Vendors Must Deal With More Federal 'Commodity' IT Purchasing
Commodity procurement is likely to have a significant impact on how vendors will deal with federal agencies for IT products and services. To call the change "revolutionary" might be a stretch, but the landscape will be changing, presenting both challenges and opportunities for vendors. As federal spending declines over the next several years, vendors in general will need to drill down more deeply into agency budgets to find those opportunities.
Federal agencies will be moving significant portions of their annual IT spending to "commodity" type procurement vehicles by the end of 2012. As part of continuing reforms in IT acquisition and management, the White House Office of Management and Budget (OMB) has directed agencies to immediately begin the process of consolidating IT procurement, with a focus on shared service arrangements.
The initiative is designed to accelerate the adoption of more efficient private sector IT acquisition practices by federal agencies.
"The stovepiped and complex nature of the federal enterprise has led over the years to a proliferation of duplicative and low priority investments in information technology," Jeffrey Zients, acting director of OMB, said in a March 31 memo.
OMB directed agency managers to take a "portfolio" approach to IT capabilities by looking at resources across the full range of requirements. For example, if multiple units within an agency have separate email systems or separate statistical programs -- each utilizing a different IT provider -- managers should strive to consolidate such deployments under a single commodity-type IT procurement plan.
"Although this process is new for federal IT, leading private sector companies have been leveraging improved IT portfolio management tools for some time," said Federal Chief Information Officer Steven VanRoekel in a March 30 blog directed at government IT managers.
Directive Requires Action
Both OMB and the CIO office will assess agency activities for compliance with the initiative through "PortfolioStat" reviews. These will be similar to the current TechStat reviews of individual IT investments, but will instead cover all capabilities within an agency's IT portfolio.
Agencies will have to move quickly to meet the following OMB compliance deadlines:
- Portfolio Survey: Agencies must complete a high level study of the current status of their IT portfolios by May 31, 2012.
- Baseline: By June 15, 2012, all units within agencies or departments must complete an information request for specific types of commodity IT investments (including enterprise IT systems, IT infrastructure, and business systems) that will be used as a baseline to assess the maturity of IT portfolios.
- Consolidation Plan: Agencies must submit a draft action plan to consolidate commodity IT spending, and establish a measurable financial goal to reduce total IT investments based on more consolidated commodity IT buys and intra-agency shared services by June 29, 2012. A final plan is due Aug. 31, 2012.
- Procurements: Agencies must complete the transition of two commodity IT areas by Dec. 31, 2012. These include IT hardware and software; print management; telecommunication expenses; wireless devices and services; data centers; networks; enterprise IT systems (email, collaboration tools, identity and access management, security, and Web infrastructure), and business systems.
Commodity procurement is likely to have a significant impact on how vendors will deal with federal agencies for IT products and services. To call the change "revolutionary" might be a stretch, but the landscape will be changing, presenting both challenges and opportunities for vendors.
IT Purchasing Mix Will Change
As federal spending declines over the next several years, vendors in general will need to drill down more deeply into agency budgets to find opportunities, rather than rely on increased levels of spending to increase sales to federal customers. Changes in the mix of IT investments will provide opportunities, such that a potential round of purchasing replacement desktops may instead yield to greater purchases of mobile devices or the utilization of desktop virtualization.
"For federal IT, you have to concede that budgets will be at least flat, if not declining, over the next few years, and that the goal is to improve IT performance while keeping spending at or below current levels -- and that could constrain opportunities for vendors," Deltek senior vice president Ray Bjorklund, told CRM Buyer.
"Of course, during the transition phase to IT consolidation and shared services, there might be opportunities for IT providers who can help facilitate these changes, including consultants with a specialty in IT management," he said.
Adjusting to commodity IT spending and consolidation of federal resources will require vendors to take a more strategic approach to marketing.
"More so than ever, commercial technology companies need to leverage their sales teams and partners to identify where requirements are being developed within agencies. End users, program managers, and CIOs are important as always. But shared service centers, strategic sourcing offices, and vendor management organizations will increasingly become focal points for consolidating procurement requirements," Doug Gaines, director of market intelligence at immixGroup, told CRM Buyer.
"The best salespeople will map their government accounts with a strategy to address more centralized decision authority. A key element in the PortfolioStat program is the call to innovate with less. Cost savings are not the only end game. As commodity IT purchasing is streamlined, budgets can be redirected to new capabilities and emerging technologies that support mission effectiveness," he said.
Over the past year and a half, as the federal IT reform program has evolved, agencies have been encouraged by OMB and the General Services Administration (GSA) to shift to broader acquisition vehicles rather than consulting the GSA list of approved vendors, known as the "GSA-70 Schedule," to find qualified vendors for a single IT task or contract.
Vendors Must Watch Contract Vehicles
The use of Blanket Purchase Arrangements (BPAs) -- whereby a multitude of vendors are, in essence, preapproved for certain goals such as providing email systems or data consolidation programs -- has been promoted. Such methods allow agencies to use a validated contracting mechanism that saves agencies the time and expense of developing their own acquisition vehicles. Similarly, Indefinite Delivery and Indefinite Quantity (ID/IQ) arrangements provide broader contract mechanisms for agencies.
"The PortfolioStat initiative should yield improved acquisition planning and cost savings through IT asset management, consolidated buys, and other strategic sourcing principles. Technology companies will need to have their products on the ID/IQs and BPAs approved as strategic sourcing vehicles," Gaines said.
"Simply being on the GSA Schedule may leave you out in the cold on some new procurements," he added.
However, federal agencies will need to deploy different contracting vehicles to react to and take advantage of innovation, rather than rely on static arrangements that take so long to implement that they are bypassed by innovation.
"Agencies also will need to focus on flexibility in competing and managing contract vehicles, allowing them to keep pace with rapid change in the technology industry," he added.
The sheer volume of federal IT reforms that have been under way since late 2010 -- including the commodity acquisition program -- could overwhelm federal agencies, but Deltek's Bjorklund doesn't think so.
"I think the agencies are open to the reforms and see the benefit. It's more a question of how capable they are of implementing them. Some agencies are more prepared for these changes than others," he said.
"OMB states boldly that the new annual portfolio review process will 'ensure that any inertia, which would relegate the federal government to the status quo, be rooted out on a recurring basis.' But the Clinger-Cohen law set out to address many of the same issues in 1996, and the pace of progress has been glacial in the following years," Gaines noted.
"Perhaps growing budget austerity will be the catalyst for real change," he said.