California's IT budget for 2007-08 was an estimated $3 billion, according to a publication of the state Legislative Analyst's Office (LAO), and contracts for IT purchases cost the state roughly $1 billion annually. In the publication and a related video LAO recommends a change of direction in the state's procurement of large systems from the current "firm fixed price" (FFP) system, to an expansion of the "multi-stage procurement" methodology. In the multi-stage system, explains the publication, a single procurement is divided into multiple stages. "During stage one, the state releases an RFP to solicit proposals from interested vendors, much like under the FFP approach. However, rather than contract with one vendor, the state procures the services of two or three vendors, the actual number depending on the financial and staff resources of a project. These vendors will move on to stage two in which they each will be awarded a lump sum of dollars (an amount established previously in the RFP) to compete against each other. This competition is often referred to as a 'bake-off.' The bake-off requires that each vendor build a smaller version of their proposed solution, called a "proof of concept" to (1) prove their understanding of the state's business goals and (2) convince the state that theirs is the best solution. Competing vendors must also submit their proposals for developing the entire system during the end of the second stage. Each vendor's proof of concept and proposal are evaluated and scored on criteria spelled out in the RFP. The vendor with the highest score during the bake-off 'wins' the contract to build the complete system."
Risks and advantages of both FFP and multi-stage systems are evaluated and LAO recommends that the procurement approach be incorporated into the legislative review process. Click Here for Multi-Stage Procurement Diagram.