Money Crunch Will Change the Way Federal Agencies Acquire IT

Federal agencies will be much more careful in how they spend taxpayer funds for information technology in the future. Proposed budget cuts and a new White House initiative designed to cut US$6 billion in professional services contracting underscore a significant change in IT procurement.

Agencies will not only be more parsimonious regarding how much they will spend — they will also be more cautious about the way they generate IT projects, select vendors and structure contracts.

Federal IT spending will grow modestly over the next several years, at an annual rate of just under 2 percent, according to a recent report from federal contracting consultant Deltek. That still means the federal government will be spending in excess of $90 billion per year on IT. But the contracting process will change significantly from the past.

“Without a doubt, contractors must be nimble” as the shift occurs, Deniece Peterson, senior manager, federal industry analysis at Deltek, told CRM Buyer.

In part, the changed environment is the result of initiatives designed to facilitate transformations in the IT landscape, with federal agencies utilizing contract vehicles geared to the cloud and other innovations. Another factor is the Obama administration’s continued emphasis on improving federal contracting in general.

For example, at a July 7 White House forum, top administration executives outlined a government-wide initiative to cut spending on contracts for management support services that include acquisition planning, information technology systems development, and program management. The goal is to reduce spending on such services from about $40 billion per year to $34 billion.

OMB Targets IT Functions

“To meet our $6 billion reduction goal, agencies will buy smarter and buy less. They will still look to contractors for a wide range of professional and technical needs, but in a more prudent, cost-effective manner,” said Jeffrey Zients, deputy director for management at the Office of Management and Budget (OMB). “They will analyze their spending patterns and buy only what they can afford.”

OMB targeted 15 specific services subject to the initiative with four of those dealing directly with IT: ADP systems development; automated information systems; ADP system acquisition support; and ADP backup and security.

“I don’t think the emphasis on IT was an attempt to single out a particular industry. It just underscored the fact that government management of IT, including procurement, has been problematic. This is an area where there is a gap in capability in government,” Stan Soloway, president of the Professional Services Council, told CRM Buyer.

“Also, you have to be careful about setting up a number, like $6 billion — or 15 percent of current spending — because the agencies pretty soon direct their actions to meet the number rather than address the underlying problem. And that problem is taking a strategic approach to IT management and acquisition,” he said.

“OMB needs to provide more guidance to agencies on how to implement the initiative including better collaboration with vendors to achieve real savings,” suggested Soloway.

In response, vendors will have to change as well. The trend in government to utilize more Blanket Purchase Agreements (BPAs) specifically geared to innovations such as the cloud and mobile media will require vendors to improve their BPA contracting capabilities and the task orders that emanate from such contracts.

Under a BPA, a roster of vendors is selected by an agency or a procurement facilitator such as the General Services Administration (GSA), with each vendor becoming an approved provider. All federal agencies can then utilize the roster for choosing an appropriate vendor via a task order contract.

“The amount of time that contractors are given to respond to task orders can be less than a couple of weeks,” said Deltek’s Peterson. “And even for some of the larger opportunities with longer time frames to respond to RFPs, they are very complex because they are encompassing a broader span of work in many cases — so contractors must have solid processes in place to pull all of the necessary elements together.”

The use of task order contracts for the full range of federal contracting is increasing, Peterson noted, for a number of reasons:

• Speed of acquisition: Because the contract is already established through a BPA, agencies can bypass much of the lengthy formal acquisitions process of other types of contracts.
• Vendors have more confidence in the quality of the vendor pool because they have control over the selections — — particularly when they’ve set up their own task order vehicle including potential partners.
• Lower visibility and protest protection: Task orders provide some level of cover from scrutiny because they are shielded from the public eye, so program problems aren’t as visible. Because of the focus on spending and increasing use of these types of contracts, transparency requirements will likely open up visibility in the near future.
• Lower costs: Agencies want to avoid the fees often associated with other contracts, and they can also avoid the costs of rolling out a new contract for every piece of work by issuing it through a task order.

Vendor Byword: Be Prepared

Even before the current federal austerity drive got under way, the most successful vendors already had well-structured response teams with notification processes, proposal templates and partner identification criteria.

“Contractors need to standardize where they can and then bring in unique content that supports competitive differentiation. All of that is necessary just due to the level of competition in this space,” Peterson said.

The increasing adoption of the BPA-task order model can help both agencies and vendors.

“Any contracting improvement that reduces the time involved is a plus. If you can knock off six months from what used to be a two- or three-year life cycle, that’s a big gain in productivity,” Chip Gliedman, vice-president and principal analyst at Forrester, told CRM Buyer.

It’s uncertain, however, whether agencies will be able to improve the competencies of procurement personnel — at least in the short term, according to Gleidman, who noted an oft-cited flaw in the procurement process is the reluctance of federal procurement managers to interact more with private sector firms.

One innovative trend may obviate some current contracting impediments — and that is the cloud.

“Right now, if an agency acquires an IT system and it doesn’t meet the goal, the vendor still has the money,” said Gleidman.

“But with a cloud environment, you shift a lot of the risk back to the vendor, because the deal is structured on a consumption-of-services basis rather than an ownership basis for the agency,” he explained. “That makes the vendor part of an ongoing venture and can improve the quality of the procurement process.”