Enterprise software deals chart new course
Buylines | Policies, strategies and trends to watch
- By Steve Charles
- Jan 10, 2008
When the proposed rule to implement SmartBuy in the Federal Acquisition Regulation was published a couple of months ago, I thought about the evolution of the concept of governmentwide enterprise software agreements (ESAs) and the business implications for software publishers, partners, integrators, small businesses and government customers.
Since the Defense Department launched the Enterprise Software Initiative (ESI) in 1998, procurement policy-makers, buyers and sellers have debated the merits of centrally negotiated ESAs to achieve the goals of consistent enterprise license terms, streamlined purchasing, better asset management and, ultimately, lower life cycle costs.
When DOD proposed amending its Defense Federal Acquisition Regulations Supplement in 2002 to implement ESI in regulation, some thought the program should be made mandatory while others believed this could result in less competition and higher prices. Yet ESI remained nonmandatory. SmartBuy will make it more difficult for buyers to circumvent ESAs; but where there's a will, there's a way.
Having participated in the ESI program and negotiated ESAs on behalf of several publishers, I believe the results are mixed.
The government seeks pricing based on its annual, governmentwide spending, yet it can't substantially lower a publisher's cost of sales. Just as ESI and SmartBuy are nonmandatory, likewise there is no commitment to buy any particular brand.
This is the reason ESA pricing is seldom as favorable for the government as it might be for a multinational corporation that has standardized on a brand. Because margins are thin, the difference in fees charged by one contract vehicle compared to another is sometimes enough ? especially when the deal is large ? for a contracting officer to justify selecting a different procurement path regardless of what the regulations say about source-of-supply priority.
But there are benefits to ESI and SmartBuy. First, all parties benefit by the lower administrative costs made possible by having one license agreement and one set of contract terms and conditions combined with centralized electronic catalog management. Second, a single license agreement makes it easier to license software through whichever prime contractor may be performing related services for a particular agency, regardless of the task-order contract being used. Third, the aggregation of spend data and reporting can improve asset visibility for the publisher too, so that the information needed to follow up annual maintenance renewals has been captured. Fourth, we've learned how to include a manufacturer's authorized partners in the order flow by establishing multiple ordering points under each enterprise license agreement, thereby providing partner choice for the agencies while ensuring continued competition. Fifth, uniquely qualified small-business contractors can perform this data-driven function as a core competency.
Offering multiple order points under an ESA is an interesting innovation that ESI pioneered, and SmartBuy should encourage it by allowing manufacturers to compensate partners as private-sector programs do. But some agency procurement systems cannot yet handle transactions conducted by a company authorized to accept orders and payment on behalf of an ESA contractor.
This adds a new dimension to the typical prime/subcontractor relationship we've all grown up with.
But consider that we now operate within data-driven supply chains where terms such as flash-title, drop-ship and electronic software delivery commonly describe models of commerce that are a dramatic departure from the days when the channel's primary value-added activities were breaking bulk and taking title.Steve Charles is co-founder of immixGroup Inc., a consulting firm.