Fixing government contracting

There's been a lot of attention lately on the process of winning government contracts. A few observations I've heard in particular:

1) Contracts go to the lowest bidder who can "do the job"
2) To be able to "do the job" involves jumping through a huge number of hoops, and knowing where those hoops are is an expertise in itself
3) From the perspective of the bidders, it's better to get the contract by underbidding the actual cost than it is to lose the contract

The third is the real problem. The companies doing the bidding have an incentive to underbid; if it's "win this contract on false pretenses or go out of business", then obviously they'll underbid! And if they win the contract by underbidding, it might be ten years before anyone realizes they can't actually do the job for that amount of money; there may be consequences for underbidding, but the feedback path is entirely too slow. And then who's screwed? The government, meaning the people, meaning you and me. Cost estimates are being provided by someone who has an incentive to lie! That incentive structure is entirely backwards.


Costs should be estimated by an entity that has an incentive to estimate cost accurately, someone who gets paid solely based on their history of accurate bid evaluation. This entity would be responsible for selecting the company who does the actual work, based on their evaluation of the proposal and the company's quality of work. It would make sense for that entity to also be able to navigate the byzantine regulations; they would be an interface between the government and the contractors. That way, the companies that can do the work effectively don't have to also worry about understanding government rules and regulations.

Now, how is this different from what we have? Doesn't the government act as the evaluator I'm describing? The difference is that the government is singular. I'm suggesting that there should be multiple companies, say at least four, that perform these evaluations in parallel. Every project that gets bid, all the evaluator entities produce cost estimates. The government synthesizes the data from the estimators, and picks the direction to go. The evaluator entities are continually judged on their continually-updating estimates of the project's progress, completion date, and cost. The entities that do better are paid more, and get more weight next project evaluation.

Incentivize the behavior you want to see. Otherwise people will just tell you what you want to hear.