Federal IT Contract Forecast: Mostly Foggy

Federal agencies will be keeping a sharp eye on how much they spend on information technology over the next several years, as budgets will remain tight. In order to deal effectively with tighter budgets, IT providers to the government will have to understand the complex contracting procedures federal agencies will use to maintain discipline in spending.

As the 2015 federal fiscal year starting Oct. 1 got under way, several market support organizations conducted forecast briefings to provide guidance to IT vendors for dealing with the federal acquisition environment.

On the spending side, federal IT funding will dip to about US$74 billion in 2015, the lowest point in several years, but it gradually will recover to about $77 billion by 2020, according to a TechAmerica estimate.

“With government budgets flat, many in our industry are concerned about how they’ll add customers and remain profitable,” said Art Richer, president and CEO of the immixGroup, which hosted a Government IT Sales Summit on Nov. 20.

“Despite budget pressures, the federal government remains a large potential market for companies that are fully invested in it,” said Elizabeth Hyman, executive vice president at TechAmerica, which sponsored its Vision Market Forecast in late October.

A couple of IT contracting issues that bear watching include an emphasis on low cost and the use of multiple vendors, according to panelists at the forecasting sessions.

Budgets Force Bargain Pricing

“The trend to Lowest Price Technically Acceptable contracting is continuing with more intensity, almost to the point where it has become the default contracting mode,” immixGroup Executive Vice President Steve Charles told the E-Commerce Times.

LPTA is a formal type of contracting standard now in use that focuses on selecting a vendor that has made the lowest bid while meeting a competency standard judged to be “acceptable.”

Vendors complain that bargain prices may yield less-than-optimal performance and undermine quality factors that promote “best value” for the government. Vendors also contend that under LPTA, such factors as the lifecycle costs of items — as well as acquisition, installation, operation, maintenance, upgrading and final disposal — may be ignored, and that IT providers are unable to present qualitative differences with their competitors in the contract bidding process.

LPTA contracting also was a major topic at TechAmerica’s conference, reflecting input from a survey of 360 government, industry and related experts on a range of IT issues.

“The use of LPTA as an evaluation factor will continue, and will increase as long as there are budget pressures. It is critical that industry educate government program management offices on the program risk related to LPTA acquisitions,” said Michelle Jobse, director of the TechAmerica forecast program.

“These risks can include supply chain issues, lack of innovation, and reduced focus on the customer mission,” Jobse told the E-Commerce Times.

“Problems with LPTA often arise from tension between the agency program manager who sets the original IT project requirements and the contract officer who handles the actual transaction and has the authority to make the call on vendor acceptability,” said immixGroup’s Charles.

“Program managers frequently express their requirements too generally and give the CO the latitude to determine what is ‘technically acceptable,’ which is too often not at the quality level that the program manager is really seeking,” he explained. “So you get a lot of conflict there within the government, and that also affects the vendor.”

Vendors Should Communicate with Agencies

“Government program managers and contracting activities need to align their interests. The program office interests include bringing in an operational program within budget, while the contracting officer’s goal is to award a contract that saves money and avoids protests,” said Jobse.

“One of our interviewees noted that when a project fails, the program manager and/or the contractor get the blame, but no one ever goes back and reviews the evaluation factors,” she added.

“Program managers need to get away from being too lax and should be more clear and precise in handing their requirements to contracting officers, to avoid conflicts over technical competency and quality,” Charles said.

“There’s also a role here for IT vendors and providers. They need to communicate better with the government to understand what the project managers are looking for, and to help them frame the solutions and frame the requirements clearly,” he noted.

“IT contractors also need to focus on requirements definitions, especially with the increased budget pressures. We need to make sure that procurements are fair and that each vendor response is based on the same known factors. Defined requirements ensure that contractors can deliver solutions that meet customer expectations, and that each contractor is pricing to the same requirements,” said Jobse.

“If requirements are not adequately and specifically stated, contractors should ask for clarification and definition. In anticipation of an IT acquisition, contracting offices often release Requests for Information. As part of the RFI response and during the more formal Request for Proposal question-and-answer phase, industry should suggest specific minimum acceptable requirements to better define the procurement,” Jobse noted.

“These requirements might include an itemized checklist of pass/fail requirements, information on ‘how big, how far, how many,’ personnel qualifications and certifications, and … discussions on program risk and mitigation,” she said.

While vendors should be aggressive in obtaining clarity on contract requirements, they also need to redouble efforts to ensure they can reduce their costs, so as to offer attractive prices to government customers.

“Savvy contractors are pricing to the bare minimum,” noted one post at the TechAmerica session.

Contract Rosters Broaden Choices

For IT providers, competing for indefinite-delivery, indefinite-quantity (IDIQ) contracts will be a significant business factor for federal contracts, according Deniece Peterson, federal industry analyst at Deltek.

An IDIQ contract is a somewhat open-ended mechanism, and it is used to acquire supplies or services when the exact times or exact quantities of future deliveries are not known at the time of the contract award.

For the four budget years ending in 2013, IDIQ contract obligations ranged from $36 billion to $34 billion per year and accounted for nearly 50 percent of IT spending, Peterson noted at Deltek’s FedFocus 2015 conference in late October.

The IDIQ process goes hand in hand with the use of multiple award contracts: Many companies that have the basic qualifications to perform a general type of work are selected to participate in a federal agency contract, forming a roster of eligible contractors.

The agency then may select one or more of the companies to perform a task order under the contract. The result is that vendors compete twice — once for selection on the roster of multiple firms, and then again to qualify for the specific task order.

“There are a number of benefits to IDIQs — but most importantly, IDIQs expedite the ordering of goods and services. Because the ‘heavy lifting’ occurs at the original contract selection procedure, the ordering process is faster at the task order level, so agencies can more quickly procure what they need,” Peterson explained.

“Agencies know that the task order bidders have been prequalified, and the contract terms are already negotiated,” she told the E-Commerce Times.

“Because IDIQ contracts are typically multiyear, they represent longer-term commitments to the rates proposed on the initial contract. Because of all this, contract administration is theoretically simplified. Obviously, it’s still a complex environment in which these benefits may not always be realized, but this is the general reason why IDIQs became so popular,” said Peterson.

Agencies are able to use the LPTA standard for IDIQ orders.