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5 Government Procurement Practices That Stifle Innovation

How agencies are stamping out the deal breakers that hinder big technology projects.

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 the issue of small company participation had greatly concerned the White House, enough for President Barack Obama to create a special task force to fix the problem. “Ultimately the government contracting process is easier to navigate by large, existing players, who in turn dominate the volume of contracts,” the plan states, adding, “Without existing knowledge or access to specialized lawyers and lobbyists, small firms default to more traditional channels.”

Perhaps no one knows this challenge better than Dugan Petty, who worked in state procurement in Alaska and Oregon before becoming Oregon’s CIO. “The alignment of technology and procurement has always had a lot of tension to it,” he said. “Years ago in Alaska, we were attempting to buy technology solutions using a standard set of terms and conditions that didn’t contemplate the kind of dynamics going on in the IT world. The driver was always to make sure we met the procurement laws first and perhaps secondary was whether or not we actually achieved the outcomes we were looking for.”

Petty took on a mission to negotiate new terms and conditions that apply more appropriately to IT procurements in Alaska and later in Oregon. “When I got [to Oregon] we were dealing with the same issue.”

Oregon’s IT contract terms and conditions weren’t in line with industry practices or consistent with market expectations. So IT suppliers weren’t submitting responses and procurements weren’t delivering cost-competitive solutions.

In January 2009, Oregon’s Department of Administrative Services State Procurement Office, led by Petty, and the state’s CIO Management Council created a task force made up of agency stakeholders and TechAmerica. The task force explored terms and conditions commonly used for IT agreements, and discussed alternative strategies to solicit, negotiate and administer IT contracts. Members also explored stakeholder concerns, developed templates for frequently used IT contract terms and conditions, and developed guidance around the use of those templates.

The members eventually agreed on more than 100 proposed revisions to Oregon’s IT contract terms and conditions. The resulting templates now provide a starting point for developing contracts that support different types of IT projects, such as those that require consulting and solution development, software licenses and hardware. And they reflect collaboration among task force participants on such issues as risk allocation, liability, ownership and warranties.

Complex contract terms and long procurements can even discourage the formation of new companies. Even though government IT is a large and stable market, the number of startups formed to address it has been comparatively small.

“I’ve advised a number of venture capitalists and institutional investors who want to create new products for the public sector,” said Miri. “They see the opportunity, and many of them want to give back to their communities. But they are always frustrated by the same problem ... the procurements and contracts are just too complex.”

No. 4: Procurement rules result in poor communication.

How much a contractor knows coming into a procurement, and how well that company understands the requirements, can make the difference between an agency getting the right or wrong solution. Yet current procurement rules often prevent or restrict the types of communications that take place.

“Overall, more communication with the bidders decreases the chances of an unpleasant surprise or people walking away if they find their expectations are off,” Kerr said.

Massachusetts is one example of an entity that’s recognized this issue and is making changes to improve the situation. “The commonwealth has made some strides in pre-bid discussions with the vendor community, more meetings and incorporating vendor thinking into their RFQs [requests for quotation],” said Kerr. “Other states have a two-tiered approach, first doing an RFI and then later with the RFQ. It drags out the process further but it seems to improve the communications and understanding either side has of the others’ requirements and needs.”

There must be some way to begin making incremental decisions about the selection process, which creates a better fit for what an agency is trying to do, Petty said. “It comes down to better communication. When you look at the projects that are not successful, I believe some of the seeds of failure are in the procurement process. We build some of that in and then people blame it on lack of project oversight. But no amount of contract compliance or oversight solves the fact that the project is flawed from the beginning.”

Petty said better communication and engagement of vendors incrementally is a step in the right direction. He recently saw a private company in Oregon experiment with this approach with a great degree of success. Over the course of a week, the company invited three suppliers to its office and sat down in a conference room day after day to talk about what it was trying to accomplish, including what architecture it wanted and what its business interest ultimately was.

“They opened themselves up completely,” Petty said. “Then they created a dialog among the three about potential solutions. They talked it all out rather than creating a document that might not explain it well. Then they sent the three companies out to come up with proposals and eventually they picked one. That’s what we should be doing.”

No. 5: Governments need better procurement expertise.

Government procurements create huge demands on agencies and their lawyers. Yet the number of skilled and experienced people assigned to work on procurements is often limited. There’s a need to hire and train government staff about new types of technologies and service delivery so they can better understand what they are procuring.

“If I’m going to put a new driveway in at my house, I might not know how to do it,” said Petty. “If I don’t know how, why not have a conversation with driveway companies so I at least understand the basics of what I’m trying to procure? Sometimes we create processes that inhibit those conversations, and it gets harder in IT because we are ultimately trying to enable a business process, yet sometimes we don’t understand that business ourselves. How do you succeed in that environment?”

When the White House issued Kundra’s report on federal IT reform, some of the sharpest directives and choicest words were reserved for this problem. The task of designing and developing “a cadre of specialized IT acquisition professionals” was placed front and center. To improve the situation, Kundra proposed a three-pronged strategy that included classroom training, on-the-job experience and mentorship. Also core to the improvement was the gathering and disseminating of best practices from government and the private sector. Moreover, the training was actually embedded into the job requirements of program and project managers.

Moving Forward

While it’s good news that agencies are seeking ways to legally work through some of the procurement obstacles they face, there’s still a long road ahead. Perhaps the track record for good, solid government procurements will continue to improve, and memories of huge failures will fade, allowing for just enough relaxation of the rules to permit more innovative and interesting solutions to rise to the top. After all, according to Petty, it’s more about perception than reality.

“I don’t think government projects fail more than those in the private sector; they are just more visible,” he said. “We have an important obligation to try to figure out how to deliver these projects in a way that increases our odds of having the project come out as expected.”