Feds Stoke IT Vendor Competition

The continuing debates in Washington over federal government spending may be tiring to most Americans. The discussions have ranged from the political primaries a year ago, through the federal elections last fall, and now well into 2013.

On the other hand, constant attention to better management of taxpayer funds may yield some better ideas — and better actions — for eliminating inefficiencies. Budget battles have provided a second, and even a third wind for implementing strategies to effectively manage federal spending — including the US$80 billion federal agencies spend every year on information technology.

For example, the idea of promoting increased competition among IT vendors serving the federal market has resurfaced as a cost-cutting tool.

In a recent survey of federal IT professionals, almost half believe that adding a competitor to IT infrastructure projects drives down acquisition costs. According to MeriTalk, an online community for both government and private sector IT professionals, results of the survey it conducted indicated that federal agencies could save 20 percent of their annual budgets by adding a competitor.

That equals about $15.8 billion per year, government-wide. Also, nearly half of the agencies that use multiple IT vendors contend that supplier diversification increases network performance.

Better Competition Pays Off

“Whether you are dealing with information technology, office supplies or fighter planes, better vendor competition can help reduce costs,” Daniel Gordon, associate dean for government procurement law at the George Washington University Law School, told the E-Commerce Times. Gordon served as administrator for federal procurement policy from late 2009 to early 2012.

“With federal budgets challenged or shrinking, agencies are looking for ways to upgrade and modernize their infrastructure while also significantly reducing operating expenditures,” said Anthony Robbins, vice president of federal sales at Brocade, which co-sponsored the survey.

“We consider infrastructure to be the network information technology hardware and software backbone that transmits and stores data and applications throughout an organization or agency,” Robbins told the E-Commerce Times. “It is the fabric that enables agencies to communicate internally and externally in support of its mission.”

Recent research from Gartner showed that adding a second vendor to an enterprise network infrastructure would reduce capital expenditures by at least 30 percent, while only minimally increasing operating expenditures.

The issue is important given the more rapid pace of change and improvement associated with IT infrastructure vs. highways and roads, which are replaced or upgraded perhaps every 20 years or even longer. “

About 70 percent of every IT dollar spent by the federal government goes to supporting legacy systems and infrastructure, according to the General Accounting Office. “The IT network infrastructure in the federal government was designed decades ago and has evolved over the last 20 years — increasing complexity and driving up support costs along the way,” said Robbins. “Agencies typically have been very slow to modernize their networks and this is costing them millions of dollars each year.”

Agencies Reveal Competition Gap

Federal agencies still fall short of having adequate supplier diversification when it comes to IT infrastructure, according to the MeriTalk survey, which was conducted in January.

Nearly two-thirds of the 208 respondents reported that they only have one or two vendors in several key areas: network operations, client operating systems, and data center operating systems. Supplier diversity for server and storage hardware is only slightly better, the survey showed.

“It is time to redesign the critical network infrastructure to accommodate current and future network bandwidth and security needs,” Robbins said. “There is a tipping point where maintaining the old infrastructure becomes substantially more expensive than acquiring new. While it depends on the agency, the average refresh cycle is estimated at four to seven years for basic infrastructure lease or purchase.”

Federal law requires agencies to conduct “fair and open” competition in procurement. While the law does provide exceptions when certain circumstances come into play, such as technical requirements, obtaining such exceptions is not routine.

“The government has a substantial burden to demonstrate why the normal competitive requirements should be waived,” Alan Chvotkin, vice president and counsel at the Professional Services Council, told the E-Commerce Times.

Despite the law, and the acknowledged advantages of vendor diversification, MeriTalk reported that 76 percent of survey respondents said their agency’s IT infrastructure procurements specify a vendor at least some of the time. 77 percent reported that their agency’s IT infrastructure acquisitions are contracted directly with suppliers, rather than with a reseller or integrator, at least some of the time.

Inertia, Fear of Change Govern IT

The reasons for the lack of diversification range from technical requirements to sheer inertia.

MeriTalk reported that 65 percent of respondents said they specify a manufacturer to ensure compatibility with existing infrastructure, 17 percent contend it’s what management wants, 11 percent said it saves time, and seven percent said “it’s just what we always do.”

One problem reported in the survey: Agencies are simply afraid of changing the status quo, with 42 percent of respondents citing concerns that additional vendors will negatively impact network performance.

“It’s a little tricky to define exactly what constitutes ‘vendor lock-in.’ It could come from agency preference, the way a contract is written, or what a particular vendor is offering. Sometimes agencies accept ‘proprietary’ services which reduce options,” said Chvotkin.

That perception was borne out by MeriTalk, which reported that agencies consider 30 to 40 percent of their IT infrastructure locked up by current vendors in a reliance on standards, systems, or technologies that would be considered proprietary.

In a genuine pursuit of system integrity, agency IT specialists may close themselves off to potentially better pricing or better performance by writing specifications that are so technically detailed that they effectively eliminate competition.

In the acquisition process, agencies need “to be sure that the legal requirements for competition are followed,” Gordon said, “and not allow ‘wired’ procurements, whether explicitly calling for a particular name brand, or disguised with the specifications written so as to favor one company.”

Gordon was among several panelists who addressed the vendor competition issue at a February 27 hearing conducted by the House Committee on Oversight and Government Reform. The committee, headed by Rep. Darrell Issa (R-Calif.), is investigating federal IT contracting, and Issa is seeking feedback on his proposed bill to reform IT procurement.

During the hearing, Professional Services Council CEO Stan Soloway said that “competition is the single most effective means by which federal agencies can drive down their IT costs while also improving performance and efficiency.”