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Reengineering Through Information Technology

Recommendations and Actions

IT11: 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]

Actions

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.

1. Conduct a two-year pilot test of a modernized IT acquisition framework. (1)

The administrator of GSA should conduct a two-year pilot test of a modernized IT acquisition framework.

2. Increase delegation of authority to agencies. (1)

The administrator of GSA should increase delegation levels for competitive IT procurements.

3. Expand use of commercial credit card. (1)

The heads of all federal agencies and the Federal Acquisition Regulatory Council should adopt the recommendations for expanding the use of the International Merchants Purchase Authorization Card.

4. Pilot test innovative approaches under the Multiple Award Schedule program. (1)

The administrator of GSA should begin a pilot test of an "electronic IT marketplace."

5. Expand electronic commerce. (2)

The President should issue a directive establishing a governmentwide program for engaging in electronic commerce, and the Federal Acquisition Regulatory Council should revise the Federal Acquisition Regulation to support full implementation of EDI.

6. Provide incentives for improved IT acquisition service efficiency. (2)

The President should issue a directive instructing agency heads on franchising service functions, OMB should establish an Implementation Team to facilitate franchising implementation, and the President's Management Council should assume overall responsibility for franchising implementation for IT acquisition activities. Simultaneously, agency heads should authorize executive branch agency program and line managers to use any officially established IT acquisition entity conducting business in accordance with the Federal Acquisition Regulations.

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.

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