You've Come A Long Way Baby

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Legislation pits GSA against other federal agencies in marketing of technology products

By Dennis McCafferty

Click on the Air Force Country Store World Wide Web site and you'll find the shop's visor-shaded proprietor pecking on a cash register, ready to ring up millions of dollars in software and hardware sales.

"There's nothing like a picture," said Fred Santino, the Air Force official who runs the not-so-little shop of infotech wonders. In fact, this homespun site represents more than a billion dollars in opportunities for companies selling workstation, videoconferencing and other technology products to federal buyers.

Other agencies are getting just as creative. The U.S. Navy hosts a virtual shopping mall site, where an elevator whisks Web-surfing federal buyers from the lobby to various contract "floors." At the National Institutes of Health's Electronic Computer Store, 17 vendors make their technowares available and agency buyers can order on the Internet.

One high-ranking General Services Administration deputy worries that the open market atmosphere may lead to bad federal technology purchases. However, his colleagues at GSA, give a collective "What, me worry?" shrug when asked if other agencies present big competition in the federal infotech marketplace.

Sure, procurement reform encouraged those agencies to promote their open-ended, indefinite-delivery, indefinite-quantity contracts as a vehicle for outside agencies to purchase infotech. But reform has only made the GSA stronger as well in marketing technology products available on its schedules as a prime, a la carte purchase option.

"With downsizing, agencies don't have the staff to do contracts anymore," said

Jim Bowdren, deputy director of the GSA's infotech schedule purchasing center. "[Federal buyers] can do blanket purchases off our contracts. In a sense, the schedule replaces an IDIQ and it makes sense to do it."

Nicholas M. Economou, director of acquisitions management over the GSA schedules, said the other agencies' efforts to compete are redundant. "It duplicates our efforts," Economou said. "I can tell you that they're hiring people. We're downsizing. We're getting the job done with less and less people."

By now, the pieces of sweeping procurement reform legislation that Congress passed in 1996 are in place and vendors are looking to craft a winning edge. And on the federal side, there's never been a time when agencies themselves have employed those same commercial tactics to one-up the GSA. The result? A free-flowing but somewhat chaotic marketplace, many agency and industry officials say.

"It's very wide open now," said John Guy, general manager for Hewlett-Packard Co.'s federal sales organization in Rockville, Md. "It seems like we're in an era where we've taken the handcuffs off."

"The government essentially said 'Let's let a thousand flowers bloom and see which ones turn out the best,'" said Barry L. McVay, editor and publisher of Procurement Perspectives, a newsletter in Burke, Va. "A lot of agencies weren't happy with the GSA. They weren't getting the right price. Now, the government is authorizing agencies to do what the GSA is doing. I wonder if that's the economical way of doing things. Maybe the GSA got so fat, dumb and happy, it will now put out the best price. It will be interesting to see."

Insiders are taking sides. Certainly, infotech companies are elated.


"The GSA schedule now has a lot of
competition."

-John Balena
BMC Software

"The GSA schedule now has a lot of competition," said John Balena, general manager of BMC Software's federal operations in Bethesda, Md. "I think they've seen the writing on the wall: If they want to be difficult and complicated, the companies will go to other agencies."

At the GSA, Deputy Commissioner John L. Okay remains wary. In a recently published newsletter essay, Okay urged customers and vendors not to get sucked into what's devolved into a wheeler-dealer, carnylike market.

"Is this really where we want the government to be?" Okay wrote. "In this environment, the rules of the bazaar apply: Buyer beware! Private sector vendors also must beware. They too operate in the bazaar."

He further warned that short-term, bottom-line driven federal managers - coupled with vendor sales forces flocking to agencies to form cozy relations - will lead to bad infotech purchases.

You've Come A Long Way Baby

The GSA has come a long way since the early 1960s, when its schedule infotech offerings amounted to a handful of companies dubbed "IBM and the seven dwarfs" plugging mainframes. There were 20 infotech contracts on the GSA schedule then. There are more than 1,000 now.

And the recent reform movement to open access has sparked a boom in GSA infotech schedule sales. Purchases off the schedule are up about 38 percent, with $2.2 billion in spending for the budget year ending in September. That accounted for roughly half the total GSA schedule sales.

"The government is downsizing," said Roy Chisholm, a GSA director who oversees infotech schedule purchasing. "Everyone is downsizing. Everything's in a flux. You have to do things smarter and faster, so you need computers."

According to International Data Corp. in Framingham, Mass., the GSA's big-ticket tech items - mainframes, minicomputers and related software - reversed a sales decline to grow by 15 percent for the last budget year, with $650 million in revenue. IDC research analyst Payton Smith said the growth should hold steady, even in light of the purchase competition from other agencies.

"The GSA has been doing this for quite a while," Smith said. "They have the edge as far as experience goes. They have the logistical muscle to get the job done."

For infotech products, the next big change in the GSA's shopping guide should arrive within the year, as mainframes, minicomputers, software and virtually all other associated technology will merge onto one schedule. Previously, most of it was spread over four schedules.

It's more streamlining, GSA officials say, to simplify the process and drum up more business.

Schedule purchases could account for a quarter of federal spending by the year 2000, as opposed to the 10 percent it typically commands now, according to Government Sales Consultants Inc. in Great Falls, Va.

With the government spending $25 billion on infotech, GSA Assistant Commissioner Bill Gormley said business can only grow. Vendors who lose out on agency contracts are now hawking products through the GSA with competitive prices.

"There is clearly an indication that the schedule is getting customers what they need as far as the speed of buying," Gormley said. "As the technology comes on board, they can get it quickly. And the pricing is very sensitive to their needs."

- Dennis McCafferty

With the government spending $25 billion on infotech, GSA Assistant Commissioner Bill Gormley said business can only grow.

"I was trying to raise a cautionary note for both customers and vendors," Okay said, explaining his essay. "I think it is an interesting development that agencies - where the core mission is something other than infotech - have gone into the infotech contracting business. As the article pointed out: What is the customer really getting there?"

What huge rumblings the Clinger-Cohen Act stirred, eh? That legislation, coupled with other procurement reform in recent years, no less than changed the stony face of government infotech spending.

Governmentwide agency contracts, or GWACs, have emerged as vehicles where one agency promotes its own contract where other agencies can make purchases. For the outside agencies, it's a much more fluid shopping experience than the traditional and tedious bidding/award process.

Meanwhile, the GSA has broken its traditionally hardened, bureaucratic shell to morph into a dynamic, easy-access buyer's choice.

Schedule contracts can last for 10 years now. Federal customers, depending upon the size of the order, can bargain for a better price with vendors than that posted on the schedule. The federal government did away with maximum order limits. The government also ditched a requirement that agencies post a summary of their intent to buy at least $50,000 worth of an infotech good or service.

All of which has set the stage for a free-for-all competition, with the GSA and agency rivals wooing federal infotech buyers. The prize? Surcharges paid by federal customers for the pleasure of buying off GSA schedules or the competing agencies' contracts. The surcharge amounts are set by the agencies, and the GSA charges 1 percent.

Industry officials speculate that lawmakers may consider whether agencies - some of which have been known to charge as much as 4 percent to 8 percent - are actually covering costs or are looking for a nice drop in the bucket. After all, even the conservative 1 percent surcharge will yield a cool million on a $100 million purchase.

BMC's Balena wholeheartedly endorses the surcharge concept because it ultimately drives down federal spending.

"It's capitalism at its best," he said.

"They've got a business to run," agreed Gene Turley, vice president of marketing and sales for Hughes Data Systems in Reston, Va. "I don't think it's an unreasonable charge."

The changes are making life easier on vendors, too. Roger Harden, who oversees marketing for Austin, Texas-based Dell Computer Corp.'s federal sales division, said GSA schedule agreements are a great deal more efficient than contract negotiations in the old days, when it could take two years by the time the final protest was resolved. "It was good to have a full-time job, but it wasn't painless," Harden said. "It was painful."

But federal spending watchdogs and the American Bar Association have cried foul over the loosened-up market. Most criticized is the elimination of both the summary postings in Commerce Business Daily and the maximum order limits. Both moves represent potentially unfair business practices in violation of federal policy, opponents of the changes say.

While competition among agencies is hoped to spark lower prices for infotech, Government Sales Consultants President Terry Miller raises doubts. Oracle Corp. may have dozens of products on schedules and IDIQ contracts, so many that agencies are getting befuddled trying to find the best price.

"Governmentwide contracts are a bad scene because it's not centrally controlled," Miller said. "If you're Capt. Jones at Defense, you have no central system to go to to find out which is the best price. You have no idea how to compare. Oracle probably doesn't even know where the best price is."

"[GSA] has a business to run. I don't think [the surcharge] is unreasonable."
-Gene Turley
Hughes Data Systems

At Digital Equipment Corp., executive Dianne Baumann disagreed. While reform has reduced publicity notices with regard to GSA schedule contract opportunities, it's a level playing field where the information is still available, she said.

Of course, like many companies, Digital has prospered from the rule changes. After years of sales decline, Digital bounced back last year and is now seeing its GSA schedule, big-ticket infotech sales increase well over 100 percent with $15 million for the first quarter of 1997, compared to last year's first quarter. Technology services have also doubled to $8.1 million in the same time period.

"In order for them to become a considered vendor, they have to do their homework better," said Baumann, who is Digital's GSA program and contracts manager in Greenbelt, Md. "And GSA has developed electronic means of posting all the schedule information on the GSA Advantage [Web site]. It's not like the information isn't there."


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