How the Healthcare.gov Mess Happened and How to Fix It

“Every cloud has a silver lining,” as the achingly sweet adage goes, and the silver lining in the very public – and very ridiculous – healthcare.gov fiasco is the bright light shining on the disastrous method by which the U.S. Government buys stuff. The government’s procurement and contracting procedures are byzantine to the point of incomprehensibility. So much so that those most qualified to do the government’s work often simply refuse to bid or are unable to do so. I think that explains much of what happened with healthcare.gov – and I’ve seen it happen before in government procurement.

As a recent Washington Post cover story “Capital gains,” illustrated, surging federal spending has enriched many a private contractor, especially in the DC metro area. Procurement policy, however, has not kept pace with the growth. This disconnect is apparent in the botched healthcare.gov rollout. There are plenty of people in the United States who know how to build a website and run a process like healthcare.gov. But they would never dream of working for the government, nor would they even be able to do so if they wanted to. Red tape, a famously hard-to-manage customer, and a procurement selection process as straightforward as amortization of tax-loss carryforwards, all conspire to keep new, nimble, and innovative firms from playing the contracting game. Who wants to be the mouse dancing with the hippo?

The U.S. Government spent about $1 trillion on procuring goods and services in 2012. That’s out of roughly $6.2 trillion in total spending among all government entities nationwide, or to put another way, $1 of every $6 of government spending is with private vendors of goods and services. The U.S. Government is, by many orders of magnitude, the largest shopper in the American economy. And virtually all of its purchases are governed by a set of procurement and contracting regulations that are regularly responsible for wasting hundreds of billions of dollars of public money. We hear stories of $7000 coffeemakers, or $8 billion wasted in Iraq reconstruction, or billion-dollar white elephant construction projects. Yet government officials and the public at large typically respond in one of two ways: A shrug and a sigh that little more can be expected of government-scale procurement; or indignant satisfaction of proof of the total inability of government to operate efficiently. Neither response is accurate. The fact is that the current level of waste is not acceptable and certainly not sustainable. The healthcare.gov crisis is a great time to draw – as is fashionable in Washington these days – a “red line” about what is no longer to be tolerated and must be fixed about procurement.

U.S. Government contracting and procurement is governed by a set of rules that has evolved over many years of special interest lobbying and preferential administrative action. They are laid out in thousands of incomprehensibly arcane pages that render compliance highly challenging. As the founder and former manager of the State Department’s Global Entrepreneurship Program, I have personal experience with these regulations as well as the few contactors equipped to navigate the rules and land all-important government contracts. Often termed “beltway bandits,” these are folks whose business mysteriously never slumps and who’ve helped make the DC area’s economy – and real estate market – one of the strongest in the country. In the face of onerous and impenetrable procurement rules, these are organizations whose primary talent is not a particular industry expertise, but rather simply winning major government contracts.

In fact, these organizations often have little or no actual ability to execute on the contracts they win. Normal commercial credentials – like subject-matter experience, track record, and reputation – are often irrelevant to winning new contracts. What matters instead is the capacity to employ legions of contract specialists (and lawyers) whose sole job is to win government contracts (and sue awarding government agencies if they don’t win). These firms pay their staff far more than what the government pays its procurement officers, who in any case often aspire to and end up working for, you guessed it, a government contractor.

Unless and until we reform the government procurement and contracting system we will continue to waste billions of dollars of public money, continue to get 1960s Soviet-style work product, and continue to accept public sector quality standards far below what any private sector customer would ever accept.

I grant that government procurement reform is not a sexy subject. And those who must fix the problem – a combination of Administration and Congressional officials, especially the two Appropriations committees and the House Oversight and Government Reform Committee – are loathe to take on the task of disciplining the contractor community (which, by the way, provides jobs for former government officials and campaign contributions). But if we are to prevent future debacles like Healthcare.gov – and the countless contracting failures that the press and public never see – this is where progress must be made.