Comment

A $20B argument for passing the MGT Act

illustration dollar sign in vise

It’s no secret that federal agencies have had a difficult time funding long-term strategic investments in technology. Congress has not passed a full slate of appropriations bills on time since 1997, and has managed to do so just four times in the last 40 years. I’m 40 years old. Think about that.

This four-decade cycle of short-term deal making and fiscal constraints on long-term strategic investments has accelerated the widening gap between IT value achieved by the private sector and what the federal government can manage.

The need to reverse this trend and modernize government IT fueled the Modernizing Government Technology Act, which passed the House unanimously in September 2016 but never made it through the Senate.

The bill has been reworked, and this year's MGT Act should be passed on Capitol Hill and signed into law as quickly as possible. President Donald Trump -- and the new American Technology Council -- can and should take credit.

Why? The status quo hinders government acquisition teams from getting the best deals to support their missions and deliver services to the American people.

Government is hamstrung in capturing IT value by the way in which funding is appropriated, distributed and re-allocated. Agencies have virtually no flexibility to understand or achieve fair pricing or terms and conditions.

To achieve best-in-class results, government acquisition teams (procurement, IT and mission stakeholders) must proactively identify and manage the deal leverage within their current IT investments.

Deal leverage can be dynamic. It comes from many different sources, and varies based on individual suppliers and market conditions.

One trend remains consistent in our experience, and is supported by data from 10 years of advising clients on IT investments: Organizations that proactively manage their leverage achieve a 25 to 35 percent uplift in hard-dollar savings and additional value from IT investments.

Embracing and applying these best practices as a widespread, mission-level discipline in the federal government is a monster opportunity. It could drive $20 billion to $30 billion in annual hard-dollar savings for taxpayers and produce a big win for all involved.

The MGT Act hits on the three main sources of deal leverage observed by my firm – Timing, Uncertainty, and Plan Bs (credible alternatives). If passed, the bill will give a huge advantage to agencies that take action.

Power is the ability to walk away from a deal. Ask any government contracting officer at the end of September if he or she can walk away from a deal in flight, yet still have funding to execute the deal on Oct. 1.

With the creation of IT working capital funds under the MGT Act, agencies can identify and bank legacy IT cost savings to be used after Oct. 1 and won’t have to spend the money for up to three years.

Not only will this “Plan B” leverage compel incumbent suppliers to bring better deals to the table today, it will also provide a long-term funding mechanism for agencies to capture more favorable terms, conditions and pricing with suppliers.

IT supplier pricing is no longer a linear model based on quantity. Because most suppliers operate with a pricing model derived from perceived value to buyers, it should come as no surprise that one of a salesperson’s first questions is “what’s your budget?”

The suppliers’ goal is to identify your budget and propose a solution with enough value to capture that funding.

On that front, agency executives need not wait until the MGT Act becomes law to take action that will yield measurable results. By inspecting IT spending for potential savings, agencies can prioritize today’s investments for unrealized value. But the MGT Act will accelerate the positive results being realized by agencies that have already begun this journey.

About the Author

Jeremy Wilcox is managing director of the Federal Public Sector Practice at ClearEdge Partners.

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