ICEMAN-like contracts leave vendors out in the cold

Competition is as American as apple pie. In the information technology industry, competition has rewritten the rules of engagement for packaged software, desktop systems and much more. It has cut product prices and has caused hardware and software performance to improve dramatically. Intense competition also has made U.S.-based IT companies leading providers of IT services on a worldwide basis - thus the irony that these same IT companies are now asked to compete against government agencies for business in the federal marketplace.

The Federal Aviation Administration's landmark award of the $250 million Integrated Computing Environment-Mainframe and Networking (ICEMAN) contract to the Agriculture Department's Kansas City, Mo., data center is a case in point. The ICEMAN competition, conducted last fall and winter, pitted vendors against their customers - at best a confusing arrangement. Future awards of a similar nature are sure to bring cold comfort to the federal marketplace. Indeed, drawing commercial firms into procurements that substantially and - in our view - unfairly favor government "competitors" may put a most unfortunate chill on the entire process.

The vendor's need to preserve critical customer relationships raises an immediate flag. Many firms will simply avoid procurements where they are in direct competition with their major customers. That could end up reducing the number of bidders and solutions from which agencies have to select.

ICEMAN puts the freeze on competition for other reasons as well. Companies will be understandably wary of turning their cost and pricing data over to government customers -potential future competitors. New safeguards may be needed to protect the proprietary data of vendors - not from other private-sector firms but from government agencies that are now competitors for IT business. This is especially true because commercial vendors are not permitted access to government bids.

Now some may say to industry, "Get over it." Customers can be competitors. Government and industry going head-to-head for the heart of federal business is actually a boon to the marketplace. And companies that can't or won't see it that way are probably better out of the picture. Maybe. But when it comes time to go head-to-head in a truly competitive procurement, standing on soapboxes just isn't fair. In the ICEMAN procurement, USDA stood on a shipping crate.

Want to bring this concept back down to earth? First, federal agencies must include all costs in their bids. Because government accounting systems will not support this requirement easily, a formula for imputing costs is necessary. Such a formula must account for the need of commercial firms to pay taxes and generate profits. Overhead also must be factored into the equation. Commercial firms must recover the cost of people, facilities and equipment. Government agencies can maintain unused blocks of computer capacity in anticipation of future business. Commercial firms do not have this luxury, and this is just one example.Evaluation criteria must be harmonized. Past performance is a key factor in the evaluation of competing commercial providers. Will government agencies now be rating government agencies? If so, the process on its face may not lend itself to a level playing field.

Contractual mechanisms also will be needed to cover numerous contingencies. Failure to perform is one obvious issue. Cost overruns raise interesting questions too. Commercial firms can, of course, be terminated for cause or convenience; will the same conditions apply to government competitors? Will penalties and liquidated damages apply? And even if damages were assessed, taxpayers - not shareholders - would make good on the loss. If commercial vendors don't perceive the playing field to be level, they probably won't risk scarce bid and proposal resources chasing business they are unlikely to win.

In the rush to judgment, none of these questions have been adequately addressed. Rather, with ICEMAN, the problems of public/private competition are becoming crystal clear. The final irony becomes apparent also: The ICEMAN concept has enormous potential to drop the temperature on a marketplace that was just heating up.

Recently enacted procurement reform laws seek to place federal agencies on a more businesslike footing. Concepts like best value and commercial off-the-shelf products and services have been deployed in order to unleash the creativity and innovation of private-sector firms in the service of agencies. Public/private competition is likely to have the opposite effect.

Leaving aside notions of core capability and strategic purpose, public/private competition expands the federal role into areas far outside the realm of that which can reasonably be considered inherently governmental. Moreover, the Government Performance and Results Act requires agencies to focus on their critical missions. Is the core mission of USDA to run data centers for the FAA? Presumably not.

It's time for government officials to understand that while real competition is cool, ICEMAN-style quasi-competitive contracts leave the federal IT marketplace out in the cold.

—Miller is president of the Information Technology Association of America, which represents 11,000 direct and affiliate companies in the computer software and services industries.