IT acquisition: Pay less now, more later

Given the current budget environment, in which even essential programs are under scrutiny, it's only natural that agencies are pressuring their acquisition teams to put the squeeze on vendors for the best possible price. Unfortunately, they might get that price only to find out later that the joke is on them.

Experts increasingly fear that officials will develop a “lowest cost technically acceptable” attitude for their procurements. In other words, they will pick the bids that meet the minimal requirements and go for the cheapest price to demonstrate to the higher-ups that they are good stewards of the government’s money.

The result could be abysmal performance.

“Think performance is bad now? Wait,” said Jaime Gracia, president and CEO of Seville Government Consulting, a federal acquisition and program management consulting firm. “Soon, these jokers will come in to start work and they’ll be like the Three Stooges.”

In some cases, experts say, the lowest bid could actually end up costing agencies more as they eat up all the savings — and more — with make-good work.

“Suddenly, the lowest cost technically acceptable isn’t the lowest cost,” said Robert Burton, former deputy administrator at the Office of Federal Procurement Policy.

But several factors work against buying the best value, which weighs both cost and quality. One problem is timing: Investing in quality might not pay off right away, which could frustrate Obama administration officials who are eager to show that they are running the government efficiently.

Another problem is that best value is inherently subjective. Buyers must factor in the probability of success and the associated risks — both of which elude hard analysis — against any differences in cost. In contrast, when success is measured on price alone, it's easier to set goals and measure progress against them. You can just watch that bottom line.

Those difficulties are compounded by the fact that shrinking budgets also mean acquisition officials are getting less support from contractors. In the past, contractors have often helped with market research and other important tasks that can help justify higher bids.

Dan Gordon, who recently stepped down as OFPP administrator, offers a more tempered view. There are times when the lowest cost is fine, he said. But on more complicated procurements, the best value deserves a close look, too.

He said he is confident that the federal acquisition workforce has the training and experience to navigate those choices. They know they are “entrusted with the discretion to find the way to best protect taxpayers’ dollars,” Gordon said.

But others are less optimistic. Larry Allen, president of Allen Federal Business Partners, said he believes the low-cost mentality might have already taken hold in some parts of the government, such as the Defense Department.

The Three Stooges just might be arriving with a "fleet of Yugos," Allen said.

Data management

The government is sitting on an oil field of information that could help agencies operate better and more efficiently. If it could tap the wealth in those data reserves, it would be rich enough to move to Beverly Hills.

Managing that data in 2012 will help the government make valuable decisions that can save money and give insight into its buying habits.

Federal officials will want to know where their money is going because Office of Management and Budget officials will be asking. OMB has directed financial and acquisition officials to decrease spending — specifically spending on contracting — and it recently mandated a 15 percent decrease in contract management support services by the end of the fiscal year. Agencies will need hard data to prove that they have made the cuts.

Strategic sourcing

Officials from the Clinton, George W. Bush and Obama administrations might have disagreed on numerous policies, but they could agree on this: The federal government ought to leverage its collective buying power to get better prices on common commercial products.

Today that concept goes by the name of strategic sourcing, and agencies are beginning to see the wisdom of it. Yes, they might have to pay a fee to buy from a strategic sourcing contract, but in the end, the savings outweigh the initial cost.

As of now, the General Services Administration offers strategic sourcing contracts for printing services and for domestic delivery services, with several IT products covered by blanket purchase agreements. But the range of products available through strategic sourcing is expected to expand as interest grows.

With agencies searching under their couch cushions for loose change to put toward their shrinking budgets, strategic sourcing has the potential to catch on big.

Cuts to support services

As noted earlier, just when acquisition officials could use more help, they are likely to have a lot less of it.

In the past decade, agencies have quadrupled the amount of money they spend on management-related support functions, far outpacing the growth in overall contract spending, according to an OMB memo released late last year.

In fiscal 2010, agencies spent more than $44 billion on 12 types of support services, including IT services, acquisition planning and program management. That’s too much, OMB officials say. They will be paying close attention to agencies’ compliance with OMB’s required 15 percent reduction in spending on support services.

The process will be painful for agencies. Contracting officers will feel the pain when they’re doing the market research for solicitations, and managers will feel it when they try to get help evaluating a program only to find an empty desk where a contractor once sat. Agency employees will be doing all that work themselves.

Dialogue with industry

The Obama administration has made a lot of acquisition officials nervous with its efforts to keep dealings between agencies and companies on the up and up. But at the same time, administration officials have pushed agencies to make sure those conversations happen.

One example is the mythbusters campaign Gordon launched while at OFPP to dispel unfounded ethical concerns that are hindering government/industry dialogue. Another is GSA’s BetterBuy initiative, an effort to use Web 2.0 technology to give industry more input on planned acquisitions.

More recently, GSA has launched the Integrations Industry Community as an online venue for vendors to provide input on an upcoming governmentwide acquisition contract for IT-related professional services.

The thinking behind all those initiatives is that, now more than ever, federal agencies are in the market for new ideas — especially ones that can save them money — and contractors have innovation to spare.

One way or another, contracting officials and program managers must find a way to talk, Gordon said. He once jokingly told an apprehensive contracting officer, “Take five lawyers with you if you need to, but you’ve got to find a way to feel more comfortable talking and listening to vendors.”

Read about hot technology in 2012 or more forecasts for government IT in 2012.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Wed, Jan 25, 2012

I don't think training is the problem in many cases. Unfortunately, the Lowest Price Technically Acceptable training is usually the one that is awarded a contract. By doing so, and "checking the box", agencies are reducing the value of training. In the end, training should be designed to CHANGE BEHAVIOR (why else go to training but to learn new skills). Whats missing to ensure success and guarantee a return - on - investment of Federal money is the "BIG picture". Training is not an event, but rather a process. Organizations need to have processes in place that support new behavior, and align policies with the new skills of the employees. Management need to support new ways of doing the things that are learned in training. Without the policies, processes, and support, LPTA box-checking will continue, and no true value will be realized.

Mon, Jan 23, 2012

I must say that those folks that don't like LPTA are probably those contractors that used to "win" the contracts by "low balling" their initial price under the "old" way of awarding contracts--lowest price period. At least with LPTA, the solicitation can take into account "expertise" requirements to accomplish the work. As a CO for 26 years, the LPTA process and the trade-off process are yielding the government better product for the price. And again, it really depends on the written Soliciation requirements and the proper personnel on the Source Selection Board that reviews the proposals and rates them.

Mon, Jan 23, 2012 OccupyIT

Unfortunately, most COs and managers think in sound bites and 'lowest cost' is one of those sound bites. They miss the policy directive that you have to consider the full life cycle costs (which includes risk mitigation and reserves) which most are not willing to think through much less pay for. You get what you pay for. The panic pricing and buying going on now will set up a long series of painful discussions over the next decade regarding scope and pricing assumptions. And COs will have no choice but to 'go along' and allow the increases to low ball bidders. History repeats itself itself itself.

Mon, Jan 23, 2012

"He said he is confident that the federal acquisition workforce has the training and experience to navigate those choices." I would like to know what data his confidence is based on.

Fri, Jan 20, 2012 Roger Sessions United States

The most effective way to reduce the cost of IT acquisitions is to institute an effective partitioning process into the acquisitions. Large projects should be partitioned into autonomous small projects that can be bid independently and readily integrated together upon delivery. Effective partitioning is necessary to minimize the dependencies between these projects. These dependencies are the most difficult part of managing the overall partitioned procurement process. For more on partitioned procurement, see my CUEC position paper on "Revamping Public Sector IT Procurement" at http://www.objectwatch.com/white_papers.htm#ITProcurement. Partitioning large projects will be far more effective in reducing costs (and failure rates) than will nickle and diming the vendors.

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