I feel there has been too much attention on such things as electronic bidding, term contracts and contracting tricks. Fine tuning the mechanics of the procurement process may make people feel that progress has been made, but these approaches focus on commodity purchases, and although these have been a source of frustration, this is not where the procurement system needs the most attention - especially related to information technology and telecommunications procurement.
While there are admirable efforts under way in the commodity purchase area, I don't think that they address what is fast becoming the most wasteful and risky area of public procurement, and that is the large systems integration procurement. Medicaid, child welfare and general assistance programs from departments of health and social services, integrated tax systems from departments of revenue, construction project management systems from departments of transportation, and many other areas of government are all hobbling along on 20-year-old information systems, inspiring very large new systems development projects. These projects are frequently being outsourced to systems integrators. The state and local government marketplace for these large systems integration vendors (SI) is growing at an incredible pace, with billions of new dollars being spent each year for the last two or three years, and that growth rate expected to continue for the next few years.
The growth in this type of procurement has not brought about any major changes in the way bids are solicited from SI vendors. These procurements have been ranging from $20 million to $500 million each. The risks in purchases of this magnitude, from single SI contracts, often result in waste that makes the 10K hammer seem like a tiny drop in the bucket.
The primary concern embodied in the procurement regulations addressing these SI contracts is to promote open competition, and avoid undue influence. While these are admirable goals, they leave these projects exposed to tremendous manipulation by private sector companies motivated by the massive sums involved, rather than achieving the program objectives of the bidding entities.
With welfare reform on the horizon, for example, an aggressive vendor may decide to underbid components that will not have to be delivered until the state or local agency is several years into the contract. Changes in the program they are supporting - the theory goes - will require unbid change orders that will result in additional revenue from the contract.
There is nothing in our procurement process that protects the public from such a practice.
Even if it is not the intent the risk remains.
Paul Stewart, the state government executive for BDM Technologies, warns that states must get more sophisticated in these large procurements. He suggests "be cautious of vendors who may have failed to consider the entirety of your project," he warns that some vendors will "bid to win and not to deliver." That they can sometimes profit without meeting program objectives.
Stewart warns that low bid is not always the "best value." He suggests that key to selecting an SI vendor is the vendor's history in delivering projects on time and on the initial budget. He warns that states tend to set unrealistic schedules and requirements in their bids, but allows those who are counting on the change order process to win and then manage those changes once they are locked in. He warns that liquidated damages don't address this situation, as they are budgeted for in the initial bids. Paul says "that anything that looks questionable usually is."
We need procurement reform that allows procurement professionals to exercise common sense and risk management for these very large procurements, or in the years to come public sector officials are going to be the ones whose names appear in the paper for wasting millions on these large projects. We need to turn our focus away from fine tuning the mechanics - and pointing fingers - and focus our energies on risk reduction strategies and developing ways to share those risks with the SI vendors and other private sector partners.
