IT Contract Terms Stifling Competition, TechAmerica Report Says

TechAmerica says inflexible contracts in state and local government hinder competition and cause high prices.

by / June 18, 2009

"Overly prescriptive" contract terms are discouraging competition among vendors for state and local government IT projects, according to a new paper by TechAmerica called Transforming Procurement for the 21st Century.

"In all too many [state and local governments], procurements have become standardized, less transparent, lacking in free and open communication and negotiation, and made tense by lack of trust between the parties," according to the technology industry trade group, a newly formed organization that merged the Information Technology Association of America and the American Electronics Association. "These attributes are symptomatic of increasingly prescriptive and risk-averse procurement policies."

This hinders innovation and causes slow procurements that don't deliver the newest technology, TechAmerica contends. Another outcome is that fewer vendors are willing to bid on IT contracts because the terms and conditions are inflexible. And companies that do bid often charge higher prices because government contracts impose unusually high risks and costs on vendors.

The terms and conditions that are attached to IT procurements has become a higher-profile issue for TechAmerica's members in recent years, according to Michael Kerr, senior director of state and local government for the organization.

"Some states have taken on a more flexible posture and taken on some of the easily adapted terms and conditions," he said. "But for every state we see progress, we see more onerous terms and conditions pop up in other states."

Many IT Contracts Inflexible

The report was spurred by developments in the Midwest, including a study commissioned by the Iowa legislature that examined how the state was being impacted because its IT contracts don't include limitation of liability, Kerr said. He added that the federal government's contracting terms could offer a model for reform.

"Many of these bridges around terms and conditions have been crossed at the federal level. There's a lot of lessons learned that the states and localities could look to, and perhaps even attempt to model some of their terms after the federal government," he said.

Improving the procurement process will become even more important during the next few years, according to the TechAmerica paper, because state and local government IT spending is expected to grow to $72 billion annually by fiscal 2011. This would make the state and local market a bigger IT buyer than the federal government.

A survey conducted in 2008 by Government Technology suggests that vendors and government workers agree that IT procurement has room for improvement. Sixty percent of more than 250 government respondents said terms and conditions in government bids tend to increase project costs. Seventy-four percent of vendor respondents agreed.

"It seems that some states have worked it out to the point that they don't have overly adversarial or contentious procurements, and some of that is probably due to the fact that their terms reflect norms like you see in the federal and commercial markets," Kerr said.

As a first step toward reform, TechAmerica recommends that each state engage with its vendor community and also with the national organizations that have an interest in procurement, like the National Association of State Procurement Officers, according to Kerr.


Matt Williams Associate Editor
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