Competition suffers with shift to federal R&D centers

The federal acquisition system has long sought to embed the essential ingredients of an effective market system, such as competition and financial incentives, with healthy doses of unique levels of transparency and accountability. As President Barack Obama said at the outset of his administration, a combination of competition and the right incentives is key to driving efficiency and performance.

Yet, there seems to be a modest but growing trend within various agencies to detour from these long-standing precepts in favor of mechanisms in which they are far less evident.

Take, for example, the Centers for Medicare and Medicaid Services, which has announced its intention to create a new federally funded research and development center. CMS lists 16 functional areas of responsibility it envisions for the new FFRDC, most of which involve work commonly performed in the private sector, which would be a violation of the rules governing the creation of new FFRDCs.

CMS is not alone. Defense Department officials have openly talked about expanding the use of FFRDCs because it says they are “free of conflicts of interest,” even though substantial evidence exists that this is not the case. And for reasons having nothing to do with conflicts of interest, but everything to do with simply building their businesses, some FFRDCs market their services to agencies across government, providing support for performance measurement and planning, IT services, IT architecture and more — all of which are capabilities commonly offered in the commercial market and typically awarded through competitive procurements.

FFRDCs do have an important and clearly defined role in government. But since their work is awarded noncompetitively and is not subject to the high levels of transparency and oversight that contracts are subject to, when they expand beyond their statutorily defined role, it’s time to ask some questions.

Meanwhile, the U.S. Agency for International Development is increasingly favoring the award of grants to nongovernmental organizations over competitively awarded contracts to for-profit development firms. As with FFRDCs, the government has far less insight into and control over grants than it does over contracts. But, to date, questions of accountability and effectiveness seem to only be asked about contracted work. In fact, echoing a theme increasingly heard within USAID, a group of NGOs recently released a white paper defining the key principles of effective development and asserted that these principles were only present in the work of nonprofit organizations such as theirs. In fact, those principles, including local ownership and engagement, are equally prevalent in the work of the development companies.

How, then, does one explain the growing deviations from the essential principles of competition and transparency in the effective management of tax dollars? For one thing, working through an FFRDC or NGO is much easier than designing, awarding and managing contracts. But more significantly, they suggest a growing acceptance of the myth that the business model around which an entity is formed, more than its culture and expertise, is itself a key determinant of effectiveness. And that is simply, and demonstrably, not true.

Of course, the competitive marketplace has its own set of challenges and if ineffectively managed can lead to significant problems. But as the president’s comments suggest, appropriately exploiting the dynamics of the competitive marketplace is clearly the best way to incentivize performance and efficiency. When one adds to those dynamics the levels of transparency and accountability afforded the government through well-run contracts, it is difficult to see how the interests of taxpayers are served by defaulting to implementation mechanisms over which the government has minimal control and minimal insight. It’s even more perplexing that no one is asking why.