
DHS leadership paves the way in testing innovative procurement methods and released fiscal strategies for 2022 through 2025 including:
- Prepare and empower our people to excel
- Energize partnership through collaboration
- Inspire innovation to enhance mission capabilities
- Enrich the DHS procurement experience
The PIL Yearbook for fiscal 20217 highlights stories showcasing how the DHS community fosters procurement innovation to support mission outcomes and respond to the ever-challenging federal procurement landscape.
After the success of Operation Warp Speed, when the FDA approved COVID-19 vaccines for the American public, the Federal Emergency Management Agency (FEMA) took the lead in rapidly providing COVID-19 vaccinations to the nation. It did this by establishing and staffing community vaccination clinics.
The FEMA procurement team had a short timeline to award contracts to staff these clinics with capable medical personnel. The team had to meet the goals established by the President and DHS and FEMA leaders. The team used techniques such as advisory down-selects, brief proposal submissions and confidence ratings, and on-the-spot consensus to streamline the process. Using these techniques, FEMA awarded two $3.2 billion indefinite delivery-indefinite quantity (IDIQ) contracts only 79 days after solicitation release. Within six months, the agency awarded more than 100 task orders supporting more than 10,000 federal and contractor staff at the clinics.
After recently awarding a blanket purchase agreement with seven vendors, the Center for Tobacco Products planned to issue a task order to support the tobacco inspection management program. The team wanted to innovate to save the Food and Drug Administration (FDA) time, resources, and money, while also ensuring that it got the best vendor for the task at a reasonable cost.
The team was concerned with using techniques not normally used by the FDA. However, it decided to use oral presentations, on-the-spot consensus, streamlined documentation, and confidence ratings to identify the best vendor. The FDA awarded the task orders 63 days after solicitation release, saving money and time in evaluations and reviews.
The Air Force’s Kessel Run software factory8 links the operational Air Force to software talent. It bridges the gap between advanced capabilities and the warfighter. Kessel Run embraced innovations such as agile development; user-centered design; and development, security, and operations (DevSecOps).9 Traditionally, a waterfall approach was used to procure software development. The waterfall model is a structured and software development is completed as a single project.
Agile Flexibility
Agile software development describes an approach to software development. With this approach, requirements and solutions evolve through collaborative efforts of self-organized and cross-functional teams and their customers/users.
Instead of trying to define the requirements years in the future, the agile scrum sprints allow for a repeatable fixed time-box during which a “done” product of the highest possible value is created. Generally, the maximum duration for an agile scrum sprint is one month or less. This flexibility allows for changes to be made in the project development requirements even after the initial planning is completed.
One of the major differentiators for agile contracting is that the testing typically is performed concurrently with programming or at least in the same iteration as programming. DevSecOps is an approach that integrates security as a shared responsibility through the lifecycle. In contrast, testing at the end of development might expose that software does not meet security requirements. Agile contracting generally accepts DevSecOps as part of its approach in establishing requirements documents through contract execution.
The Environmental Protection Agency (EPA) protects human health and the environment by developing and enforcing environmental regulations to reduce pollution and protect air, water, and land resources. To meet its mission, the EPA provides its contracting workforce with an innovations clause. According to the EPA website, including these clauses in contracts “can allow flexibility to address issues and change service terms to take advantage of innovation without having to renegotiate the entire agreement.” The flexibility of the innovations clause permits additional materials for recovery, collection changes (wet/dry routing), or new technology.
For instance, the city of Fresno adopted an ambitious zero waste action plan. Through the innovations clause, proposers were encouraged to submit one or two proposals to address how they would meet the mandatory recycling ordinance.
The provision allowed for changes in scope, at the city’s direction. The changes affected implementation of innovative services, changes in collection methods, new requirements for customers, expansion of public education, or implementation of pilot programs. The advantage of these innovative techniques is the flexibility to use numerous best practices and innovative approaches to maximize the zero waste objectives.
The Internal Revenue Service (IRS), like all federal agencies, is under mandates to incorporate new and emerging technologies. The purpose of these technologies is to enhance daily operations, innovate, and increase efficiencies in their mission of administering the nation’s tax code. The IRS moved towards innovative contracting by implementing Pilot IRS.10
“The purpose of Pilot IRS is to set forth an incremental and modular [contracting] approach to identify, test, and deploy solutions that support the mission, regardless of whether the solution, technology, or service currently resides within the IRS or the federal government,” according to the IRS website.
The goals of the program include 1. promote innovative responses to IRS challenges and investigation of emerging technologies and processes; 2. broadly communicate IRS’ areas of interest in the innovative solutions and technologies; and 3. create a streamlined progression from concept to prototype, testing, and limited deployment.
The IRS, like many organizations, is faced with the challenge that there is no specified solution or approach to solve the agency’s technological challenges. The IRS leadership understands that innovation is restricted when contracting cells continue to do business the same way. It used innovative procurement techniques such as challenge statements and allowing maximum flexibilities in post-award processes in conjunction with the TechFAR Hub,11 and the Digital Services Playbook.12 Consequently, the IRS realized faster award times and post-award flexibilities.
In 2021, the IRS released a request for proposal that indicated the agency intended to use the Pilot IRS program to test innovative solutions to digitalize IRS documents and records. It awarded a $7.5 million contract to five contractors through the experimental procurement phased approach. This contract brings innovation in the administration phase and focuses on funding.
The IRS determined it could mitigate risks by using iterative funding. Phase 1 is the testing and pilot phase with a cap of $200,000 over 180 days. Phase 2 is a deployment phase capped at $7.3 million over four and a half years. To be eligible for the second phase, the projects must show progress and contain a strong deployment plan.
This flexibility in contract administration resembles agile software development. The motivation for a contractor to implement and perform is based on its ability to successfully execute. Reward for successfully executing is continued performance.
Creative Blocks
So, what holds back innovation? In addition to the FAR, each federal agency has its own internal standards and protocols for writing requirements documents and executing contracts. These layers of regulation can constrain contract managers’ discretion.
A common misconception is that every award must be treated under the confines of FAR part 15 Contracting by Negotiation. Too often, we revert to the old habit of using FAR part 15 procedures for every type of procurement. This adds unnecessary practices and documents that delay contract award.
Even more limiting is the tendency to conduct business the same way predecessors have. In many instances, contracting professionals learn their skills from their predecessors. In our contracting community, those who ask, “Why are we doing it this way?” too often hear, “That’s how we have always done it.” This often leaves innovation out of the equation and denies creative contracting solutions.
Fear of taking risks must be eliminated to encourage creativity. DHS developed the PIL using a framework of testing and sharing, which was the catalyst for culture change and learning. This testing model exemplified the learn-grow-learn mentality of innovation.13
Agencies have adopted different approaches to reduce fear of experimentation. For example, the DHS and the General Services Administration encourage contracting staff to test innovative techniques and surface new ideas by supplying Government Accountability Office decisions supporting such actions. Kessel Run, on the other hand, adopted a learn-grow-learn environment, which is a concept that emphasizes the importance of continuous learning and improvement.
The cycle of learning, growth, learning is a never-ending process that drives continuous improvement and innovation.
Fully engaging in an innovative contracting technique takes collaboration within teams joining industry and government. Working in silos or an antagonistic environment erodes partnership and trust. Removing the barriers to innovation can free contracting officers to fully operate, without fear, to the full extent of the flexibilities in the FAR.
Creating an experiment-friendly culture can include providing case studies of success, building a test-share environment. Or it can be created by simply sharing clauses that allow innovation to be baked into contracts during planning. CM
Diane Bublak, DBA, IT&P, HEAL, is a Learning Director and Professor of Contract Management at the Center for Contracting and Small Business, Defense Acquisition University.
1. Person, K. (2022). What is innovation? Definitions for innovation, mission innovation, and innovation theater. Mission Innovation X. https://mix.mit.edu/what-is-innovation/
2. Mungle, S., Benyoucef, L., Son, Y. J., & Tiwari, M. K. (2013). A fuzzy clustering-based genetic algorithm approach for time-cost-quality trade-off problems: A case study of highway construction project. Engineering Applications of Artificial Intelligence 26(8), 1953-1966.
3. Marti, M. & Kuehl, R. (2009). Innovative Contracting Methods. SRF Consulting Group, Inc. Minnesota Department of Transportation. https://mdl.mndot.gov/items/2009RIC02 Transportation Research Board. (n.d.). Innovative contracting practices. Retrieved from https://onlinepubs.trb.org/Onlinepubs/trcircular/386/386.pdf
4. https://www.fdot.gov/construction/altcontract/general/bidding.shtm
5. Booz, Allen, Hamilton. (2016). Innovation is a contract sport: Ways that agencies can achieve innovative outcomes through acquisitions. Retrieved from https://techfarhub.usds.gov/assets/files/Innovation_is_a_Contract_Sport.pdf
6. Department of Homeland Security. (2019). PIL Boot Camp. https://www.dhs.gov/sites/default/files/publications/pil_boot_camp_workbook_oct_2019.pdf
7. Department of Homeland Security. (2021). Procurement Innovative Lab Yearbook for Fiscal Year 2021. https://www.dhs.gov/sites/default/files/2022-08/PIL%20Yearbook%20FY%202021_2.pdf
8. https://kesselrun.af.mil/
9. https://www.redhat.com/en/topics/devops/what-is-devsecops
10. https://www.irs.gov/pub/irs-pdf/p5421.pdf
11. https://playbook.cio.gov/techfar/
12. https://playbook.cio.gov/#plays_index_anchor
13. https://www.dhs.gov/about-pil