Information technology vendors have spotted the next big thing for serving the U.S. government market. The only questions — and they are big ones — are 1) whether federal agencies themselves have seen the same thing; and 2) if so, whether they are prepared to jump into yet another new procurement process.
What the vendors have in mind for marketing a full range of capabilities to federal government agencies — which spend upwards of US$80 billion per year on IT — is akin to the turnkey process used in the construction industry. The term currently in use to describe the process is “as a Service,” or XaaS, a derivative of the Software as a Service concept.
The vendors link the XaaS method to offering capabilities in a comprehensive package approach in which all IT elements — such as hardware, software and services — converge within a contract to achieve a goal set by an agency.
“Convergence represents a fundamental shift in the way government is doing and will continue to do business,” said Stan Soloway, president the Professional Services Council, a group that represents more than 375 companies that provide IT, engineering, logistics and other services to federal agencies.
PSC defined “convergence” as the combination of technologies and services to create new solutions and new approaches to delivering mission results.
PSC teamed with research firm Market Connections on a survey of 224 federal contracting managers and 227 vendor representatives on the prospects for XaaS and convergence marketing of IT capabilities to government agencies. Survey results and a related report were released in October.
Benefits of New Methods
The advantage of XaaS contracting is that it results in a consumption-based procurement approach: Agencies pay only for what they need, without making major long-term capital expenditures (CAPEX) for IT equipment and facilities, according to the PSC-Market Connections report.
Thus, agencies avoid the pitfalls of over investing in expensive, multiyear projects that may turn out badly or are not geared to rapidly changing IT developments.
The benefits of the convergence approach reflect an efficient way to meet evolutionary developments in delivering integrated IT capabilities. Many vendors once were able to specialize in one role but now must provide expertise on multiple fronts.
“The line between technology and services delivery is being blurred. Contractors are increasingly providing products and services as bundled, outcome-based offerings to government,” notes the PSC-Market Connections report.
For survey purposes, “services” referred to the use of contractor personnel to perform functions in support of government missions.
It is clear from the survey results that the contractor community is ahead of federal agencies in awareness of convergence as a significant trend in IT delivery. Ninety percent of contractor respondents were very or somewhat familiar with it, compared to 67 percent of government respondents. Within the government, nearly 15 percent had never heard of it, whereas 100 percent of contractors had at least heard of the concept.
As for utilizing XaaS contracting, only 5 percent of federal respondents regarded the XaaS model as offering “great potential and solutions.” Only about one-third of government agencies have adopted XaaS models or plan to in the next 12 months.
As a result, the PSC has launched an effort to make federal managers aware of recent changes — and to develop government contracting procedures that will facilitate XaaS and convergence procurement.
David Wennergren, senior vice president of technology at PSC, further elaborated in a Q&A session with the E-Commerce Times.
E-Commerce Times: Government sources say that agencies still don’t have procurement vehicles that truly accommodate cloud technology — in which acquisition is done on a “by the drink” basis, i.e. a consumption model. If they are struggling with that, how can they cope with the consumption aspect of convergence?
The federal technology marketplace is undergoing a dramatic shift around the convergence of traditional professional services and technology work, and the significant migration to consumption-based models of acquisition. This shift has been prevalent in industry for quite some time, and is a significant change that the federal government must recognize and address.
So, while the pace of change and availability of new tools and approaches is ever increasing, some current government contracting practices are limiting rather than expanding access to industry best practices and new approaches. It takes too long to implement solutions, and there is still institutional resistance to both the rapid insertion of new technology and the adoption of new business processes.
While there are examples of consumption-based buying, or buying by the drink, in government for a long-time, plans to increase the pace and scope of consumption-based buying are still lagging at most agencies.
The Federal Acquisition Regulation provides the flexibilities necessary to buy converged solutions and capabilities as a service. However, there are still far too many examples of rigid statements of work, and outdated contracting approaches, and vehicles that are inhibiting faster government adoption of consumption-based buying.
It’s important to note that while cloud computing is an obvious example of consumption-based buying, the theme of our survey was far broader, extending far beyond the provision of IT infrastructure to the outsourcing of entire functions and processes through the use of performance-based contracts.
ECT: Can existing Government Wide Acquisition Contracts (GWACs), Indefinite Delivery – Indefinite Quantity (IDIQ) procurements, or other contract vehicles, like One Acquisition Solution for Integrated Services (OASIS) and Alliant, really work for the convergence market?
While contract vehicles like OASIS and Alliant are designed to allow government to buy integrated solutions, there is still a need to change government buying practices and techniques. Today government relies too much on rigid statements of work and evaluations such as Low Price Technically Acceptable (LPTA) — and not enough on statements of objectives and best value evaluation.
ECT: What falls into the services part of the convergence market as it relates to information technology: i.e., systems integrators, programming, IT management, etc., and how is it priced — hourly rates like those for attorneys, or time and materials, fixed fee, and so forth?
What we’ve seen over the years is a replacement of separate contracts for hardware, software and support services with contracts asking for a converged solution that requires the company to provide both technology and services.
As an example, rather than separately buying an IT system, hardware to run the system on, and people to manage the system, a company or agency will ask for an outcome-based solution, where the company provides necessary hardware, software and people to deliver the outcome.
Common examples of this kind of approach in the technology field are seat management contracts like the Navy-Marine Corps Intranet, and cloud computing contracts for Infrastructure or Software as a Service. Pricing in this model is around delivery of a service or solution rather than around prices for the hardware purchase or lease, coupled with the hourly rates for employees, providing the vendor with the flexibility to provide the right people, processes and tools in the best way to meet the mission.
However, the use of converged solutions in the technology sector goes far beyond infrastructure solutions. As an example, rather than paying to build an IT system or website to support a human resources process like hiring, personnel transactions, etc., an agency could contract with industry to actually perform the function in support of the government — providing the contractor with the flexibility to use systems and people as necessary to complete the assigned tasks.
This gets at the heart of the value proposition of consumption-based buying: allowing the government to strategically partner with industry and gain the value of industry best practices, ongoing research and development, and a sharing of risks and rewards. Decisions to buy Capabilities as a Service allow industry to rapidly insert new ideas and technologies, share in managing risks, and help government avoid the need for large, upfront capital investments — bringing speed and agility to the creation of new capabilities, particularly during these times of fiscal uncertainty.
ECT: Would it be possible for industry through PSC or other trade groups to actually write some recommended contract templates that could be used by agencies in their Requests for Proposals?
We are doing just that. PSC and its member companies are starting to identify both best practices and impediments for consumption-based buying with a goal of ensuring government is a smart buyer of Capabilities as a Service. We will be highlighting approaches and templates that work for the acquisition of consumption-based services, [presenting] a case study on successful cloud service delivery, and developing online training for consumption-based acquisition of technology solutions to help build awareness and confidence.
ECT: Do you have any idea of the potential market, such as what percent of current federal conventional IT spending will morph to the convergence market?
With a federal IT budget of almost $80 billion, there is a tremendous amount of additional opportunity for delivery of consumption-based solutions. Using the Department of Defense as an illustrative case, 24-percent of the DoD IT budget goes towards business systems and approximately 49 percent goes for information infrastructure-related expenses.
Both of these areas are ripe for more consumption-based buying — and it goes far beyond IT. Think about managed services contracts for processes in human resources, financial management, logistics or supply chain purposes. If we’re looking for more opportunities to buy by the drink, then there’s a very big reservoir to draw upon.