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Competition in government and industry procurement contracting
Competition in Government and Industry Procurement Contracting Richard L. Entrikin This study explores government and industry procurement officials' perception of inhibiting factor importance to competition in Federal contracting. W i t h i n the government sector as well as the industrial sector there are no significant differences in perceived factor importance. However, b e t w e e n the industry and government sectors significant differences in perceived factor importance do exist. The stud 3, also reveals some commonality of factors identified by both sectors as important inhibitors to competition.
INTRODUCTION Competition among suppliers or the lack thereof, plays a significant role in industry and governmental procurement practices [1]. Both sectors require a competitive environment if the purchaser is going to accomplish the following objectives: 1. Pay reasonable prices for the best value obtainable [2]. 2. Develop satisfactory sources of supply. 3. Secure good vendor performance including prompt delivery and acceptable quality [3]. Address correspondence to: Dr. Richard L. Entrikin, Associate Professor, Faculty Chairman--Marketing, George Mason University, 4400 University Drive, Fairfax, VA 22030.
Industrial Marketing Management 10, 273-276 ( 1981) © Elsevier North Holland, Inc., 1981 52 Vanderbilt Ave., New York, New York 10017
John K. Peterson BACKGROUND Procurement practices within the Federal Government requiring competition between suppliers dates back as far as 1861 [4] when such procedures as public announcement, sealed bid, and public bid openings were implemented. These procedures presently comprise the formal advertising method of competitive procurement which is the preferred approach according to the Congress [5]. Yet today it is recognized that nearly 85% of Federal Government purchasing is on a negotiated bid basis which does not include public bid openings and often is not competitive [5, p. 554]. Among the reasons Federal Government procurement officers cite to explain limited, or single source, contracting are th~ complexity of the weaponry and the lack of bids. Over 40% of the defense purchasing, in dollars, results from single source negotiation, whereas competitive negotiation accounts for 44%-48% and competitive bid for 10%-12% [5, p. 560]. For some product categories such as facial tissue, demolition equipment, or filing cabinets, the General Services Administration (GSA) reports it is often unable to get even three companies willing to bid even though a minimum purchase of $50,000 may be involved [6]. The trend toward the negotiated procurement and the
273 O019- 8501/81/040273-04/$02.50
number of single source suppliers has led to criticism (via Congress and the General Accounting Office) that Federal Procurement practices are inhibiting competition for Federal contracts [7]. A review of the literature suggests several factors that may be perceived as inhibiting competition [7, p. 342]. These include the following: • • • • • • • • • •
• •
Lack of known sources of supply Unwillingness to contract with unproven suppliers Complexity of item to be purchased Lack of planning Misuse of "unsolicited proposal" procedures Skill level and training of Government personnel Lack of definitive specifications and drawings Questions of patent and/or production data ownership Lack of adequate time for processing competitive purchases Agency staffing (manpower shortages in acquisition fields, technical and administrative) Insistense upon Government specifications versus commercial specifications Reluctance of suppliers to deal with the myriad of "social clauses" and paperwork that accompany a Government contract [8]
The purpose of this study was to determine (1) which of the above factors is perceived as most inhibiting to competitive contracting by government and industry procurement officials, (2) whether there are any significant differences in the perception of inhibiting factors between governmental and industry procurement officials, and (3) whether there are any significant differences in perceived inhibiting factors within governmental procurement ranks and industry managerial levels.
RICHARD L. ENTRIKIN earned a B.A. in Business Administration from Western Illinois University, a M.S. in Marketing from Northern Illinois University, and a Ph.D. in Business Administration from Saint Louis University. He is an Associate Professor and Chairman of Marketing at George Mason University. JOHN K. PETERSON earned his B.I.S. degree from George Mason University with a major in Government Procurement and Grants Management. He is currently a Contracting Officer for the U.S. Geological Survey, Reston, Virginia. He has had seven years of Federal Procurement experience at the Survey, U.S. Coast Guard, and Naval Air Systems Command in Washington, D.C.
274
HYPOTHESES There are no significant differences in the perceived factors that inhibit competition in Federal Government contracting 1. between government procurement officers and industry procurement management, 2. between ranks of government procurement officers and industry procurement management levels, 3. within managerial levels in industry procurement, and 4. within ranks of government procurement officers.
METHODOLOGY A total of 311 questionnaires were distributed to government and industry procurement officials. Of those distributed, 258 were returned and 250 were used (161 Government and 89 Industry). A list of twelve factors believed to be "perceived inhibitors to competition" were presented and each respondent was asked to rank order the five factors that inhibit competition the most on a scale of 1 through 5, where 1 is highest, 5 is lowest (Table 1). A Spearman rank correlation was then performed in order to determine the top five inhibitors selected by respondents from government and industry. Further breakdowns were made possible by asking respondents their GS rating in Government or their level of management in Industry (GS-9 or below was equated to entry level management, GS-10-12 was equated to mid-level management, and GS-13 and above was equated to top level management).
RESULTS A comparison of government procurement officers and industry procurement management reveals that there is a significant difference in the perception of inhibiting factor importance (Table 2). The comparison between government procurement at each level with their counterparts in industry also reveals that there is a significant difference in the perception of inhibiting factor importance. The comparison of managerial levels in industry with each other shows that there is no significant difference in perceived inhibiting factor importance. This is also the case within the government ranks. All twelve of the factors listed received rankings of 1 through 5 within both the government and industry segments, indicating that a variety of factors are perceived to be inhibitors of competition in Federal Contracting. Commonality be-
TABLE 1 Rank Ordering by Sector and Level (Rank) of Perceived Inhibitors to Competition for Government Contracting"
Factor Lack of known sources of supply Unwillingness to contract with unproven suppliers Complexity of item to be purchased Lack of planning Misuse of "unsolicited proposal" procedures Skill level and training of Governmen! personnel Lack of definitive specifications and drawings Questions of patent and/or production data ownership Lack of adequate time for processing competitive purchases Agency staffing (manpower) shortages in acquisition fields (technical and administrative) Insistence upon Government specifications vs. commercial specifications Reluctance of suppliers to deal with myriad of "social clauses" and paperwork which accompany a Government contract
MiddleUpperEntry-Level Mid-Level Upper-Level Entry-Level Management Management Overall Overall Government Government Government I n d u s t r y Industry Industry Government Industry 4 2 2 3
4 2
4 2
1
1
1
5
3
3
5
3
1 5 3
1 3 4
4 2
1 4 3
5
5
4
4
1
2
5
2
2
5
~Top Five Only
tween the two segments shows up in the lack of planning area and the complexity of the item to be purchased (Table 1). Within the government sector the lack of definitive specifications and drawings received unanimous selection as the most inhibiting factor, followed by the lack of planning, lack of adequate time for processing competiTABLE 2 Summary of Spearman Rank Order Correlations Coefficients
Rankings Correlated
Value
Government (all) vs. Industry (all) 0.315" Entry Level Government vs. Mid-level Government 0.916 ~ Mid-level Government vs. Upper Management Government 0.853 ~ Entry Level Government vs. Upper Management Government 0.689 ° Entry Level Industry vs. Mid-level Industry 0.743 " Mid-level Industry vs. Upper Management Industry 0.848 ~ Entry Level Industry vs. Upper Management Industry 0.677 b Entry Level Government vs. Entry Level Industry 0.198 ~ Mid-level Government vs. Mid-level Industry -0.040 a Upper Management Government vs. Upper Management Industry 0.126 a
"Not significant bSignificant at 0.05 level (critical value 0.506) cSignificant at 0.01 level (critical value 0.712)
tive purchases, complexity of the item, and the reluctance of suppliers to deal with a myriad of "social clauses" and paperwork (Table 1). Within the government sector those inhibiting factors ranking 1 through 5 were identified by between 41% and 73 % of 161 respondents. The first four inhibitors were selected across all three ranks (Table 1). Within the industry sector the unwillingness to contract with unproven suppliers was selected as the most inhibiting factor, followed by the insistence on government rather than commercial specifications, lack of planning, complexity of the item, and manpower shortages (Table 1). Within industry those factors ranked 1 through 5 received between 42% and 76% identification from 87 respondents. The top three were identified across all levels of management (Table 1).
IMPLICATIONS Those inhibiting factors identified by government procurement officers appear to be somewhat related. The lack of specifications and drawings may well be due to
275
the complexity of the item to be purchased. Lack of planning may affect the perception of inadequate time needed for competitive bid purposes. However, for those items that are standardized with definite specifications, inadequate time for processing could possibly be eliminated by proper planning. Also, since government procurement officers at the upper two ranks perceive that "social clauses" and paperwork inhibit competition, their willingness to show suppliers or potential suppliers how to deal with the social clauses and paperwork expediently could help alleviate the problem. Procurement management within the industrial segment perceive that government procurement practices make it difficult for new suppliers because specifications may also inhibit potential bidders. The perception that there is a definite lack of planning within government procurement may well be due to agency staffing and manpower shortages as well as the relative complexity of the item being purchased. It is also interesting to note that although not in the top five ranks, the lack of skill and training of government procurement officials is ranked seventh by government procurement officials and sixth
276
by their counterparts in industry. Possibly research into the extent and type of training government procurement officials possess could lead to the identification of areas that need improvement,
REFERENCES 1. England, Wilbur B., Procurement: Principles and Cases, 4th ed. R. D. Irwin, Inc., Homewood, IL., 1963, p. 470. 2. Clark, John M., Competition As A Dynamic Process. The Brookings Institute, Washington, D.C., t971, p. 81. 3. Pooler, Victor, H., Jr., The Purchasing Man and His Job. American Management Association, New York, 1974, p. t8. 4. Alijian, George W., Ed., Purchasing Handbook, 2nd ed. McGraw Hill, New York, 1966, pp. 19 24. 5. Dobler, Donald W., and Lee, Lamar, Purchasing and Materials Managemerit: Text and Cases. New York, McGraw Hill, 1977, p. 564. 6. Selling to the Government: Out of the Maze, Sales and Marketing Management, April 9, 1979, p. 44. 7. U.S. Congress, Committee on Small Business, Hearings on Government Procurement 1976, 94th Congress, 2nd Session, p. 342. Bradford, Murray W., Government Contracting: An Exercise in Discipline, Price Waterhouse Review 24( 1), 10-13 (1979).
INTRODUCTION Competition among suppliers or the lack thereof, plays a significant role in industry and governmental procurement practices [1]. Both sectors require a competitive environment if the purchaser is going to accomplish the following objectives: 1. Pay reasonable prices for the best value obtainable [2]. 2. Develop satisfactory sources of supply. 3. Secure good vendor performance including prompt delivery and acceptable quality [3]. Address correspondence to: Dr. Richard L. Entrikin, Associate Professor, Faculty Chairman--Marketing, George Mason University, 4400 University Drive, Fairfax, VA 22030.
Industrial Marketing Management 10, 273-276 ( 1981) © Elsevier North Holland, Inc., 1981 52 Vanderbilt Ave., New York, New York 10017
John K. Peterson BACKGROUND Procurement practices within the Federal Government requiring competition between suppliers dates back as far as 1861 [4] when such procedures as public announcement, sealed bid, and public bid openings were implemented. These procedures presently comprise the formal advertising method of competitive procurement which is the preferred approach according to the Congress [5]. Yet today it is recognized that nearly 85% of Federal Government purchasing is on a negotiated bid basis which does not include public bid openings and often is not competitive [5, p. 554]. Among the reasons Federal Government procurement officers cite to explain limited, or single source, contracting are th~ complexity of the weaponry and the lack of bids. Over 40% of the defense purchasing, in dollars, results from single source negotiation, whereas competitive negotiation accounts for 44%-48% and competitive bid for 10%-12% [5, p. 560]. For some product categories such as facial tissue, demolition equipment, or filing cabinets, the General Services Administration (GSA) reports it is often unable to get even three companies willing to bid even though a minimum purchase of $50,000 may be involved [6]. The trend toward the negotiated procurement and the
273 O019- 8501/81/040273-04/$02.50
number of single source suppliers has led to criticism (via Congress and the General Accounting Office) that Federal Procurement practices are inhibiting competition for Federal contracts [7]. A review of the literature suggests several factors that may be perceived as inhibiting competition [7, p. 342]. These include the following: • • • • • • • • • •
• •
Lack of known sources of supply Unwillingness to contract with unproven suppliers Complexity of item to be purchased Lack of planning Misuse of "unsolicited proposal" procedures Skill level and training of Government personnel Lack of definitive specifications and drawings Questions of patent and/or production data ownership Lack of adequate time for processing competitive purchases Agency staffing (manpower shortages in acquisition fields, technical and administrative) Insistense upon Government specifications versus commercial specifications Reluctance of suppliers to deal with the myriad of "social clauses" and paperwork that accompany a Government contract [8]
The purpose of this study was to determine (1) which of the above factors is perceived as most inhibiting to competitive contracting by government and industry procurement officials, (2) whether there are any significant differences in the perception of inhibiting factors between governmental and industry procurement officials, and (3) whether there are any significant differences in perceived inhibiting factors within governmental procurement ranks and industry managerial levels.
RICHARD L. ENTRIKIN earned a B.A. in Business Administration from Western Illinois University, a M.S. in Marketing from Northern Illinois University, and a Ph.D. in Business Administration from Saint Louis University. He is an Associate Professor and Chairman of Marketing at George Mason University. JOHN K. PETERSON earned his B.I.S. degree from George Mason University with a major in Government Procurement and Grants Management. He is currently a Contracting Officer for the U.S. Geological Survey, Reston, Virginia. He has had seven years of Federal Procurement experience at the Survey, U.S. Coast Guard, and Naval Air Systems Command in Washington, D.C.
274
HYPOTHESES There are no significant differences in the perceived factors that inhibit competition in Federal Government contracting 1. between government procurement officers and industry procurement management, 2. between ranks of government procurement officers and industry procurement management levels, 3. within managerial levels in industry procurement, and 4. within ranks of government procurement officers.
METHODOLOGY A total of 311 questionnaires were distributed to government and industry procurement officials. Of those distributed, 258 were returned and 250 were used (161 Government and 89 Industry). A list of twelve factors believed to be "perceived inhibitors to competition" were presented and each respondent was asked to rank order the five factors that inhibit competition the most on a scale of 1 through 5, where 1 is highest, 5 is lowest (Table 1). A Spearman rank correlation was then performed in order to determine the top five inhibitors selected by respondents from government and industry. Further breakdowns were made possible by asking respondents their GS rating in Government or their level of management in Industry (GS-9 or below was equated to entry level management, GS-10-12 was equated to mid-level management, and GS-13 and above was equated to top level management).
RESULTS A comparison of government procurement officers and industry procurement management reveals that there is a significant difference in the perception of inhibiting factor importance (Table 2). The comparison between government procurement at each level with their counterparts in industry also reveals that there is a significant difference in the perception of inhibiting factor importance. The comparison of managerial levels in industry with each other shows that there is no significant difference in perceived inhibiting factor importance. This is also the case within the government ranks. All twelve of the factors listed received rankings of 1 through 5 within both the government and industry segments, indicating that a variety of factors are perceived to be inhibitors of competition in Federal Contracting. Commonality be-
TABLE 1 Rank Ordering by Sector and Level (Rank) of Perceived Inhibitors to Competition for Government Contracting"
Factor Lack of known sources of supply Unwillingness to contract with unproven suppliers Complexity of item to be purchased Lack of planning Misuse of "unsolicited proposal" procedures Skill level and training of Governmen! personnel Lack of definitive specifications and drawings Questions of patent and/or production data ownership Lack of adequate time for processing competitive purchases Agency staffing (manpower) shortages in acquisition fields (technical and administrative) Insistence upon Government specifications vs. commercial specifications Reluctance of suppliers to deal with myriad of "social clauses" and paperwork which accompany a Government contract
MiddleUpperEntry-Level Mid-Level Upper-Level Entry-Level Management Management Overall Overall Government Government Government I n d u s t r y Industry Industry Government Industry 4 2 2 3
4 2
4 2
1
1
1
5
3
3
5
3
1 5 3
1 3 4
4 2
1 4 3
5
5
4
4
1
2
5
2
2
5
~Top Five Only
tween the two segments shows up in the lack of planning area and the complexity of the item to be purchased (Table 1). Within the government sector the lack of definitive specifications and drawings received unanimous selection as the most inhibiting factor, followed by the lack of planning, lack of adequate time for processing competiTABLE 2 Summary of Spearman Rank Order Correlations Coefficients
Rankings Correlated
Value
Government (all) vs. Industry (all) 0.315" Entry Level Government vs. Mid-level Government 0.916 ~ Mid-level Government vs. Upper Management Government 0.853 ~ Entry Level Government vs. Upper Management Government 0.689 ° Entry Level Industry vs. Mid-level Industry 0.743 " Mid-level Industry vs. Upper Management Industry 0.848 ~ Entry Level Industry vs. Upper Management Industry 0.677 b Entry Level Government vs. Entry Level Industry 0.198 ~ Mid-level Government vs. Mid-level Industry -0.040 a Upper Management Government vs. Upper Management Industry 0.126 a
"Not significant bSignificant at 0.05 level (critical value 0.506) cSignificant at 0.01 level (critical value 0.712)
tive purchases, complexity of the item, and the reluctance of suppliers to deal with a myriad of "social clauses" and paperwork (Table 1). Within the government sector those inhibiting factors ranking 1 through 5 were identified by between 41% and 73 % of 161 respondents. The first four inhibitors were selected across all three ranks (Table 1). Within the industry sector the unwillingness to contract with unproven suppliers was selected as the most inhibiting factor, followed by the insistence on government rather than commercial specifications, lack of planning, complexity of the item, and manpower shortages (Table 1). Within industry those factors ranked 1 through 5 received between 42% and 76% identification from 87 respondents. The top three were identified across all levels of management (Table 1).
IMPLICATIONS Those inhibiting factors identified by government procurement officers appear to be somewhat related. The lack of specifications and drawings may well be due to
275
the complexity of the item to be purchased. Lack of planning may affect the perception of inadequate time needed for competitive bid purposes. However, for those items that are standardized with definite specifications, inadequate time for processing could possibly be eliminated by proper planning. Also, since government procurement officers at the upper two ranks perceive that "social clauses" and paperwork inhibit competition, their willingness to show suppliers or potential suppliers how to deal with the social clauses and paperwork expediently could help alleviate the problem. Procurement management within the industrial segment perceive that government procurement practices make it difficult for new suppliers because specifications may also inhibit potential bidders. The perception that there is a definite lack of planning within government procurement may well be due to agency staffing and manpower shortages as well as the relative complexity of the item being purchased. It is also interesting to note that although not in the top five ranks, the lack of skill and training of government procurement officials is ranked seventh by government procurement officials and sixth
276
by their counterparts in industry. Possibly research into the extent and type of training government procurement officials possess could lead to the identification of areas that need improvement,
REFERENCES 1. England, Wilbur B., Procurement: Principles and Cases, 4th ed. R. D. Irwin, Inc., Homewood, IL., 1963, p. 470. 2. Clark, John M., Competition As A Dynamic Process. The Brookings Institute, Washington, D.C., t971, p. 81. 3. Pooler, Victor, H., Jr., The Purchasing Man and His Job. American Management Association, New York, 1974, p. t8. 4. Alijian, George W., Ed., Purchasing Handbook, 2nd ed. McGraw Hill, New York, 1966, pp. 19 24. 5. Dobler, Donald W., and Lee, Lamar, Purchasing and Materials Managemerit: Text and Cases. New York, McGraw Hill, 1977, p. 564. 6. Selling to the Government: Out of the Maze, Sales and Marketing Management, April 9, 1979, p. 44. 7. U.S. Congress, Committee on Small Business, Hearings on Government Procurement 1976, 94th Congress, 2nd Session, p. 342. Bradford, Murray W., Government Contracting: An Exercise in Discipline, Price Waterhouse Review 24( 1), 10-13 (1979).