Great Idea, Lousy Execution

Consultants recommend small businesses take a long, hard look at a much-ballyhooed electronic commerce system before jumping into the fray

P> It was intended as the gateway to the arcane world of government procurement for small businesses. Vice President Al Gore touted it as a major advance in his effort to reinvent government and bring it into the information age. But after more than a year, many small-business owners are scratching their heads, still puzzled by the complexities of the government market and a solution that some would argue has made it even more complex.

The Federal Acquisition Streamlining Act of 1994 created the Federal Acquisition Network, or FACNET, to force agencies to evolve their paper-based procurement processes into the electronic commerce age. FACNET also was intended to provide vendors with a single face to industry, replacing the hundreds of computer bulletin boards used by agencies to make purchases under $100,000. The rationale was that more than 90 percent of all purchases qualify as small purchases, so why not create one electronic pipeline to handle all of them? That pipeline, FACNET, would eliminate needless redundancy, create economies of scale that would drive down transaction costs, and save forests of trees. In the argot of management, FACNET appeared to be a "win-win" situation.

Turns out, however, that it may have been "lose-lose." Agencies continue to use their own systems, and many no-name companies ended up winning computer orders they couldn't fulfill. For instance, the Energy Department used the electronic commerce network operated by Wright-Patterson Air Force Base in Dayton, Ohio.

But there may be an even larger problem. In commercial industry, where electronic commerce has been used for some time, the buyer and suppliers share the cost of setting up the connections and the software. With FACNET, vendors carry the full financial burden because the government pays nothing to the telecommunications providers. Essentially, the government is saying to business, "Do business our way or don't do business with us at all." Some would say that is an abuse of the government's rights and obligations as a customer; perhaps more importantly, it may mean that the government is not getting the widest possible segment of the commercial market to chase its business.

For DTK Computer Inc., the City of Industry, Calif., manufacturer that sells exclusively through resellers, FACNET has generated new competition from unknown -- and sometimes unreliable -- vendors. Many of DTK's dealers use the system, but "every dealer's asking me 'how can we win,'" said Julie Hall, the company's federal sales manager. Because FACNET awards generally are based on price, she said DTK has a tough time beating the "garage-a-tronics," the one- or two-person operations run out of someone's garage. DTK can't compete with that overhead, Hall said. "Once a government contracting officer gets burned by one of these garage-a-tronics, they no longer award to them. You get what you pay for," Hall said.

Meanwhile, small businesses rely on consultants such as Government Sales Consultants Inc. in Great Falls, Va., Selbre Associates in Bethesda, Md., and Government Counseling in Springfield, Va., to make sense of FACNET. Lynn Bateman, president of Government Counseling, pointed out that many small businesses can't afford the up-front investment for communications support, value-added network connections and internal technical support for FACNET business.

"It's hurting small businesses. I'm hoping it's a temporary setback. Small businesses have to fund an unfunded mandate," said Bateman.

Even though 75 percent of an agency's small purchases must be made using FACNET by 2000, the regulations allow individual discretion. "An agency head can exempt any procurement from FACNET because agencies self-certify that they're meeting the 75 percent. There are a lot of outs for contracting officers and agency heads not to use FACNET," said Patti Reardon, vice president at Government Sales Consultants Inc.

And the agencies that do post requests for quotations sometimes do not follow the procurement regulations. Many of the FACNET infotech purchases are not small business set-aside contracts and identify a brand name, such as Novell Inc.'s Netware product, without allowing any product substitutions -- as required by procurement regulations. Deane Erwin, former co-chairman of the Electronic Commerce Acquisition Program Management Office, said it isn't his office's responsibility to police the FACNET transactions for possible rule violations. That's the individual agencies' job, he added.

With the General Services Administration stripped of much of its infotech oversight role (see accompanying story), industry analysts doubt GSA officials will step in to ensure FACNET runs efficiently and properly. "As a governmentwide enterprise, it's not working," said Bob Deller, director of market research at Global Systems and Strategies, North Potomac, Md. The Internet has emerged as a more functional way to handle these solicitations, he noted. "FACNET was good on promise, but at this time, it's not relevant anymore. It's not a success in my view. But who cares? No one does," he said.

Nevertheless, the system has its supporters. Reardon described the network as "a free-for-all right now. That's the beauty and the cancer of the system. It'll either make you or break you."

For Government Technology Services Inc., the leading federal reseller in Chantilly, Va., FACNET has proved to be a blessing. "While we can't quantify those revenues, FACNET provides an almost effortless method for us to bid and win many smaller procurements that otherwise might not have been bid by GTSI," a company spokesman said.

How FACNET Works

To use FACNET, an agency contracting officer composes a request for quotation on his own information system and sends it to a predetermined gateway, where the transaction is translated into the X.12 electronic data interchange standard format -- an international electronic commerce standard. The transaction then is transmitted to one of FACNET's two network entry points in Columbus, Ohio, and Ogden, Utah. The request for quotation is forwarded to the 26 government-certified value-added networks, which post it for their subscribers to review. Finally, companies, which must preregister their Dun & Bradstreet identification number in the system's central directory, submit their bids or responses to the request for quotations back through the network providers, also known as VANs.

But with 26 VANs to choose from and price structures ranging from as low as $25 to $50 a month to as high as $1,000 a month, small businesses don't know where to begin. Deane Erwin, former co-chairman of the Electronic Commerce Acquisition Program Management Office, said, "One of the biggest difficulties for businesses is that they really want to understand which VANs to use." Eventually, he said, the number of VAN providers will dwindle as some start gaining a larger share of the government supplier base.

IT Procurement Changes at a Glance

The new information technology procurement law:

-Gives agencies greater discretion in their acquisitions

-Transfers oversight from GSA to OMB

-Encourages multiagency acquisitions

-Requires agencies to evaluate their needs and analyze their processes before buying infotech

-Eliminates the General Services Board of Contract Appeals and places sole jurisdiction for administrative protest with GAO

-Establishes a chief information officer position in all agencies that have a chief financial officer

-Gives the Federal Supply Service within GSA responsibility for administering IT schedules and removes maximum purchase limits and public notification requirements

-Authorizes the president to waive the recoupement tax on U.S. exports of defense products if the products are at a competitive disadvantage because of the tax

-Encourages off-the-shelf acquisitions and modular purchases instead of large procurements

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