Improve Methods of Information Technology Acquisition

Improve Methods of Information Technology Acquisition

Purchasing Power to the People

Imagine this:  A government manager has a top priority special project
with a very short lead time. On top of that, the project depends on use
of a just-released proprietary software package. The manager dials into
an "electronic information technology marketplace" and purchases the
software on-line. The package is delivered within an hour, and the
project is under way.

Most Americans are used to the annual model change in the automobile
industry inspired in the 1930s by Alfred P. Sloan, Jr., of General
Motors.[1] The extraordinarily rapid pace of technological change in
information technology (IT) hardware and software creates the equivalent
of three to five model changes each year.[2] The microprocessor--the
engine of IT change--is the driving force behind the exponential rate of
change.[3] Despite this rate of change, federal government IT
acquisition processes remain based on hierarchical approval processes
and dollar thresholds established in the 1960s when computer systems
were costly, often complex, frequently custom-designed resources,
available only from a limited number of vendors.  Application software
was also expensive then, and typically available only from a few vendors
or developed by centralized in-house personnel. The IT acquisition rules
and regulations of this era were written to encourage competition,
control large dollar expenditures, and avoid waste when buying uniquely
designed systems.

Unlike the private sector, most government IT acquisition processes also
involve excessive layers of management oversight and regulatory
rigidity. These add to procurement costs by requiring vendor and
government teams to remain in place for lengthy periods and by ignoring
the short technology life-cycle of many of the items being procured. It
is not uncommon for the hardware and software ultimately delivered to a
government agency to be immediately upgraded--or need to be upgraded--to
stay current with commercial standards.

An excessive part of the government IT acquisition process is devoted to
obtaining approvals in advance of actual IT procurement.  Existing
agency standard authorization levels from the General Services
Administration are far too low--currently $2.5 million per individual
acquisition. Even government credit card purchase authorization levels
are so low--$500 in some agencies--as to preclude their use in
purchasing even simple personal computers and associated items. A
reasonable increase of card purchase authorization levels for IT items
would instantly reduce the time required by procurement processes and
allow government managers to implement new programs quickly and
responsively. Private sector IT acquisition personnel, who generally
have the flexibility and skills to deal efficiently and effectively with
the rapidly changing IT market, save money for their employers. Real
taxpayer savings can result from not wasting valuable government staff
time on process issues.

Another of the most time-consuming and costly aspects of the current
government IT acquisition process is the use of paper documents in
preparing and exchanging solicitation, proposal, and negotiation
information and subsequent contracts, reports, invoices, and payments.
Many vendors feel that the IT acquisition process is more focused on the
production of documents than the acquisition of IT goods and services.
The importance most government acquisition staffs place on bureaucratic
process issues delays the solicitation process and raises vendor costs.
The emphasis on process also deflects vendor efforts away from providing
the best IT products at the lowest price. An important part of the IT
acquisition function is to facilitate industry access to agency IT
buying plans and requirements as well as facilitate agency access to
industry IT product and service offerings and technology plans in an
arena where short technological life-cycles have demonstrated the need
to fundamentally change acquisition processes. For more effective
government IT acquisitions, there needs to be an improved ability to
better differentiate state-of-the-art from state-of-the-practice
technology.[4]

A number of private sector firms--particularly in the automobile
manufacturing sector--have begun to integrate information systems with
those of their suppliers.[5] This approach virtually eliminates all
paper involved in the acquisition process and facilitates close and
continuing information exchange between buyer and supplier throughout
the product acquisition life-cycle.

With IT hardware and software technological life-cycles now frequently
measured in periods as short as a few months, existing IT procurement
processes (such as the GSA Multiple Award Schedule system with its
infrequent updates) simply cannot keep up with new product introductions
or price reductions for products achieving unusual marketplace success.
In addition, IT product offering and price comparisons between different
vendors' products are difficult to make rapidly and easily when large
numbers of individual paper documents are used, thus reducing
competition. The slow change process of the GSA schedule precludes
government agencies being able to take advantage of the often lower
street prices for many IT products.  Great effort is frequently expended
to justify going "off schedule" to obtain desired products at lowest
cost. When program funds exist, the government should buy off-the-shelf
and commodity-type IT products in the same manner as do commercial firms
and private citizens: This will dramatically shorten the IT acquisition
process and result in considerable savings.  Finally, unlike the
private sector, there are virtually no mechanisms that allow government
IT procurement officials and their staffs to see how IT acquisition
process documentation and time delays represent real, quantifiable
costs. The government does not use accounting practices that would allow
these costs to be reflected as part of the total recorded cost of the IT
goods or services being acquired. Knowing how acquisition process costs
inflate overall IT costs will permit program and line managers to take
action to reduce total IT expenditures.

Need for Change

The basic rules of the road for IT acquisitions are found in the Federal
Property and Administrative Services Act of 1949, as amended.[6] When IT
acquisition provisions were originally added to the act in 1965, the
only IT items being purchased were large, expensive, mainframe computer
systems. Although computers are now more widespread in government
offices than typewriters were 20 years ago, and software is often
published in the tens of thousands of copies and is shipped to users in
shrink- wrapped boxes, the same IT procurement rules and processes
continue to be followed. As a result and unlike private sector
practices, federal government agencies now frequently spend excessive
amounts of time and effort acquiring IT items that are not commensurate
with either the cost or the technology life-cycle of the items being
procured. Even simple procurements for off-the-shelf items take far too
long, thereby delaying arrival and use of hardware and software needed
for effective program implementation.

GSA, through existing IT procurement delegation levels, has limited
executive branch agency authorizations to no more than $2.5 million for
an individual acquisition. While agency size and IT competence obviously
vary, it seems reasonable that a new approach to GSA oversight should be
considered. Increased agency authorization levels would give agencies
substantially more freedom to manage their own IT affairs. The existence
of a vigorous General Accounting Office, agency inspectors general, and
GSA information resource management program reviews should provide the
necessary oversight for those agencies unable or unwilling to manage
their IT affairs effectively.

Because off-the-shelf IT tools are now often integral to even simple
program implementation, the frequent delays in government program
execution caused by an inability to acquire IT tools quickly need to
end. Such delays, although quantifiable, are rarely recorded in
government accounting systems or even recognized as an added cost of
government operations. Program or line managers, having received budget
authority for the function under their direction, should have the
authority to buy a fully configured personal computer and relevant
software when program conditions require immediate action.

Process reengineering techniques hold the most promise for allowing
government users to be quickly supplied with state-of-the-art IT tools
at competitive prices.[7] A reengineered IT acquisition process for
short technological life-cycle, off-the-shelf IT tools can be achieved
by creating an "Electronic IT Marketplace."  This marketplace would
allow:

---a dramatic decrease in the length of time it takes to get from
product announcement or requirement definition to contract award so as
to speed up the implementation of government programs dependent on IT
tools; and

----a substantial decrease in the costs--both of the IT acquisition
process itself and of the accompanying program office and vendor staff
time involved.[8]

Implementation of such a dramatically new acquisition process like an
"Electronic IT Marketplace" will not be easily accomplished.  Because
virtually all the existing statutes and regulations were developed with
paper-based transactions in mind, many adjustments will be needed. The
benefits of a dramatically faster, more streamlined, and more
efficiently reengineered IT acquisition system are more than sufficient
to justify the preparatory work required to test the concept.

The use of antiquated, paper-based processes in much of the federal
government imposes a substantial cost to the business being conduted.
Because these costs are not captured by government accounting sysems,
they are often thought invisible.  Chrysler Corporation, for exampe,
attributes much of its ability to bring new models to market more
quickly than its competitors to the combination of an innovative taff
team approach and the building of a new, IT-intensive Automotive
Technology Center in Auburn Hills, Michigan. The technology in this new
center allows for easier and more rapid communication of information
among all team members, regardless of whether they are physically
adjacent. Using IT tools instead of paper, new body designs existing
only on a computer's screen are used to directly control the carving of
clay models of proposed new designs. This innovative use of IT,
eliminating the paper and most of the manual work previously required
with traditional approaches, allows new models to be brought to market
more quickly.

Government can slice substantial amounts of time and cost from its
acquisition process--not just for IT items, but for everything it buys--
simply by eliminating the need for paper documents and records.[9]
Measured over any reasonable life-cycle, getting the paper out of the
system will pay the taxpayers dividends in the form of lower taxes just
as an IT-intensive environment has enabled Chrysler to bring new models
to market at lower prices. Other than additional government automation
and networking resources, there are relatively few impediments to moving
to a paperless electronic data interchange (EDI) acquisition system.
Vendors should appreciate an EDI system because it will reduce their
costs as well.

To enable government managers to make IT acquisitions with efficiencies
approaching those found in the private sector, providing visibility to
IT acquisition process costs and including them as part of program
implementation costs is of exceptional urgency. If IT acquisition costs
are removed from overhead accounts, the fees charged by executive branch
acquisition entities can be budgeted for within program activity budget
submissions and included in program activity accounting systems as a
separately identifiable expense for each individual acquisition
requiring such support. The added costs the present IT acquisition
process imposes on IT tools when they are purchased by the government
will thus be highlighted, allowing managers to manage more
effectively.[10] For example, at present, the costs of IT acquisition
support provided by the Defense Commercial Communications Office, a
fee-for-service organization, are capped at 2 percent.  Removing IT
acquisition staff costs from overhead accounts and placing them on a
fee-for-service basis--combined with program manager freedom to
negotiate the most cost-effective arrangement possible from any IT
acquisition office--will promote competition among acquisition
organizations and give program managers the opportunity to be held
accountable for their own and their program's effectiveness.[11]

Although the following actions are recommended in other NPR
accompanying reports, they are summarized here to show how they
collectively address the acquisition problems facing the IT community.

Cross References to Other NPR Accompanying Reports

Improving Financial Management, FM06: "Franchise" Internal Services.

Reinventing Federal Procurement, PROC08: Reform Information Technology
Procurements; PROC09: Lower Costs and Reduce Bureaucracy in Small
Purchases Through the Use of Purchase Cards; and PROC14: Expand
Electronic Commerce for Federal Acquisition.

Reinventing Support Services, SUP04: Streamline and Improve Contracting
Strategies for the Multiple Award Schedule Program.

Endnotes

1. Sloan, Alfred P., Jr., My Years With General Motors (New York:
Doubleday & Co., Inc., 1964), pp. 150, 152, 163, 165-68, 238-47.

2. Synnott, William R., The Information Weapon: Winning Customers and
Markets with Technology (New York: John Wiley & Sons, Inc., 1987), pp.
307-09.

3. Tapscott, Don, and Art Caston, Paradigm Shift: The New Promise of
Information Technology (New York: McGraw-Hill, Inc., 1993), p. 20.

4. Kiviat, Philip J., "Information Sharing Between Industry, Agencies
Key to Procurement Success," Federal Computer Week (June 21, 1993), p.
13.

5. Synnott, p. 4.

6. 40 U.S.C. 759

7. Davenport, Thomas H., Process Innovation: Reengineering Work through
Information Technology (Boston: Harvard Business School Press, 1993),
pp. 37-93.

8. Barzelay, Michael, and Babak J. Armajani, Breaking Through
Bureaucracy: A New Vision for Managing in Government (Berkeley:
University of California Press, 1992), pp. 115-133.

9. Keen, Peter G. W., Shaping the Future: Business Design through
Information Technology (Boston: Harvard Business School Press, 1991),
pp. 1-21.

10. Barzelay and Armajani, pp. 102-114.

11. Kelman, Steven, Procurement and Public Management: The Fear of
Discretion and the Quality of Government Performance (Washington, D.C.:
The AEI Press, 1990), pp. 24-26.