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Accessing Innovation and the Rules of Purchasing

It is surprising to think that, in a relatively short span of years, we have gone from looking at cloud computing as a cutting-edge technological tool to something well-integrated into business and public services.  From banking and online transactions to government operations and national defense, we accept the utility and enhanced performance of cloud technology as part of our everyday lives.

And well we should.  By leveraging the servers, applications, and storage technologies of third-party cloud providers enabled through internet connectivity, so-called public clouds, organizations are freed from the expense and dedication of resources to establish and maintain on premises networks and capabilities.  Data is maintained, secured, and accessible in short order, enhancing the efficiency of operations, whether for businesses or national defense.  Clouds also can be private, where infrastructure is operated by an entity itself, but leveraged across its ecosystem to avoid resource sharing where sensitivities require such limitation.  Or, they can be hybrid, giving organizations the flexibility to meet multiple needs, or multi-cloud, where multiple cloud providers operate in one environment, providing redundancy and the potential for enhanced innovation.

At a high level, cloud services can be purchased and deployed in different ways.  Infrastructure use can be purchased by an organization and paid for as it is used (Infrastructure as a Service (IaaS)).  Platforms for innovation or development can be purchased for use, as well (Platform as a Service (PaaS)).  Likewise, software applications can be accessed via the internet from the infrastructure of cloud providers (Software as a Service (SaaS)).  It is this last channel that bears some discussion.

SaaS agreements can be implemented like a subscription agreement, where, over the course of a fiscal year, access to applications and associated support are invoiced in advance with payment following within a specified period.  Alternatively, keying in on the phrase “as a service,” some SaaS agreements provide a payment construct akin to that of a traditional services contract whereby a service is performed, an invoice is submitted, and payment is made (payment in arrears).  Variations could on these approaches also exist, like payment up front or payment for the whole fiscal year in arrears.

Unlike in the private sector, contracting organizations in the public sector operate under unique rules governing agency payments with appropriated funds.  These rules impact on how the government buys SaaS or other cloud services.  The most basic of these rules is that agencies may make use of the funds appropriated for a (government) fiscal year to pay expenses arising from the bona fide needs of that fiscal year.  There are exceptions to this rule, like where a statutory exception provides for multiyear contracting authority.  For example, an agency may enter into a multiyear contract if funds are obligated and available for the contract (or the first fiscal year of the contract) and for estimated costs associated with a termination for convenience; where the agency determines a firm need exists and will continue for the contract period; and where the best interests of the government will be served by a multiyear contract “by encouraging full and open competition or promoting economy in administration, performance, and operation of the agency’s programs.”  See 41 USC 3903.  In other situations, agencies and/or departments may have specific statutory authority to pay in advance for subscriptions or services crossing fiscal years.

The rules governing the expenditure of funds are foundational, as they are coextensive with the power of the purse exclusively granted to the Legislative Branch under our Constitution.  They should not be dismissed lightly, as doing so would intrude on that authority.  These rules, however, as implemented in some cases, can constrain the acquisition of SaaS to payment in arrears notwithstanding the fact that, in the commercial market, SaaS is considered a subscription service.

Along these lines, to its credit, GSA has undertaken an effort to work with its industry partners on the development of special ordering procedures for purchasing commercial cloud services on a consumption basis for the Schedules Program, where the user agency only pays for what it uses.  It expressly recognized it as a commercial best practice because it “promotes cost efficiency and supports technological innovation.” (Acquisition Letter MV-21-06, Dec. 16, 2021 at 2.)  In this connection, GSA pointed to the hope that:

…adding flexibility for new ways to purchase cloud computing on a consumption basis will increase competition, as better alignment with commercial practices will encourage new entrants to the FSS program. With a contract structure more closely tied to actual demand, this approach also provides greater flexibility to take advantage of improved technology and enhanced cyber security.  (Id. At 3.)

Certainly, mission requirements drive buying decisions, which is why chasing a “one-size-fits-all” solution can be a lost cause.  The acquisition letter provides customer agencies and industry partners with flexible procedures and contract terms responsive to the unique aspects of cloud.  GSA’s special ordering procedures represent a best value tool in the acquisition toolbox.

The acquisition letter also sets the stage for GSA, customer agencies, and industry to work together to address the applicability of subscription pricing model for SaaS and other cloud offerings.  Regarding SaaS, the reality is that the approach is a preferred service in the commercial marketplace and continues to grow in popularity.  It is a means by which organizations have added efficiency to their expenditure for technology, thereby freeing up funds to perform their missions and innovate.  Identifying and implementing the flexible pricing options (including subscription-based structures) for acquiring SaaS, then, promises to make it “dead easy” for the government to expedite the unleashing of innovation in furtherance of the government mission.

As in the case of the acquisition letter, the Coalition stands ready to work with all stakeholders in ensuring flexible cloud terms and conditions that deliver best value for customer agencies while providing sound business opportunities for industry.

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