5 Government Procurement Practices That Stifle Innovation

Nothing is simple when it comes to government contracting, especially for large technology projects. Yes, there are good reasons for having all those checks and balances in place. After all, taxpayers foot the bill for these projects, and there must be some assurance that the funds are being spent wisely, particularly given some of the high-profile failures of public-sector IT deployments. 

But the downside is these rules can be so restrictive that they choke off competition and innovation. The number of vendors who are able to respond to complex procurements is limited, and that can leave agencies with fewer choices and less creative technology options.

Still, some agencies are finding creative ways to purchase more innovative technology while staying in harmony with procurement laws. Here’s a look at some of the procurement rules that most often stifle innovative technology and how some agencies are working to improve the situation.

No. 1: Budget rules encourage excessively large, “winner take all” projects.

Tight budgets mean government agencies often only have “one bite at the apple” for a project they want to complete. Other times, federal funding may come into play, allowing for a one-time only investment. Either scenario can pressure agencies into attempting to complete a huge project in one large chunk rather than smaller, more manageable pieces.

“The scoping of procurements in some states has become too large and complex for even some of the largest companies to take on,” said Michael Kerr, senior director for state and local government at TechAmerica, the trade association for U.S. technology companies.

“We saw this recently in Oklahoma with a large [health and human services] procurement that had a very broad scope with long contract terms proposed. It was almost impossible for the vendors to accurately assess the requirements, and as a result, the state had a hard time getting proposals.”

John Miri, a technology consultant and editor-in-chief of eRepublic’s Center for Digital Government, agrees with Kerr’s assessment. “In the past, policymakers thought these projects were too big to fail. In reality, they were too big to succeed,” said Miri, who recently testified to the Texas Legislature regarding government reform. He cited $50 million that the U.S. Department of Veterans Affairs saved by breaking projects down into manageable pieces. “Smaller projects with more visible milestones allow the flexibility for course correction,” Miri said.

A major procurement now under way in Texas shows that this trend is picking up steam and could become a national best practice. When Karen Robinson became Texas CTO, she implemented a novel governance model over statewide data center services that split the contract into five separate service delivery components. Each area — servers, mainframe, print/mail, data center and network — could attract best-of-breed providers who specialize in that domain while allowing larger vendors to compete. Although the procurement is still ongoing, the new approach looks to have leveled the playing field, brought more bidders to the table and improved the state’s chances for success.

When larger projects are broken down, a new question arises: Who will orchestrate the various pieces into a coordinated whole? Robinson answered this question by borrowing a concept that was first proven in the private sector. Texas solicited a separate vendor to serve as a multisourcing system integrator (MSI) to bring the pieces together. According to Texas procurement documents, “The MSI has responsibility to coordinate and integrate operations, ensuring seamless end-to-end service delivery across the service delivery components.”

No. 2: Procurement laws don’t keep up with rapid changes in technology.

Not only can strict rules put a vendor in a tough spot for proposing the best solution, they often don’t take into account rapid changes in technology. Tomorrow may bring a faster, cheaper solution, but the vendor may find itself tied to what is suddenly an aging technology without an option to change course and employ something better.

In 2009, New York City introduced the NYC BigApps contest as part of its open government initiative. The idea was to attract smart, innovative programmers and app developers to help the city become more transparent, accessible and accountable. “We had an amazing response to the contest,” said Carole Post, commissioner of the New York City Department of Information Technology and Telecommunications (DoITT).

“We were amazed by the talent out there, and we started to think about how we could apply some of these ideas to procurement.”

That led to the development of a new program called Speedy Procurement and Rapid Contracts (SPARK), designed to expand the pool of qualified application developers available to work on city projects, and make it easier for individuals and small IT businesses to work with the city on technology projects. SPARK has two phases. SPARK – Solo will give individuals and entrepreneurs clear information on how to access jobs fulfilled by the city’s 10 IT consultant services contractors. Later, NYC SPARK will introduce a tailored prequalification process for all businesses to compete for small- to medium-value city IT projects, shortening the length of the vendor approval process. These more compact projects can then better align with the capacity of small IT design and development firms.

“SPARK will help us tap that pool of talent out there,” said Post. “As a city, we can either buy pencils or we can buy huge IT systems, but not much in between. There is a gap in the middle, which requires a much more nimble approach. Until now, we haven’t had a vehicle to procure services from this group. SPARK fills that gap. We can get apps and software built in a much shorter time period, allowing our agencies to be much more agile.”

“Redoing procurement rules from top to bottom is not realistic,” said Geraldine Sweeney, senior associate commissioner for policy, planning and communications at DoITT. “But if we can take the rules we have and adapt them to our new and changing needs, then we have a better chance of achieving our goals.”

No. 3: Contract requirements scare off innovative companies, or prohibit agencies from considering innovative service offerings.

Brett Burnett is CEO of the BHW Group, a mid-sized consulting and professional services company that has racked up a string of successes with state and federal agencies for most of a decade. But because of the complexity of government contracts, his firm often ends up as a behind-the-scenes subcontractor or worse, not bidding at all.

“We know that we can deliver government projects for 60 to 70 percent less cost than a larger firm would charge, because we’ve done it time and again as a subcontractor,” said Burnett. “We have focused areas of expertise and happy customers. Like other firms our size, we just can’t afford the sales and contract negotiation costs of a typical government procurement.”

Former Federal CIO Vivek Kundra addressed the contracting barriers to smaller, innovative companies in his report, 25 Point Implementation Plan to Reform Federal Information Technology Management. Kundra noted that