Purchasing Performance: A Public Versus Private Sector Comparison Of Commodity Buying - spending efficiency of Department of Defense

Acquisition Review Quarterly, Fall, 1999 by MaJ Joseph Besselman, Ashish Arora, Patrick Larkey

CONFIDENTIALITY

Most DoD organizations and commercial firms taking part in this research are not identified. Furthermore, specific products and prices will also not be identified. Confidentiality is essential for gaining access to procurement information, particularly for a buying activity or manufacturer who understands that their practices and outcomes may be embarrassing to their organization or provide a competitor insight into their proprietary pricing practices. With the power of computers, it is trivial for an auditor to identify a manufacturer or DoD buying activity perceived to be overcharging DoD or shirking their responsibilities. DoD agencies and their contracting firms, in general, are extremely sensitive to public disclosure of any information that may embarrass the respective agency. Despite assurances of confidentiality, many firms and, initially, a few DoD organizations were reluctant to participate in this research.

The refusal of some firms and DoD organizations raises the specter of bias. Is it possible that DoD will appear better in this analysis because the poorly performing organizations refused to participate? Yes, the possibility exists, but experience with the data collected as part of this research points in the opposite direction. First, eventually all DoD firms asked to participate ended up participating to some degree, some more reluctantly than others.

Second, for the aforementioned question to be true, one would expect that all of the participating buying activities would consider themselves as good organizations outperforming the commercial sector. Although in nearly every case there was enormous pride on the part of DoD buyers and genuine belief that they were doing their best for the taxpayer, despite any direct contrary evidence bearing on their efforts, they felt sure the commercial sector was doing a better job. The phenomenon is a lot like the child who, after being repeatedly told by his parents and teachers that he is stupid, begins to believe it even though he is faced with a wealth of contrary evidence. The buyers had no specific evidence they were doing poorly, but they had been conditioned by the media, national leaders, and DoD's own leadership to believe the worst.

Third, of the firms that did not participate, the vast majority of the affected dollars from the discarded contracts point to DoD being the better buyer. For example, approximately $350,000 over seven contracts in the electronics sample was excluded because a broker that sells these particular products as a retailer is prevented legally from providing the price it pays to the manufacturer. The manufacturer explained that it was legally bound to its brokers not to provide their prices. One broker finally provided a "ballpark" markdown from the list price for the range of products, which was significantly above the price charged DoD by the manufacturer. Since the broker did not provide the individual markdowns, those purchases were discarded entirely. Collectively, they constituted about 10 percent of the total value of the electronics sample and would have enhanced DoD's purchasing position relative to the commercial sector.