A New Playing Field
hen an Agriculture Department data center beat out IBM Corp. and Computer Sciences Corp. to win a $250 million contract for Federal Aviation Administration data processing this spring, it sent shock waves through the government information technology market.
The USDA National Information Technology Center (NITC) in Kansas City competed successfully against not only the biggest names in the private sector, but also data centers operated by the Defense Information Systems Agency and the Transportation Department.
Although agencies long have done data processing for one another, this was the first time in memory that an agency had won a contract awarded competitively. The FAA processing had been done for several years by Electronic Data Systems Corp., under the much-ballyhooed Computer Resources Nucleus (CORN) contract, one of the government's most visible IT outsourcing arrangements.
There were more remarkable things about the NITC contract, known as Integrated Computing Environment-Mainframe and Networking (ICE-MAN). It was awarded in about five months, compared to almost two years for CORN. And none of the unsuccessful bidders filed a protest. Although the FAA operates under a special exemption from many federal contracting rules, aggrieved would-be contractors still can complain to the agency administrator about breaches of rules and laws. None did.
In a major departure from years past, critics have found little fault with the acquisition process. Instead, they question the policy underpinnings of the award. "Public versus private competition is ludicrous," says Pat Ways, Computer Sciences Corp.'s group vice president for federal business development. "I don't think it's fair." He questioned whether it's possible to compare proposals from for-profit companies with those from public agencies, especially in such areas as past performance, overhead costs and taxes.
The Information Technology Association of America issued a statement calling the ICE-MAN award anti-competitive and "a very unfortunate precedent-one which could force many companies to seek business opportunities outside the government sector." ITAA President Harris Miller says that because data processing is not an inherently government function, it should be done by the private sector. Others pointed to USDA's poor track record in managing its own information systems, although NITC has a good record.
But the FAA stuck to its guns, with apparent support from the White House. Administration officials have encouraged agencies to become more entrepreneurial and competitive. For example, the President's fiscal 1998 budget says the administration "encourages agencies to compete with one another, and with the private sector, to provide common administrative support services." It reports with approval that the Social Security Administration cut costs by arranging for the Interior Department to process SSA's payroll.
Dennis DeGaetano, deputy associate FAA administrator for acquisitions, says the contract with the USDA center will cut his agency's costs by at least 15 percent. Because the NITC gets no appropriated funds and operates entirely as a fee-for-service unit, those savings are "real money, in my mind," DeGaetano says. Although in the end the White House and Congress will decide whether agencies can compete with the private sector for this kind of work, he says, "we have to decide whether we want government to do things differently."
Anne Reed, USDA's acting chief information officer, says NITC employees "feel like they have a good product and they want to be a survivor" as the government consolidates its data centers. Reed says there's plenty of work to go around for both the public and private sectors and questions what she calls "the presumption in some quarters that government can't provide good service."
New Rules
The intensity of the reaction to ICE-MAN suggest that it hit a sore point. Robert A. Dornan, senior vice president of Federal Sources Inc., a market analysis firm, surmises that news of the award coalesced frustration within industry and government alike over adjusting to the new rules that altered the federal IT landscape over the last year. Federal officials agree.
"There's a lot of confusion," says George Hyder, retirement systems chief for the Office of Personnel Management.
"Industry's having a hard time keeping up with government," chuckles William N. Gormley, head of the Federal Supply Service at the General Services Administration.
"The government can't absorb all the changes," counters Olga Grkavac, senior vice president of ITAA.
The most important single change was the Clinger-Cohen Act, also known as the 1996 IT Management Reform Act. When it took effect last August, GSA lost its pre-eminence as the IT oversight authority in the executive branch, giving way to the Office of Management and Budget and a group of interagency task forces and councils. Many of the special rules governing IT procurement began to disappear. The result, some say, is a free-for-all, where almost anything goes as long as the agency gets the new computers and systems it needs.
Clinger-Cohen and other new laws have pushed the government toward a procurement system where common sense is more common and commercial practices are more nearly the norm. Moreover, the new laws have dramatically shortened the time it takes an agency to buy hardware and software. There are far fewer regulatory hoops to jump through, and unsuccessful bidders have less likelihood of delaying contracts by protesting the way the agency conducted the buy. But forces other than legislation are influencing the federal marketplace as well.
"People [throughout government and the private sector] have access to information now, which changes the way we do business," says Linda Renfro, president of the Information Support Services unit of No. 1 IT contractor Lockheed Martin Corp. Decision-making is more distributed, she says, thanks to technology and contemporary management philosophy, and more people keep an eye on results.
Grkavac points to the use of commercial, off-the-shelf building blocks for systems. It's what others have called the "commoditization" of information systems, and it's not limited to government. Not too long ago, systems were custom-built, and mysterious to all but the cognoscenti. Most of today's systems-even those for fundamental and mission-critical purposes-are assembled from standard hardware and software.
Developers can build these systems in modules, rather than tackling the whole thing in one big multi-year program, and the Clinger-Cohen Act says agencies "should, to the maximum extent practicable, use modular contracting." The administration has embraced the notion too. "Raines' Rules," promulgated by OMB Director Franklin Raines, call for building big systems in phased, successive chunks.
"Modular contracting is a useful approach for mitigating risks," says S.W. "Woody" Hall Jr., the Energy Department's chief information officer. He points out that successful completion of an early phase or two will get users enthusiastic about a project, which increases the likelihood of funding for future increments.
"We've kind of moved through the mainframe orientation," Hall says, observing that today's systems designs, based on PCs and networks, lend themselves to being pieced together. "The mega-systems era is apparently over," agrees CSC's Pat Ways. Some are questioning whether the modules of a new system will get glued together correctly. One response: systems architectures, one of the newest buzzwords at GSA and OMB. The architecture is a common framework into which the modules can fit.
Schedules, Services and Savings
Modular acquisition is supported by the re-invented GSA IT schedules, now operated by FSS. One major addition to the schedules is professional and technical services. Well-known systems integrators such as Lockheed Martin and CSC are offering their services through the schedules program, and they're doing land-office business. FSS' Gormley expects that trend to continue. "Our feeling is that in about a year and a half, services will end up dwarfing the product side" of schedule sales, he says.
At Electronic Data Systems Corp., schedule business increased fivefold in the first five months of 1997, compared to the same period in 1996. EDS manager Stephanie Ambrose attributes most of the increase to services such as local area network installation and year 2000 software repairs. This spring, EDS became one of the first companies to offer PC leases through a schedule contract. Interest was running high among potential customers, Ambrose said.
While vendors are finding it easier to add newly introduced products and otherwise update their schedule offerings, agencies are finding it easier to buy through the schedules. With no requirements to synopsize planned purchases in the Commerce Business Daily and no ceiling on the size of a purchase, the IT schedules can accommodate many federal agencies' needs quickly. As a result, annual spending through the schedules is likely to grow by $1 billion from 1996 levels, to around $3 billion, by the end of fiscal 1997.
Agencies also are using the schedules program's new flexibility to award new kinds of contracts called blanket purchase agreements (BPAs). Until recently, it was illegal for agencies and vendors to modify the terms of the schedule contracts GSA negotiated on behalf of the entire executive branch. Now GSA is encouraging BPAs based on the schedule agreements. Typically a vendor will offer a further discount from schedule prices in the expectation of doing volume business with an agency. When the Navy and GSA worked together on a PC acquisition using the BPA approach, they replaced a 1,000-page solicitation document with a three-page request for quotes. That and other process improvements will eventually save the government $50 million and won a National Performance Review Hammer Award for the team.
Under the Tactical Advanced Computer workstations BPA, "technology refreshment is rapid, allowing constant updates to products, services and prices, which are implemented with minimal delay (nominally 24 hours). The most recent TAC BPA technology update required only two hours from proposal to approval," Navy Cmdr. David Reidy told an audience earlier this year.
Ironically, just as the schedules are becoming a preferred buying vehicle, they are encountering new competition from within the government. Now that buying through the schedules is no longer mandatory, agencies such as the National Institutes of Health and NASA have undertaken their own commodity hardware, software and services acquisitions and are profiting by charging other agencies for use of the contract vehicles. NIH alone has reaped millions of dollars from its three governmentwide acquisition contracts, or GWACs.
Although GWACs are much discussed, at a recent conference OMB's Peter Weiss called GWACs an outmoded "Brooks Act concept" and said "multi-agency contracts will take their place."
Instant Gratification
Some vendors have complained about having to offer the same wares through a variety of contracts, each with its own rules and marketing considerations. And after NIH bought radio ads touting its PC contracts, the director of its acquisition center was shifted into a less visible job. But the White House is reluctant to discourage the entrepreneurial spirit that's so much in evidence. Unless the duplication and level of complaints get much worse, don't look for policy changes that would halt GWACs overlap. The competition is fostering lower prices, better service, more choices and faster results for agencies that used to need years to execute an IT procurement.
"In the past, doing business with the government focused very heavily on contract vehicles," says Charlie Trentacosti, marketing manager for Hewlett-Packard Co.'s government business unit. Now that all hopes need not be pinned on an Air Force Desktop contract or similar large, multi-year buy, he says, "the issue now is to educate the customer on what solutions we have." Customers are less distracted by procurement issues, he adds, commenting, "It definitely raises the level of the discussion."
There's no question that the delays and red tape in the old system cost money. The delays also meant lost opportunities and instant obsolescence for many federal computer systems. Is speeded-up acquisition always a good thing? "What's not to like about instant gratification?" Dornan quips. But he and many others acknowledge there are new opportunities for abuse.
And some companies are finding it more difficult to prosper. Small disadvantaged businesses, for example, are getting fewer federal dollars now that it's so much easier to buy products and services from large companies. The firms enrolled in the Small Business Administration's 8(a) program used to attract customers interested in shortcutting the normal purchasing process. Now that incentive to buy 8(a) is gone.
But, the prevailing opinion is that the benefits of efficiency and speed outweigh the risks of acquisition reform. On Capitol Hill, there is enough comfort with the situation that neither the House nor the Senate subcommittees that oversee federal use of IT held hearings on Clinger-Cohen implementation during its first year.
Millennial Fever
Overall spending on information technology is likely to be $29.1 billion in fiscal 1998, up 2 percent from this year, according to Federal Sources Inc. The last time spending increased markedly was 1996. But in the balanced-budget era, level spending is quite an accomplishment. Some of the biggest percentage increases are expected at Agriculture and Education. Defense will remain about 40 percent of the total, Federal Sources predicts. "We're all looking at flat budgets," says James Flyzik, a Treasury manager who chairs the Government Information Technology Services Board.
Although spending levels will not change dramatically, many observers are expecting a big change in how the money is spent. Within the next year, many say, the year 2000 problem will come to dominate federal IT programs to the exclusion of much else. Agencies will be using the services available on GSA schedules and elsewhere to acquire mainframe programmers, systems analysts and other ammunition in the battle to keep their systems from collapsing on or about Jan. 1, 2000.
"The marketplace is going to be completely crazy over the next year or two because of the year 2000," says Lockheed Martin's Renfro. Other projects will be deferred as the urgency of the year 2000 situation becomes apparent, she predicts. "I think the year 2000 is going to be a bigger catalyst for change than we understood," Renfro says.
ITAA's Grkavac has been prodding agencies to speed up their year 2000 efforts. "We don't think federal agencies are where they should be," says Grkavac, whose association represents many of the IT service contractors that agencies call on to help out with programming. If agencies delay year 2000 activities until mid-1998, Grkavac says, they may find that all the programmers have been signed up by other organizations.
Other observers, such as Robert A. Deller of Global Systems & Strategies, a management and technical services company in Vienna, Va., insist there's no reason to panic. Deller says the year 2000 problem is not news to systems professionals and he has faith in government managers' ability to forestall a disaster.
In truth, no one knows the true extent of the year 2000 problem. Its dimensions will become clearer in the coming year, but the diffuse nature of the government's systems and their sheer size make measurement difficult. It is certain, however, that virtually every federal software program-whether written in-house, contractor developed or off the shelf needs to be tested, soon. With hardly any new money for year 2000 fixes, agencies are likely to be somewhat strapped. But their newfound IT procurement flexibility may help them stretch their dollars.
More than one federal IT executive has been heard to say in private that the year 2000 crisis ultimately will prove to be a blessing. It will give agencies a chance to discard outmoded but entrenched systems. More important, it will demonstrate that the government can't run without its information systems.
FSS' Gormley captures the view of many when he says, referring to federal agencies' shedding their burdens of IT regulation and excess oversight, "I think now's the best time to be in government."
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