This Time Procurement Reform Is for Real

The most ambitious reform of the procurement system in 30 years could mean contracting may never again be business as usual

P> Historically, reforms in information technology procurement have happened every 10 years. And yes, it's that time again. Except now "the dam is bursting on government procurement as we know it," said Bob Dornan, senior vice president at Federal Sources Inc., a McLean, Va., market research firm.

Nothing like the scope of the changes in the Information Technology Management Reform Act have been seen since 1965, when the Brooks Act established the current administrative and legislative controls on infotech procurements. President Clinton signed the reform bill into law Feb. 10, but the changes don't take effect for another 180 days.

The law transfers oversight responsibility for infotech procurements from the General Services Administration to the Office of Management and Budget. The information technology procurement schedules will be turned over to the Federal Supply Service within GSA and will no longer be treated differently than other schedule buying programs, such as those for medical supplies. (GSA has managed purchases of goods in small amounts through a kind of approved catalog of goods known as a GSA Schedule.) Public announcements of schedule procurements need not be made, and there is no longer a maximum limit for schedule purchases. Agencies will be encouraged even more to buy from one another's contracts and to purchase off-the-shelf products.

Additionally, the reform encourages agencies to make small, modular purchases instead of the large procurements that tend to cause excessive delays and cost overruns. This continuing trend away from custom software and systems could be an opportunity for systems integrators whose services would be in demand to make off-the-shelf products work with various systems. Finally, the General Services Board of Contract Appeals -- the main forum for contract protests -- will cease to exist in 180 days. These are the kinds of changes that prompt journalists to invoke clich?s like "sea change" or "paradigm shift."

Back to the Future

In some ways, the changes being enacted, especially the relaxation of procurement rules, will return today's system to the infotech procurement process of 30 years ago. It is probably worth noting that much of the procurement system (see time line) was created in response to perceived problems in the procurement process. In one sense, the most recent reform is designed to dismantle laws created as antidotes to procurement fraud and corruption.

Yet government and industry officials seem pleased that the rules are being relaxed. The new system is a middle ground; it has oversight, but it is not as rigid as the Brooks Act, said Kevin Fitzgerald, vice president and general manager of Oracle's Government Division, Bethesda, Md.

However, there are risks. Paul Brubaker, a staff member for Sen. William Cohen, R-Maine, said the reform is designed to encourage innovation and risk-taking rather than discourage it. The modus operandi for procurement should change from outlining all the things contracting officers should not do to giving them the widest possible latitude for decision-making. And that requires a level of trust that many say has long ceased to exist between government legislators and administrators. Such trust can't be easily legislated -- particularly in a climate of increasing tension between Republicans and Democrats.

But there are ways to help reduce mutual suspicion.

Congress should not subject a risk-taker who stayed within the rules to a public flogging if the risk does not produce the intended benefit, Brubaker explained. Similarly, the General Accounting Office, which issues reports on problems in the procurement and management of infotech systems, should develop a less antagonistic approach, he said.

The biggest risk, however, is that changes might fail to deliver an improved system, said Greg Rothwell, assistant commissioner of procurement for the Internal Revenue Service.

Expectations for an improved system are so high that anything less than measurable, documented improvement would only add to the already pervasive climate of suspicion and low morale in the government information technology market.

In particular, many fear news of a major contract scandal, which itself would create pressure to increase oversight again -- before the reforms are really given a fair chance to work.

One particularly ripe area for abuse is the contract schedule, where many of the old restrictions have been lifted.

For example, a contracting officer could place an order for millions of dollars of computer equipment against one of the schedules, and there would be no way to track whether that procurement was done in the true spirit of the law. Did the procurement officer make the requisite survey of all available purchase options? How do we know the taxpayer got the best deal?

At least with the old rules, which mandated published planned purchases, vendors could complain if they felt a buy was being made improperly. But now they won't even know what is being purchased, said Carl Peckinpaugh, an attorney with the Washington, D.C., firm Winston and Strawn. "I don't see this as an improvement," he said, because "agencies will be in competition to violate the law."

The central question is whether making these large purchases without announcement represents abuse. A contracting officer still must do a market survey to determine the best equipment and the best price, said Oracle's Fitzgerald.

One thing is certain. Buying from the schedules could become the path of least resistance for purchasing information technology, and those companies that position themselves accordingly stand to gain. In fiscal year 1994, sales from the 70 A Schedule for mainframes were $539 million. Although fiscal 1995 sales of $546 million represent a minor increase, 70 A business was in a free fall during the 1980s and remained level for the last three years.

Fiscal 1994 sales from the 70 B and C schedules for microcomputers were $691 million. Last year, business rose to $980 million, a 40 percent increase from the previous year, Dornan said. The reforms also make it easier for vendors to update the products offered on the schedules without undergoing a lengthy negotiation process. Changes could be made in a matter of weeks instead of months or years.

Schedule holders won't be the only beneficiaries. OMB, which now has a strengthened oversight role, has encouraged agencies to buy from each other's indefinite-delivery, indefinite-quantity contracts.

For example, McLean, Va.-based PRC Inc.'s super-minicomputer contract with the Defense Department sets aside 10 percent of all purchases for civilian agencies.

If agencies are encouraged to buy even more from other agencies' contracts, then it seems likely that only the contractors with the broadest reach and best marketing will thrive, said Dornan.

To succeed, company executives will need contacts at each agency, agreed Bruce McConnell, chief of OMB's Information Policy Branch. And prime contractors need an array of so-called IDIQ contracts through which to offer hardware and software.

The smart small businesses will look for niches and make every opportunity count -- particularly since congressional support for small business, set-asides and 8(a)s also is eroding.

The impact on integrating actual systems is less clear. The legislation encourages off-the-shelf procurements through schedules and IDIQ contracts, and it discourages custom solutions -- a trend which has been building for some years already. Theoretically, that should mean less work for integrators, who have thrived on complex, custom-coding projects. But off-the-shelf computer technology rarely works as billed. As a result, systems integrators could be in high demand to make all the pieces work together, said Donald Scott, vice president of government relations for GTE Government Systems, Chantilly, Va.

Still, even with encouragement from Congress and the OMB, it could be three to five years before the cultural shift needed to make reform succeed takes place, said Chris Hoenig, director of the GAO's Information Resources Management Policies and Issues Group.

Truth be told, the temptation to micromanage and second-guess may always exist. Politicians may agree in principle that it's better to trust agencies than micromanage them. But when offered a soapbox on behalf of stamping out contract fraud, few can resist. As Ronald Reagan was so fond of saying after the Russian fashion, "Trust but verify."

It seems only a matter of a short time before politicians begin asking for verification that agencies and their contractors are worthy of the trust given to them by the most recent procurement reform.

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