Federal IT Procurement Reform: A Guide for Vendors

U.S. government agencies will be moving quickly to implement contracting reforms for the procurement of information technology in the wake of policy changes revealed last week by the Office of Management and Budget. For IT vendors competing for a share of the US$80 billion annual federal IT market, keeping close track of the procurement changes will be crucial to business success.

The procurement reforms are based on OMB’s assessment that huge federal IT investments have largely failed to achieve the same level of productivity as similar investments by the private sector.

For IT vendors, the most immediate impact of the reform package presents increased opportunities for marketing cloud-based offerings to the federal government. Other important aspects of the package deal with improvements to contracting vehicles and actions designed to help federal agencies communicate better with the private sector.

Focus on the Cloud

In assessing more than 50 troubled federal IT projects over the last 18 months, OMB concluded that one avenue for improving the return on investment was to shift federal projects from separate, stand-alone systems to utilizing the capacity that is available through cloud-based platforms that inherently operate on a shared system basis.

“Agencies must focus on consolidating existing data centers, reducing the need for infrastructure growth by implementing a ‘Cloud first’ policy, and increasing their use of available Cloud and shared services,” Federal Chief Information Officer Vivek Kundra says in the OMB policy directive.

Vendors should take comfort in the policy admonition that cloud implementation should be compatible with the secure, certified platforms currently provided in the private sector. Here’s what vendors should look for:

• Federal agencies must migrate at least one IT service to the cloud within one year, according to the OMB directive. Two other IT services must be converted to the cloud within 18 months. Legacy systems should be retired.
• By mid-year 2011, the Federal CIO will publish a strategy to accelerate the use of the cloud. The National Institute of Standards and Technology will be charged with developing standards for security, interoperability and portability.
• Within six months, the General Services Administration will create a common set of contract vehicles for procurement of cloud-based Infrastructure as a Service (IaaS) applications. By year-end 2011, GSA must develop similar procurement vehicles for cloud-based email applications, and must begin to develop other contract vehicles for “back end” cloud solutions.

Just how much business the policy will generate is impossible to predict, but one vendor clearly appreciated the direction the government was taking.

“The cloud first policy is one more strong step in the right direction. It shows that cloud computing is quickly becoming not only a mainstream option but the preferred choice of the U.S. government,” Dan Burton, senior vice president of global public policy at Salesforce.com, told the E-Commerce Times.

“This policy is sure to ripple across governments around the world. We should all applaud OMB’s continued leadership in driving U.S. government to take advantage of cloud computing,” he said.

Improving Federal Contracting

The OMB reform package involves a 25-point plan geared to internal management procedures, as well as procurement practices that will impact vendors in securing government contracts. Among the reforms:

Modular Contracting — OMB said that federal agencies should utilize “modular” approaches to IT procurement. Rather than seek a comprehensive IT solution that could take years to develop and implement, agencies should break their requirements down into smaller components and make sure that these components work with implementation deadlines measured in months rather than years. Vendors should keep an eye on:

• The issuance of a set of contracting tools by the Office of Federal Procurement policy). To help agencies with specific modular contracting issues, OFPP will prepare procurement vehicles and provide advice to agencies on nuts-and-bolts issues such as whether a single contractor or multiple vendors should be used; ensuring that there is enough vendor competition; and selecting fixed-price or alternative arrangements. Look for OFPP to develop these tools by the end of 2011.
• Opportunities to help shape policy. Vendors can take an active role in shaping the modular contracting initiative. OFPP will be holding an open meeting with industry leaders to solicit ideas and feedback. Also, OFPP will develop templates and samples and will organize “communities of interest” to share contracting ideas and experiences.

Budget cycles — Rigid annual federal budgets are often counterproductive, according to OMB. The rapid pace of technological change does not match well with current budget procedures. Trying to prepare budgets a year or two in advance handicaps agencies from selecting optimum IT solutions stemming from changes in technology, and often results in the deployment of obsolete or less-than-productive systems. While vendors may not have a direct role in federal budgeting, several initiatives bear watching:

• Over the next six months, OMB will work with Congress to analyze the potential use of multiyear revolving funds that can provide financial flexibility in IT procurement. The review will include the use of pooled funds from multiple federal agencies, and identifying legislative language that restricts flexible funding.
• Within six months, federal agencies will develop several pilot projects that could benefit from a flexible approach to budgeting; within 12 months, OMB will engage several agencies to work with Congress to launch flexible budget models. Agencies will be required to be more transparent, so that IT program delays or cost overruns can’t be buried.

This strategy has won plaudits from vendor representatives.

“Broadly, it appears that the administration is trying to take a more flexible approach to IT procurement, recognizing that technology needs can change quite quickly,” David LeDuc, senior director for public policy at the Software & Information Industry Association, told the E-Commerce Times. Indeed, this approach seems very practical, and I expect it will be welcomed by the business community,”

Better Engagement with Business — Another area that should facilitate IT contracting is improving communication between federal agencies and the private sector. OMB concluded that there is a current culture of skittishness on the part of federal managers in communicating with business entities prior to launching a request for proposal (RFP). OMB attributes this to “common misunderstandings” about legal and ethical issues. OMB has given the issue a high priority. Developments to watch:

• Release of a document identifying contracting “myths” and clarifying ethical issues dealing with industry communications. OFPP will issue the document by the end of January.
• The Federal Acquisition Institute (FAI) will conduct a year-long “myth busters” campaign to familiarize federal managers with approved ways to engage industry. Within six months, FAI will develop a community of practice using video channels and webinars. FAI will also develop a mandatory continuing education program for federal managers on the topic, and within six months, GSA will develop an interactive platform so that federal agencies can tap industry expertise in developing IT projects.

“This is one of the big obstacles, and it’s also kind of low-hanging fruit in terms of resolution,” said Trey Hodgkins, senior vice president of TechAmerica.

“The existing contract regulations allow for a pretty robust conversation with the private sector, which can be done within the context of market research,” he told the E-Commerce Times.

“We’ll need to get the legal people involved, as well as the Inspectors General of the agencies, to ensure that everything is clear to everybody,” he added. “But it will really help in procurement if the private sector can help the agencies assess their needs and issue clear RFPs, so that the vendors can actually deliver what the agencies want.”