The Coalition for Government Procurement

As you know, the Coalition for Government (the Coalition) is committed to supporting Veterans transitioning to the civilian workforce.  Over the last four years our charity golf tournament, the Joseph P. Caggiano Memorial Golf Tournament, has raised over $75,000 to support veteran’s organizations and to begin funding the Coalition for Government Procurement Endowed Scholarship at the George Washington University (GWU) to support eligible veterans seeking a law or master’s degree in U.S. Government Procurement.

To further expand our outreach and support for veterans, on February 12th the Coalition and Booz Allen Hamilton will host a morning forum, “Veterans Hiring: A Training Program for Employers.”  This forum will bring together key veteran’s support programs from across the Department of Defense, including the U.S. Marine Crops Wounded Warrior Regiment and Navy Safe Harbor on our government panel.  Our Keynote Speaker is Commissioner John Newby, Virginia Department of Veterans Services who will provide his insights, experiences and initiatives supporting veteran’s transition to the civilian workforce.    In addition to the government panel, the forum includes an industry panel that will share best practices for hiring, supporting, and developing veterans in the workforce.  Thank you to Booz Allen Hamilton, Northrop Grumman, L-3 and CGI Federal for participating on this “best practices” panel.

The forum will include networking breaks that foster exchange between government and industry.  In addition, the Coalition has invited several veterans organizations to participate in the networking event to share information about their efforts and how we can support them.  The invited veterans organizations include Easter Seals, Operation Second Chance, and Hope for the Warriors.  The full agenda for the forum can be found here.

In the coming days Coalition staff will reach out to our members seeking your strong attendance and participation at this important event.  In the meantime, please share the agenda with your respective Veterans Hiring Offices!  We look forward to seeing you there!

Supporting our veterans is good business—more importantly it is the right thing to do for those who have given so much to keep us safe and defend our freedom.

Roger Waldron

President

On January 7th, GSA’s 18F organization issued a Request for Information (RFI) seeking information about the agile delivery capabilities of vendors under the GSA IT Schedule 70 SIN 132-51.  According to the RFI, the information gathered will assist GSA with developing an acquisition strategy for a potential “Multiple Award Blanket Purchase Agreement under FAR 8.4.”  The RFI can be found here.

18F’s use of Blanket Purchase Agreements (BPAs) under the GSA Schedules program is just the latest example of a government organization turning to the program to accomplish key mission objectives.  Time and time again across multiple Administrations, key procurement programs have been launched, nurtured, and implemented through the GSA Schedules program. BPAs have been used to support government financial asset management in the wake of the Great Recession.  BPAs are now being used by DHS to support cyber security efforts.  Here is just a partial list of governmentwide BPAs that are supporting agency missions:

  • Domestic Delivery BPAs
  • SmartBuy Software BPAs
  • Wireless BPAs
  • Continuous Diagnostics and Mitigation BPAs
  • Cloud Services BPAs
    • EaaS
    • IaaS
  • Strategic Sourcing BPAs
    • Office Supplies
    • JAN/SAN
    • MRO
    • Managed Print Services
    • Numerous Agency Specific BPAs
  • Pharmaceutical BPAs

This partial list does not include the thousands of GSA Schedule BPAs that have been established by customer agencies.   The procurement community may have concerns with the unintended consequences of some of these initiatives (e.g., see strategic sourcing) but one cannot realistically argue that GSA Schedule BPAs are not a leading procurement tool to meet key program objectives including agency strategic sourcing.   The inherent flexibility and streamlined nature of the competitive BPA process saves time and money for both government and industry.  At the same time, it is important to remember that regardless of the procurement tool—sound requirements development and communication between government and industry are critical to success.  BPAs under the GSA Schedules Program provide a “Keystone” framework where agencies can focus on requirements rather than burdensome contracting processes.  FAR Part 15 does not apply!  BPAs provide the overall flexibility and efficiencies of which deliver significant operational benefits for agencies seeking mission support through the GSA Schedules program.

Imitation is the sincerest form of flattery—and we see it with the IT GWACs seeking to use BPAs under their contract programs as well as the OASIS program using GSA Interact to craft a message that you can structure orders in a manner similar to a Schedule BPA.  What greater endorsement of GSA Schedule BPAs than these efforts to embrace similar tools.  BPAs are a “best value” operational feature of the GSA Schedules Program.

BPAs are a vital tool in the GSA Schedule toolbox—at the same time there is always room for improvement on behalf of agency customers and the American people.   GSA is to be commended for conducting a study (headed up by MITRE Corporation) of the GSA Schedule Program.  The Coalition is very appreciative of the dialogue/engagement with MITRE regarding the study.  As part of this study, MITRE is conducting a survey of Schedule contractors, the Coalition urges each member to respond to the survey and address the vital role of BPAs and areas where the BPA process can be improved to further increase access to the commercial marketplace and innovation.

As you know, the Coalition has provided a series of analyses, white papers and comments that include recommendations for improving the GSA Schedules program.  Given the vital role that the program plays in satisfying mission critical requirements, we believe it is important to continue the dialogue with GSA.

Roger Waldron

President

As GSA’s Federal Acquisition Service (FAS) continues to explore creating a separate “cloud” special item number (SIN) on its IT Schedule 70 contracts, it has issued a working draft cloud terms and conditions for review and comment by industry.  The comments on the draft are due on January 15th.  FAS’s engagement with industry and issuance of a draft set of terms and conditions for cloud is a positive step towards creating a comprehensive, innovative procurement channel for cloud services government-wide.  The draft terms and conditions can be found here.

Significantly, the draft terms and conditions include pricing language that makes clear that the PRC is an inappropriate, counter-productive pricing mechanism for cloud services.  The draft terms and conditions state in part that:

“As commercial cloud computing services have various pricing models with limited standardization across industry, the primary requirement for cloud computing services is alignment with NIST essential characteristics.  All pricing models must have core capability to meet the NIST Essential Cloud Characteristics, particularly with respect to on-demand self-service, while allowing alternate variations at the task order level at agency discretion, pursuant to the guidance on NIST Essential Characteristics.” [Emphasis added.]

This statement reflects reality in the commercial cloud services market.  There is great variability in commercial pricing models, standardization along with the need to tailor or customize solutions to meet unique customer requirements.  It is a commercial market and service delivery model that is fundamentally inconsistent with the application of the PRC.

As this blog has observed many times, the PRC ignores the unique quality of service solutions in the commercial and federal market places.  These variations mean that mechanical, apples-to-apples comparisons for the PRC are difficult, if not impossible, for both the government and industry.  There is just too much gray in service solution delivery based on customer unique requirements.  This uncertainty will result in unnecessary compliance costs for both government and industry—costs and risks that will limit flexibility, innovation and best value cloud solutions via IT Schedule 70. These costs are unnecessary because as the pricing note above makes clear—pricing varies by solutions and by allowing alternative variations at the task order level at agency discretion—pricing will be driven by task order competition for agency specific requirements!

There is a solution within the context of IT Schedule 70.  There is clear regulatory flexibility to address the anti-competitive, anti-innovation application of the PRC. Under General Services Regulation (GASR) 501.404(a)(2), the FAS Commissioner can submit a class deviation for the GSAR’s PRC to the Senior Procurement Executive for approval.  The deviation could waive applicability of the PRC to the cloud services SIN thus reducing overhead and compliance costs while increasing access to the latest commercial cloud services. Competition at the task order stage will assure that agencies receive fair and reasonable pricing.  As observed in this blog previously, there is precedent for waiver of applicability of the PRC.  In 2013, FAS waived applicability of the clause to certain transactions to allow MAS furniture contractors to compete for a series of open market Air Force furniture procurements.  A copy of that waiver can be found here.

Finally, the deviation makes sense as GSA explores alternative pricing initiatives to the PRC.  As Administrator Tangherlini noted in his December 12th response to the Coalition’s “quick fixes” recommendation that the Maximum Order Threshold (MOT) to the Simplified Acquisition Threshold:

“GSA acknowledges industry’s concerns regarding the MOT as it relates to compliance costs and liability under the Price Reductions clause.  GSA has several pricing initiatives underway that will include an opportunity for public comment regarding this clause in coming months.  GSA looks forward to further discussion with industry on these issues as GSA’s pricing initiatives move forward.”

The Administrator’s complete response can be found here.

Roger Waldron

President

On December 4, 2014, Anne Rung, Administrator of Federal Procurement Policy, Office of Federal Procurement  Policy (OFPP) at the Office of Management and Budget (OMB) issued a memorandum for all Chief Acquisition Officers and Senior Procurement Executives entitled “Transforming the Marketplace: Simplifying Federal Procurement to Improve Performance, Drive Innovation and Increase Savings.”   The memorandum sets forth the Administrator’s vision for improving performance outcomes of the procurement system.  Although there are concerns across the procurement community regarding the viability of government-wide adoption of “Category Management,” there is much in the memorandum that has the potential to foster improvement in the procurement system.  In particular, the focus on the acquisition workforce and building stronger vendor relationships is welcomed.

It is a timely and encouraging memorandum.  Timely, as across the procurement community there is a growing consensus that the procurement system must be modified or “reformed” to increase efficiency and effectiveness in delivering best value outcomes to support customer agency missions.  Encouraging, as the approach reflects much of what the Coalition for Common Sense in Government Procurement (the Coalition) has called for over the last three years:

  • Embrace simplification in processes and procedures
  • Put “commercial” back in commercial item contracting
  • Conduct a retrospective review of procurement regulations
  • Embrace robust dialogue between government and industry
  • Reduce contract duplication
  • Address barriers to entry and promote innovation
  • Incorporate “materials” (i.e. ODCs) capability in Multiple Award Schedule (MAS) contracts
  • Improve the negotiation software licensing in MAS contracts
  • Reform MAS pricing policy

These themes are reflected throughout the “FAR & Beyond” Blogs and in our white papers and policy statements addressing key procurement trends, issues and challenges.  Here is a list of links to some relevant FAR & Beyond blogs and/or Coalition policy documents:

The December 4th memorandum includes common sense procurement themes that Coalition members support.  Here is a sampling:

  • “Simplifying the Federal Contracting space is critical to driving greater innovation and creatively and improved performance.” See Page 1 of the Memorandum.
  • … [U}nnecessary duplication imposes significant costs on contractors and agencies.” See Page 2 of the Memorandum.
  • “Early, frequent, and constructive engagement with industry leads to better outcomes.” See Page 4 of the Memorandum.
  • “[G]reater attention must be paid to regulations relating to procurements of commercial products and services, as the Government is typically not a market driver in these cases and the burden of Government-unique practices and reporting requirements can be particularly problematic, especially for small business . . .” See Page 5 of the Memorandum.

The December 4th memorandum highlights the results of the Open Dialogue stating in part that “[t]he Open Dialogue, which drew nearly 500 participants, was an important first step in helping agency managers to better understand both industry concerns and the processes and practices that will better enable companies to consistently do their best work and delivery optimal value to the taxpayer.”  See Page 6 of the Memorandum. The memorandum instructs GSA to identify steps to reduce burdens and barriers to entry for contractors and to improve the efficiency and effectiveness of the MAS program, including steps to improve the acquisition of materials (i.e. ODCs) and negotiation of end-user licensing agreements.

As you recall, the Coalition submitted a set of recommendations to the Open Dialogue.  Seven Coalition recommendations made the top ten in votes from the public.  We look forward to working with OFPP, GSA, the FAR Council and the entire procurement community on making these recommendations a reality!

Roger Waldron

President

 

For this week’s comment I wanted to share with you a blog post first published on the Federal Times’ Acquisition Blog (www.federaltimes.com). The post highlights the government’s challenge to employ sound data management policies specifically, with regard to price.

Driving the federal government towards a Low Price Regardless (LPR) contracting model

As part of the Federal Strategic Sourcing Initiative (FSSI), the Office of Management and Budget and the General Services Administration have created a Prices Paid Portal. The goal of the Prices Paid tool is to reduce total cost of ownership for goods and services by providing greater visibility on the prices agencies have paid for them.

The Prices Paid Portal is part of an ongoing effort to collect transactional data across the government. The challenge in managing pricing data is to ensure it is used to identify contracting strategies and/or terms (like volume commitments) that increase competition and deliver greater value to the American people. Unfortunately, current data management practices will likely reduce competition and value over the long term.

Sound management of pricing and procurement data requires discipline, sophistication, and, most significantly, an understanding of markets and how companies respond to competitive dynamics. Moreover, price alone is incomplete data. In order to effectively understand pricing, one must have access to and understand the underlying terms and conditions, contract commitments, market and economic forces that drive pricing. Price is only one data point in determining “total cost of ownership.” An accurate measure of “total cost of ownership” includes much more than just price. It also includes acquisition cost (i.e. how much did it cost to conduct the procurement), operational costs, maintenance costs, and disposal costs. The emphasis solely on prices paid data ignores these fundamental cost elements.

To date, the experiences with FSSI and GSA regarding the prices paid data is that of an agency seeking to drive down prices “at all costs.” It is the implementation of a new Low Price Regardless (LPR) model—(i.e. give us the lowest reported price regardless of the associated terms and conditions, volume commitments, market and economic conditions). For example, GSA is using historical, horizontal price comparisons to drive down pricing in the Multiple Award Schedules (MAS). Price comparisons that too often ignore differing terms and conditions, commitment and market conditions—even ignoring such basic price drivers as unit of issue!! It is LPR on steroids.

This LPR model is fundamentally inconsistent with the Federal Acquisition Regulation (FAR). FAR guidance on fair and reasonable price determinations looks first to adequate price competition—and direct competition takes place at the order level under the MAS program as it does under contracts like NASA SEWP, NIH CIO-SP3, OASIS, Alliant, and any other multiple award IDIQ contract. Significantly, FAR guidance regarding comparison of proposed prices to historical prices paid directly contradicts the LPR model. The FAR provides that any prior price must be adjusted to account for materially differing terms and conditions, quantities and market and economic factors!

Will the prices paid portal include sufficient information for contracting officers to comply with the above guidance? Are contracting officers sufficiently trained to identify, understand and reasonably consider and adjust prior prices based on materially different terms, quantities, and market and economic factors?

The LPR model has grave implications for the federal government. Traditional commercial firms, already burdened by the voluminous and costly government-unique requirements, are reexamining their commitment to the federal market. These firms are already dealing with LPR. It is a recipe for long term contraction of the supply chain. Supplier suppression will drive innovative commercial firms out of the federal market. It will reduce opportunities for small businesses. It will reduce access to best value products, services and solutions to support agency missions on behalf of the American people.

LPR and supplier suppression are driving the federal market towards a limited subset of firms that are willing to do business with the federal government. It reminds me of the late 1980’s and early 1990’s when I entered government service. At that time GSA more often than not dealt with a limited number of contractors whose only focus was the federal market. In terms of quality, performance and value—the products and services these firms provided were not comparable to similar products and services available in the commercial market. It took the Federal Acquisition Streamlining Act to bring the quality and best value of the commercial marketplace to the federal government. Unless the federal government rethinks its current approach to price and value, we will continue to move towards a procurement system with limited commercial competition, value, performance and innovation.

Roger Waldron

President

Two key events this week represent opportunities for improving the GSA Schedules program that are not being leveraged.

First, today, November 21, 2014, is the due date for comments on GSAR Case 2013-G502.  Among other things, this GSAR case includes 35 clauses that are being added to the GSAR—clauses that were previously implemented through internal Federal Acquisition Service (FAS) guidance.  In addition, the prescriptions for seven clauses are being updated and six clauses previously removed from the GSAR are being reinstated.

The GSAR case could be an opportunity to reduce regulation by engaging in a Myth-Busters dialogue with MAS contractors regarding the costs and benefits of various FAS provisions.  That dialogue has not occurred.  Although GSA’s effort to increase transparency regarding the use of FAS clauses is laudable, thus far, from an industry perspective the work product is disappointing.  The Federal Register states that the proposed changes are not significant.  Further, the annual reporting burden for the information collection requirements contained in the proposed clauses are significantly understated—again reflecting GSA’s view that these changes are purely administrative in nature.  Many of these clauses, however, include very significant provisions that should be subject to greater explanation and disclosure by GSA before being incorporated into regulation—even if the proposed clauses have been previously used by GSA pursuant to internal guidance. We urge GSA to engage in a dialogue with industry to assess the impact of the proposed rule on the MAS schedule program and how the rule could be used to enhance MAS contracting.  We further suggest that GSA reissue the proposed rule in smaller, more discrete segments to facilitate the transparency that the agency seeks and ultimately result in a more effective, streamlined commercial acquisition process.  The GSAR case could be a model for actually reducing regulation in partnership with industry. The Coalition looks forward to working with GSA to achieve that objective.

The second event that took place this week was the IT Schedule Industry Day focusing on cloud computing and the proposed new Cloud SIN for IT Schedule 70.  Industry truly appreciates the transparency and engagement displayed by the IT Center and its leadership.  Industry also appreciates and supports the efforts to create a “Cloud SIN.” This approach has great potential for improving government-wide acquisition of cloud services through IT Schedule 70.  IT Schedule 70’s issuance of a draft terms and conditions for the new SIN is also a positive step towards working with industry to improve cloud service offerings through the MAS program.

At the same time, it appears that the current pricing policies and Price Reduction Clause (PRC) will apply to the cloud offerings.  Variable, dynamic pricing models associated with Cloud offerings are difficult to reconcile with a static oversight tool like the PRC.  This issue is broader than IT Schedule 70.  Much public comment has been made regarding the government’s goal of increasing access to commercial innovation—especially in information technology.  Cloud services provide such an opportunity—it will be an opportunity missed if GSA continues to apply outdated pricing policies to a 21st century commercial marketplace.  The Coalition will be commenting on the draft terms and conditions for the cloud SIN.

Roger Waldron

President

 

Thank you to all our members for your support of the 35th Anniversary Celebration/EIP Honors and Fall 2014 Training Conference! 

The 35th Anniversary Celebration and Excellence in Partnership Honors could not have been possible without the sustained, strong support of our members and continued efforts to bring common sense to government procurement.  Of course, a special Coalition thanks to all our speakers sponsors, and attendees. The participation from our speakers and moderators this year ensured that both events were a fantastic success while the generous support of our sponsors helped make these Myth-Busters events possible.

The Coalition would like to thank the Keynote speakers, Cory Gritter and Carl Salzano, for their moving discussion on the importance of supporting our veterans as they transition to civilian life, as well as the immense value that veterans bring to the public and private sectors.

In addition, the Coalition would like to thank the winners of the Gala’s silent auction, whose generosity raised more than $10,000 for the Coalition for Government Procurement Endowed Scholarship Fund. Veterans concentrating their studies in the field of U.S. government procurement and pursuing a law or master’s degree at the George Washington University will be eligible for financial support through the scholarship fund.

Thank you to everyone who participated in, attended, and sponsored our 2014 Fall Training Conference, “35 Years in Government Procurement: Looking Back and Moving Forward”. The conference brought together procurement leaders from across government and industry for a “Myth Busters” dialogue honoring the past, but more importantly, focusing on the procurement system of the future.  During the conference, acquisition leaders engaged in a thoughtful dialogue about current and future programs, which is critical for a procurement system that delivers best value mission support for customer agencies and the American people.

The Coalition would like to extend a special thank you to our general session speakers and moderators at the conference—

  • Keynote speaker: The Honorable Thomas Davis, Director of Government Relations at Deloitte
  • Shay Assad, Department of Defense
  • Emile Monette, GSA
  • Brad Medairy, Booz Allen Hamilton
  • Jon Boyens, National Institute of Standards & Technology
  • Elizabeth Ferrell, McKenna Long & Aldridge
  • Steve Schooner, George Washington University Law School
  • Mathew Blum, Office of Federal Procurement Policy
  • Jeffrey Koses, GSA
  • Mike Pullen, CGI
  • Lunch speaker: Alan Estevez, Principal Deputy Under Secretary of Defense for Acquisition, Technology and Logistics, Department of Defense

The Coalition would also like to thank all of the participants in the afternoon Myth-Busters breakout session panels, especially the following federal agencies:

  • GSA
  • Office of Personnel Management
  • NASA
  • National Institutes of Health
  • Defense Logistics Agency
  • United States Air Force
  • Department of Defense
  • Department of Homeland Security
  • Department of the Treasury
  • Department of Veterans Affairs

On behalf of the Coalition for Government Procurement, and all the attendees, thanks again to all of our sponsors and speakers!

Finally, thank you to our staff, Carolyn, Aubrey, Denise, Matt, Roy, Rob, and our interns Sean and Justin, for all their hard work in putting these wonderful events together.  Outstanding!!!  And Justin, your rendition of the National Anthem made us all proud of our country and set a great patriotic tone for the 35th Anniversary Celebration and EIP Honors banquet!

FULL Sponsor List

 

As you know, in honor of our 35th Anniversary, the Coalition for Government Procurement (the Coalition) has established an endowed scholarship fund  that will benefit veterans wishing to pursue a career in federal acquisition.  Veterans concentrating their studies in the field of U.S. Government procurement and pursuing a law or master’s degree at the George Washington University (GWU) will be eligible to receive financial support from the scholarship fund.  Our goal in establishing this scholarship is to support the two fundamental pillars of the Coalition—common sense in government procurement and support for our veterans.  Through the scholarship we are supporting the development of the acquisition workforce while also supporting our veterans as they transition to the civilian workforce!

On Saturday October 25th, on behalf of the Coalition, I attended the Fall Meeting of the Government Contracts Advisory Board of the GWU Law School.  During the course of the meeting I had the honor and privilege of officially presenting Steve Schooner, Nash & Cibinic Professor of Government Procurement Law and Co-Director of the Government Procurement Law Program, with a check for $25,000 as the first installment for the Coalition for Government Procurement Endowed Scholarship Fund.  This initial installment was the direct result of the generosity and support of our members through the Joseph P. Caggiano Memorial Golf Tournament held August 27, 2014.  This first installment is a wonderful start towards our goal of raising at least $100,000 over the next three years to ensure the endowment is self-sustaining.

Next Wednesday, November 5th, the Coalition will host the 35th Anniversary Celebration and Excellence in Partnership Honors at the Ronald Reagan Building in Washington DC.  We are extremely excited about the Coalition’ 35th Anniversary Celebration and Excellence in Partnership Honors—the Honorees can be found here.  At the same time, we are thrilled be able to host a Silent Auction to support the endowed scholarship fund benefitting veterans.   Proceeds from the silent auction will go directly to the scholarship fund and mark its further growth towards our goal!  I encourage you to come out and support common sense in government procurement and our veterans!

The list of items available at the silent auction can be found here.  I look forward to seeing you there.

Roger Waldron

President

On behalf of the Coalition for Government Procurement’s Board of Directors and Board of Advisors we are truly excited to be hosting our 35th Anniversary Celebration, Excellence in Partnership Honors and the 2014 Fall Conference!  The 2014 Fall Training Conference: “35 Years in Government Procurement: Looking Back and Moving Forward” brings together procurement leaders from across government and industry for a “Myth Busters” dialogue honoring the past, but more importantly, focusing on the procurement system of the future.  Engaging, thoughtful dialogue among and between government and industry procurement leaders is critical in striving towards a procurement system that delivers best value mission support for customer agencies and the American people.

Luncheon DoD Speaker Announced!

Mr. Alan Estevez, Principal Deputy Under Secretary of Defense for Acquisition Technology and Logistics

The Coalition is excited to announce that Mr. Alan Estevez, Principal Deputy Under Secretary of Defense for Acquisition Technology and Logistics, will be the Luncheon Keynote Speaker for the 2014 Fall Training Conference.  In his leadership role, Mr. Estevez develops and implements strategies, policies and programs that increase the Department’s warfighting capabilities, management efficiency, and buying power in support of the warfighter.  Mr. Estevez will be addressing better buying power and the role of commercial contractors in supporting the warfighter.

The Honorable Tom Davis, Director, Government Relations for Deloitte will kick off the day providing his insights regarding the post-election dynamic and what it means for the budget and procurement.  Underscoring the 2014 Fall Training Conference’s focus on the evolving state of the procurement system, Ms. Beth Cobert, Deputy Director for Management, Office of Management and Budget, will provide her thoughts on Managing the Federal Government for Future Excellence.

Competing in the FY2015 Federal Market

Understanding the changing federal marketplace is vital for firms competing for agency requirements and delivering best value products, services and solutions for the American people.  The Coalition is extremely pleased to bring acquisition leaders from the Department of Defense, the Air Force, Department of Homeland Security, GSA, OMB, NASA, Department of Veterans Affairs, and the Department of the Treasury together for a cross cutting, Myth-Busters dialogue.  As such, the 2014 Fall Training Conference provides a wonderful opportunity for firms to learn more about key procurement programs, operations, and initiatives like Better Buying Power, the Federal Strategic Sourcing Initiative (FSSI), GSA Schedules, OASIS, NASA SEWP, NIH CIO-SP3, and the Human Capital and Training Solutions (HCaTS).   There also will be sessions focusing on cybersecurity, electronic platforms (FEDMALL to GSA Advantage!) and innovation in federal procurement!   Simply put, the 2014 Fall Training Conference is a “can’t miss” opportunity to learn more about the policies, procedures and programs shaping the future of the federal procurement marketplace.

For more information on the agenda and to register please click here!

We look forward to seeing you there!

Roger Waldron

President

View from RJO

By Robert S. Metzger and Mark J. Linderman[i]

Reproduced with permission from Federal Contracts Report 102 FCR 376 (Sept. 23, 2014). Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033) <http://www.bna.com>

Enterprise IT implementation projects fail too often in public implementation with costly results to public sponsors as well as to systems integrators and software providers.  Enormous amounts can be expended without achieving intended purposes and costly litigation can follow.  Recent examples include:

  • On July 22, 2014, a Senate investigations report accused the Air Force of wasting $1.1 billion in a failed effort, between 2004 and 2012, to implement the Expeditionary Combat Support System (ECCS), intended to replace unconnected logistics systems with a fully integrated system.[1]
  • On August 22, 2014, the State of Oregon brought suit against Oracle over its failure to provide a Health Information Exchange (HIX) and alleged breach of contract, fraud, racketeering and false claims.[2]  Oregon claims that it spent $240 million “for a health insurance exchange that never worked as promised” and for modernization of the state’s social services technology that “never got off the ground.”[3]
  • On November 3, 2013, the State of California terminated its contract with SAP for a new, integrated state payroll system, intended for 240,000 employees, and subsequently brought suit against SAP seeking more than $50 million in damages.[4]
  • On October 15, 2009, the State of Indiana terminated its $1.3 billion welfare modernization contract with IBM for cause and sued IBM seeking damages of more than $170 million.  In 2012, a trial court ruled for IBM, finding that default was not justified where there was “substantial performance.”[5]  An appellate court reversed this finding on February 13, 2014, concluding that IBM failed to fulfill the essential purposes of the contract.  The Supreme Court of Indiana has agreed to decide the matter.[6]

Failed IT systems mean that important government purposes go unmet and large amounts of public funds are wasted.  Contractors may incur losses amounting to tens or even hundreds of millions of dollars.  When large claims are filed or a customer terminates an IT project for default, litigation may result that costs further millions.[7]  Such controversies are never satisfactory either for provider or customer.

There are no “uniform best practices” to avert controversy and guarantee project success.  However, certain measures of risk identification and risk management can help both customers and contractors.  We offer 10 recommendations that reflect our experience with federal and state public sector IT projects.  In this article, we focus on the acquisition phase which precedes contract award.

1)      Legacy systems must be understood

IT implementation projects often involve the deployment of enterprise resource planning (“ERP”) systems.[8]  These involve systems integration built upon core software.  The software typically is originated for commercial customers and evolves through successive iteration as experience is gained with each installation.  But the “out of the box” solution rarely fits the particular needs of a government customer.  There will be differences between the customer’s present (“as is”) system and the prospective (“to be”) system that the customer desires.  Customization of the ERP solution is needed to address this gap.  This requires careful attention to understand the legacy environment and to define objectives of the new system satisfactory for every stakeholder.

2)      The customer must have a clear vision of the re-engineered business process

Governments pursue modern ERP systems to eliminate separate, “stovepipe” legacy systems and to replace them with integrated systems that leverage common data sets and automate many discrete governmental functions.  In theory, an ERP system will reduce the government’s operating costs, make the work of the public workforce more fulfilling and productive, and improve the ability of government to deliver services and otherwise respond to the public.  At the same time, not all stakeholders in existing systems will readily agree to new systems that require changes to old ways.  Projects can fail if owners attempt to bend back new systems to mimic legacy practices.

3)      Realistic expectations are essential to project success

When a public sector customer defines its ERP objectives, these become the “requirements” for the “to be” system.  The public sector customer must have a clear vision of what it wants in the re-engineered business process.  It can be very difficult to objectively document requirements because the customer, at the beginning of a project, may not know whether they want to employ out-of-the-box functionality or whether customization is required.[9]  If the customer has unreasonable expectations, this will increase project failure risk because there may be no achievable “target” for the contractor to hit.  Absence of clear and achievable objectives is a recipe for extended periods of contract performance and for delay or changes claims – if not frustration of fundamental purpose.

4)      The customer must have support of its stakeholders

IT projects that seek “transformation” from legacy systems involve a high degree of interdependency.  The public customer knows best its legacy capabilities as well as business needs.  It controls existing data that must be converted and transformed to test and then operate the future system.  RFPs should recognize customer-side responsibilities and contracts must clearly state that the contractor’s obligations depend upon the customer’s timely performance of its obligations.  Often, one agency will act as lead or sponsor for a system to benefit many other agencies or departments.  The sponsor must have the ability to assure that stakeholders timely perform their assigned functions as well as authority to accept a system even if risk-averse shareholders are reluctant to commit.

5)      Confirm sufficient resources are present for customer-responsible actions

Complex IT projects truly are joint undertakings.  Functions such as data conversion and integration testing depend upon the time, commitment and expertise of customer-side personnel for whom this work, though critical, may be outside their regular duties.  Project personnel also are responsible for review and approval of incremental performance – and this work typically is on the “critical path” for project success.  If the customer does not commit sufficient trained personnel to hold up its end of the project, the result is costly program extension and disruption to the planned work.

6)      Be prepared to walk away if risks are transferred and not equitably shared

Careful review of an RFP or “model contract” will reveal when a government customer seeks to transfer excess performance, cost or schedule risk to the contractor.  Because project success depends upon mutual commitment and collaborative accomplishment, RFPs that shift too much risk to the contractor present high risk of failure both operationally and financially.  Such risks can become too great to justify a bid even if competitive circumstances permit pricing that takes some risk into account.

7)      Risk recognition must temper business capture objectives

Business capture organizations within contractors naturally see large IT projects as tempting opportunities.  This can produce pressure to take excess risks to secure the “win.” This is a mistake, especially for demanding “transformational” projects.  After the contract is signed, most of the leverage resides with the public purchaser.  Rarely can or will a government contractor abandon performance.  Recent history is filled with examples of IT projects gone bad where contractors spend tens of millions of dollars in delayed performance with little likelihood of full recovery.  A common problem is that of “concurrent delay,” because government customers are not likely to pay on claims unless the contractor can show that its claim is limited to delays and costs caused by customer-responsible actions.

8)      Evaluate the reasonableness of terms and conditions and their negotiability

It can be naïve and even reckless to assume that during performance the customer will act in good faith to resolve performance problems or by agreeing to contract changes.  Those responsible for the conduct of an acquisition are rarely the same people who preside over contract performance.  This places paramount importance upon the drafting details and on inclusion of commercially reasonable terms and conditions in the contractual documentation.  In state procurements, the public buyer may not be able or willing to negotiate any changes in material terms.  Over the years, failed IT projects sometimes produce claims against contractors seeking hundreds of millions of dollars.  Limitation of liability provisions and limitations on recoverable damages are essential to contain the potential exposure.

9)      It must be clear what constitutes “the Contract”

An IT implementation contract can run to thousands of pages, e.g., where the RFP and contractor’s proposal are among the contract documents.  Contractors must assure that critical obligations are stated clearly and should strive to avoid material inconsistencies at different levels of contractual documentation.  Special attention must be paid to priorities among objectives and (of course) the Order of Precedence clause.  Another key issue is how the contract treats assumptions that often accompany a contractor’s IT proposal.  These may address, for example, responsibilities of the customer, where requirements will be met “out of the box,” where customization is proposed, and how the contractor interprets key requirements.  Disputes often arise when the public customer refuses to agree that the contractor’s performance is governed by such assumptions.  Every effort should be made to be sure that those assumptions are recognized as part of the operative contract documents.

10)  The contract must establish how the adequacy of performance is determined

In the Indiana vs. IBM litigation, the trial court found that IBM was not in breach of the contract because of “substantial performance” and because the State realized many project benefits.  On appeal, however, IBM was found in “material breach” because the appellate court concluded that the fundamental purposes of the project had not been achieved to the State’s satisfaction.  The Supreme Court of Indiana will decide this issue.  It has potentially profound significance.  IT implementation contracts typically include time-sequenced iterative obligations, involving dozens or even hundreds of deliverables.  The customer’s receipt and review of in-process deliverables represent objective anddocumented events. Similarly, achievement of “Milestones” over the course of contract performance signifies progress in meeting contract objectives.  But disputes such as Indiana vs. IBM reveal that the public customer may insist that its subjective satisfaction at some overarching policy level is the legal measure of adequate performance.  At the very least, contractors must be warned to take all feasible measures to assure that any dispute over performance will recognize not just high level requirements but the documented satisfaction of contractual waypoints.

[1] “The Air Force’s Expeditionary Combat Support Systems (ECCS): A Cautionary Tale on the Need for Business Process Reengineering and Complying with Acquisition Best Practices,” Staff Report, Permanent Subcommittee on Investigations, U.S. Senate (July 7, 2014).

[2] Ellen Rosenblum vs. Oracle America, Inc., Case No. 14C 20043, Circ. Ct. of Oregon, County of Marion. Complaint available athttp://www.doj.state.or.us/releases/pdf/FINAL_Complaint_8_22_14.pdf

[3] Id., at 6.

[4] State Controller’s Office vs. SAP Public Services, Case No. 00154918, Super. Ct. of California, County of Sacramento.

[5] State of Indiana vs. International Business Machines, Case No. 49D10-1005-PL-021451, Super. Ct. of Marion County.  Findings of Fact, Conclusions of Law and Judgment for IBM, available athttp://www.in.gov/legislative/senate_democrats/files/blog/FinalOrdersignedJuly182012.pdf.

[6] State of Indiana vs. International Business Machines, No. 49A02-1211-PL-875, Ct. of Appeals of Indiana.  Opinion, available athttp://www.in.gov/judiciary/opinions/pdf/02131403nhv.pdf .

[7] The trial in Indiana vs. IBM lasted six weeks and the court heard 92 witnesses.  Before trial, the court considered 12 motions for summary judgment. Approximately 27,800 exhibits were submitted, totaling about 1 million pages of documents.

[8] ERP is defined by Gartner’s IT Glossary, at http://www.gartner.com/it-glossary/enterprise-resource-planning-erp/, as “the ability to deliver an integrated suite of business applications. ERP tools share a common process and data model, covering broad and deep operational end-to-end processes, such as those found in finance, HR, distribution, manufacturing, service and the supply chain.”

[9] An IT project typically includes a “blueprint” phase to further or fully define the requirements that are to be achieved during design and development.  The problem is even more acute in “agile” development projects where requirements tend to be stated at a very high level with planned, short-term “sprints” during performance to achieve narrowed understandings of desired functionality at completion.

[i] Robert S. Metzger is the head of the Washington, D.C. office of Rogers Joseph O’Donnell, P.C., and Mark J. Linderman is a Shareholder in the firm’s office in San Francisco, CA.  Rogers Joseph has focused upon public contracts matters for more than 30 years.

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