The Buying Business

alaurent@govexec.com

Driving to their Washington offices in mid-September 1996, federal program managers listening to radio shock jock Howard Stern might have been jolted by an advertisement aimed directly at them. It was an invitation to grab end-of-the-fiscal-year savings by buying information technology services and equipment using two new governmentwide acquisition contracts (GWACs) operated by the National Institutes of Health.

The ad was part of a campaign mounted by Emmanuel "Manny" DeVera, who was then program manager for the contracts. DeVera had seen an opportunity for his newly minted pacts and pushed hard to take advantage of it. DeVera had negotiated the contracts, known as ImageWorld and Chief Information Officer Solutions and Partners (CIO-SP), in record time using cutting-edge acquisition reform techniques. He sealed the CIO-SP deals using provisions in the 1996 Clinger-Cohen IT management reform law as it was taking effect in August, just a month before the drive-time advertising blitz. DeVera hoped to drum up sales on the new contracts before fiscal year's end on Sept. 30. "A lot of contracting offices stop taking orders in June and July, so there was an opportunity in people who were having their business turned back," DeVera says. "The ad was a means to get year-end business."

But laggard and lackadaisical customer service at other agencies' contracting shops wasn't the only opening DeVera exploited. And he isn't the only entrepreneur to emerge in the 1990s from the most unlikely of federal professions: procurement. Once known as naysaying nitpickers, procurement staffers have become some of Uncle Sam's most daring reformers, chiefly because of a confluence of trends that shook contracting to its core and threatened to drastically shrink its workforce.

In the late 1980s, the federal government awoke from decades of IT dominance to discover it no longer was the elephant in the market. Private industry was muscling in with contracts that replaced costly employees with computers. With Bill Clinton in the presidency, agencies began feeling similar downsizing and streamlining pressure and, like private firms, turned to technology for relief. With freer, faster buying processes, corporate users were able to keep up with the exponential evolution of IT. Law- and regulation-encrusted government was not.

"When you were buying mainframes 20 years ago, there was a [long] technology life cycle so it was no matter if the procurement took a year," says Robert Dornan, senior vice president at Federal Sources, a McLean, Va., IT consulting firm. But as the 1990s progressed, technology's cycle shrank. Meanwhile, federal acquisitions creaked along.

Frustrated by contract after contract that took years to complete and left users with outdated machines, agencies prevailed on lawmakers to loosen procurement laws, which had been battened into immobility during the ill winds of purchasing scandals at the Pentagon and elsewhere. At the same time, Vice President Al Gore's National Performance Review, scouring government for opportunities to cut costs and staff, targeted employees working in administrative areas, especially procurement.

Buried Bombshell

The 1994 Federal Acquisition Streamlining Act (FASA) was the first cork to pop. Focused on speeding small purchases in order to reduce workload in procurement shops destined for downsizing, the law held a buried bombshell. In a few lines, FASA encouraged agencies to let long-running task- and delivery-order contracts for products and services instead of fully competing every buy. Further, the law made awards to multiple companies the preferred approach. "That little side ditty blew the top off our industry," Dornan says.

FASA instructed agencies anticipating an ongoing need for something to craft indefinite-delivery, indefinite-quantity (IDIQ) contracts once and then simply issue task and delivery orders when they needed more. On top of that, FASA prodded agencies to create competition for each order. For IT buyers FASA was a godsend, enabling agencies to speed the purchasing cycle once an IDIQ was in place.

But glitches remained. One was the General Services Administration's chokehold on IT buying power. Under the 1965 Brooks Act, GSA decided which agencies could let IDIQ contracts. As the need for speed in IT acquisition became overwhelming, GSA decided which agencies could open their IDIQs to let other agencies order off of them. In the early 1990s, GSA began allowing agencies to increase the size of their IDIQs-first by 10 percent, then, in 1995, up to 20 percent-to accommodate other agencies' orders.

FASA's innovations, while welcome, couldn't keep up with the IT demand. Furthermore, government had squandered vast sums on huge, complicated systems that quickly exceeded their budgets and schedules and often failed to deliver. To check the funds hemorrhages and forestall failures, Congress passed the Information Technology Management Reform Act (ITMRA), later renamed Clinger-Cohen in honor of co-sponsors former Rep. William Clinger, R-Pa., and former Sen. William Cohen, R-Maine. The law, which took effect Aug. 8, 1996, sparked the imaginations of IT procurement pioneers.

Pushing the System

"ITMRA allowed us to get into the GWAC business," DeVera says. "FASA said we encourage multiple awards and streamlining, and it opened things up. But you still had to get approval to do a GWAC. ITMRA ended the Brooks Act. It was the combination that made the opportunity to get into business."

And DeVera needed business. He had come to NIH at a time when the central acquisition office had nearly lost the loyalty of the agency's 25 institutes. "I saw it was time to push the system a little bit to get it moving faster, so the scientists could get what they wanted," DeVera recalls.

DeVera hoped to create government-wide IT contracts that were so economical, fast and easy to use that they would lure other agencies, and then NIH's own institutes, back to the central purchasing shop. Drawing on his background buying computer systems for the Army and IRS, DeVera helped create a specialized NIH IT buying shop, staffed with technologists and purchasers. The fee-for-service IT acquisition organization is called the National Institutes of Health Information Technology Acquisition and Assessment Center (NITAAC).

DeVera had watched NASA develop and begin collecting fees from its Scientific and Engineering Workstation Procurement (SEWP) IDIQ contract. "I felt that if they were making money, why couldn't I? We were buying off of SEWP. I just took an idea and made it profitable." So NITAAC got into the buying business. "I said to myself, 'The money is in administering the contracts,' " DeVera says. "The money is in charging the agencies for using GWACs. The agencies would save money by buying off your contract for a fee. It's less than the cost of doing their own procurements.

"We showed we could get better prices and easier and faster purchases with an IDIQ called the Electronic Computer Store [a computer equipment pact let in 1995]," DeVera says. "Once it became popular, the institutes started using it. The NIH business has come back to NITAAC now," adds DeVera, who left NIH in September to become director of GSA's new IT Solutions Regional Center.

Paradigm Shift

DeVera wasn't alone in recognizing the opening created by technology's rapid evolution, acquisition reform and downsizing. In 1996, responding to the NPR's call for cost-effective and efficient government, the Transportation Department bundled 10 lines of administrative services into one fee-for-service operation-the Transportation Administrative Services Center. Richard Lieber heads the acquisition business line. "When we became fee-for-service, it was a huge paradigm shift," Lieber says. "Now we're all focused on customer service and a fair price."

In 1996, Lieber's challenge was to maintain that focus as he was losing staff to downsizing. "How could we still provide good service and yet not fill vacancies?" Lieber wondered. He decided to promote Transportation's new governmentwide IT task-order contract, reducing the load on his staff while enhancing service to Transportation and other agency customers hungry for technology. "We can issue task orders within six to eight weeks where ordi- narily it took a year to let a contract." Transportation's Information Technology Omnibus Procurement (ITOP), had been let in May 1996, as TASC was being formed.

Unlike DeVera's computer store, Lieber's ITOP focused not just on equipment, but on services such as automation support, reengineering, systems and facilities management, and solutions to year 2000 conversion problems. "We knew there was a market for IT services out there. What we didn't really know was the extent," Lieber says. ITOP received one of GSA's last Brooks Act delegations along with a ceiling of $1.13 billion for seven years. "I'll probably use it up in two-and-a-half years," Lieber says. "There was a significant yearning in government to have a good, efficiently run IT services vehicle. We found a niche."

DeVera saw a market in IT services, too, and not long after ITOP was awarded, he raced the CIO-SP into being. "I knew [Clinger-Cohen] was coming and that it was based on IT solutions, not hardware and software," DeVera recalls. "Our target market was CIOs and program managers. The real issue was to get something going that people would identify with the Clinger-Cohen Act."

'Outrage Marketing'

DeVera's inventiveness, especially the foray into radio ads, won him some enemies. "There was money made off [the ads] because of phone calls that came off a Federal Computer Week article about them," DeVera says. "It was outrage marketing." In fact, the competitive GWAC environment has forced all players to learn about marketing, customer service, fee-setting and strategic planning. For example, SEWP program manager Joanne Woytek calls her contract a "nonprofit service" devoted to leveraging demand to get NASA the best prices on high-end computer workstations. But to keep agencies coming and prices low, she tries to get the word out. "We go to shows, we have a booth, we meet with people," she says. Woytek adds that SEWP advertises in a variety of technology publications "to keep our name and logo visible."

Business concerns may be even more pressing for Lieber at ITOP and for the NITAAC staff, who must support themselves wholly out of fees, than for Woytek. Her salary is paid not out of the 0.75 percent fee SEWP charges users, but by NASA. Fee-for-service organizations operating GWACs are supposed to set fees to just cover costs; anything more must go back to the Treasury. But competition plays a role, here, as well.

"I looked at what the competition was charging; I can't charge more than that. I estimated the fees by projecting revenue and then I hired to that level," says Lieber, who has a cadre of private-sector contract administrators he can increase or decrease as workload ebbs and flows. "The trick is to live within the projected income. I cannot strive to make a profit; I strive to break even." ITOP fees run from 1 percent of an order's value (when ITOP delegates contracting authority to a customer) to 2.75 percent (when ITOP staffers write the statement of work and handle the order).

But like most things in business, GWAC fees aren't set in stone. "We have and will negotiate our fees," says Leamon Lee,
NITAAC director. "We will do any service that is legal, legitimate and needs to be done." Woytek, too, says she has flexed her fees. "We do occasionally work on a surcharge, and if it's really big, I will give a fee discount," she says. "I have a certain idea of what I consider a fair value. [But] I also have to balance my budget."

Selling Partners

GWAC operators consider themselves partners with the vendors on their contracts. Private companies helped NIH draft its requests for proposals, for example, and most large GWACs regularly consult with vendors on marketing, streamlining and other matters. Contractors acknowledge that marketing-building relationships with customers-is vital in the GWAC environment. Vendors steer business to GWACs, visiting agencies, making sales presentations and telling prospective agency customers how to use GWACs to hire them. "Often times, [which contracts customers use] depends on the salesman who walked in the door," says Nikki Isfahani, head of the Navy's IT Umbrella program, which operates several IT contracts.

Jim Heath, GWAC business development director for IT contractor GTE, considers himself a barnstormer for new ways of contracting as much as a salesman for GTE services. "I think of myself as an evangelist. I educate within GTE and in the government about GWACs and the GSA schedules and how the rules have changed and that there are better ways of doing things," Heath says. "I try to point them to the best way of contracting. I assume my [sales] colleague has pointed them to the best GTE solution."

GWACs offer vendors some distinct advantages over the old world of single-source, long-term IT deals. They encourage agencies to break down purchases into smaller and more numerous task and delivery orders creating more opportunities to compete for new business. GWACs make it faster and cheaper to bid and to cut prices and quickly bring on new technology. In addition, GWACs offer firms direct involvement in shaping initial contracts and the environment in which agencies issue orders.

Most GWAC operators spend a good deal of time explaining to potential customers how the contracts work. "We get a fair amount of business from people who don't fully understand the vehicle, so we do educate them," says NIH's Lee. ITOP vendors often report their marketing efforts to the contract's staff, who then can visit to explain how the GWAC operates. "The choice to do your contracting with an outside agency is a big one. We have to convince them we have the know-how and the experience," says Dell Berry, who heads the ITOP special project office. Berry can dangle a number of GWAC advantages before agencies: The contracts provide a choice of many vendors, creating continuous competition on price and approach; offer fast, streamlined ordering, reduce contracting overhead; aggregate demand, thereby bulking up smaller agencies' buying power; and often provide acquisition assistance.

'Rogue Customers'

Government being government, however, GWAC marketing and competition produces discomfort. "One of my concerns from the agency acquisition standpoint is how do people know which vehicle to use?" says Deidre Lee, administrator of OMB's Office of Federal Procurement Policy. "Right now, the good marketers get to the program people-and this isn't all bad-and are marketing an instrument. We've shortchanged program people and vendors by not providing an easy way to know what vehicles are out there." Lee envisions creating a government-wide, online Yellow Pages of contracts and IT services and products to reduce reliance on salespeople for contracting advice.

Others view agencies' need for contracting guidance as just another business opportunity. GSA's Federal Technology Service, for example, operates client support centers that, for a fee, will serve as an agency's contracting office. The centers identify vendors and contracts for agencies in need of IT services and products. The centers will use anyone's contracts, including their own. "We'll buy for you. We'll take the hassle out of it and we'll charge you for it," says Dennis J. Fischer, Commissioner of GSA's Federal Technology Service. "We're a form of personal shoppers for IT." Recently, ITOP began guiding customers in awarding task orders and providing subsequent contract administration support, whether they use ITOP or other contracts. Not to be outdone, NIH's Lee says NITAAC, too, is ready and willing. "We don't do awards [now], but I'm not going to say we're not going to be doing awards," he says.

GWACs are offering contracting services in part to differentiate themselves from GSA's Federal Supply Schedule program, which has been doing a booming technology business peddling first IT equipment and now services. By letting agencies issue blanket purchase agreements (BPAs) against existing schedule contracts, FSS has made it possible to award long-term, open-ended orders at warp speed. BPAs allow FSS customers to set up ordering arrangements with special terms and conditions. Usually vendors grant price concessions, but agencies also can arrange for faster product delivery, custom configurations and other amenities. They can buy quickly without having to publicize their orders or renegotiate the standard FSS contract terms. Agencies are supposed to check at least three vendors' prices for FSS orders over $2,500, but the ease of buying brings many BPAs perilously close to forbidden sole-sourcing. OMB has warned both BPA- and GWAC-users against the practice.

Precisely because they are experimenting in a freer and more open procurement environment, the operators of new IT buying vehicles should restrain themselves, observers say. "The danger of GWACs is that in the interest of getting business, GWAC agencies will cater to the needs of rogue customers," says former OFPP administrator Steven Kelman. "Yes, we're going to be customer-friendly, but it's not going to be anything the customer wants us to do." His successor, Deidre Lee, says the message is getting through. "People realize that if they don't self-regulate, they could lose this flexibility." OMB recently issued recommended GWAC operating principles and has begun a two-year review of the IT procurement business, in part to determine how to most strategically carve up the market.

The proliferation of buying vehicles has some government insiders and vendors crying foul. Vendors feel they must win spots on as many multiple-award contracts as possible. But they complain that winning nets them nothing more than a license to hunt up business. The Navy's Isfahani says that the growth in GWACs is weakening agencies' leverage over vendors by spreading their purchases among too many contracts and contractors. "Few contractors are seeing high volume because they're spread out all over the place," she says. "When we order from NIH and NASA, we're giving away our leverage." Her program recently lost half its staff and budget and is consolidating contracts, as well. "Now, having a pre-competed [contract] isn't worth that much because you're in a contract-rich environment," Isfahani says. It's "the Wild Wild West," says Dornan, who decries the fact that billions of dollars in task orders and BPAs are awarded without broad public notice.

Most GWAC watchers believe competition eventually will sort out the market. "As we better educate the users, what happened at Navy will continue to happen," says OFPP's Lee. "The best are going to survive because customers use them."

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