Commercial Ways Find Favor in Public-Sector Practices
Commercial Ways Find Favor in Public-Sector Practices<@VM>E-Commerce
By Nick Wakeman
The name of the game in the public-sector market is bringing agencies solutions and applications that have been proven in the commercial marketplace, whether it be what the government is buying or how it is buying it.
Major government agencies, such as the departments of Defense, Education and Veterans Affairs and the Internal Revenue Service are embracing commercial models as they launch large-scale modernization efforts and search for better ways to implement new information technology systems.
The IRS awarded an $8 billion, 15-year contract to Computer Sciences Corp. that is heavily weighted on performance criteria. Likewise, in August the Education Department tapped Andersen Consulting of Chicago to revamp its student loan system. Andersen will get paid according to how well the new system operates.
One of the latest efforts is the proposed Navy-Marine Corps intranet that could cost up to $4 billion and for which a request for proposals is expected in early 2000. The Navy and Marine Corps plan to use Internet technologies to link vital networks and communication systems across the two services.
The intranet will pull together command and base networks and create an infrastructure the Navy and Marine Corps can use for re-engineering processes. The military also wants to implement enterprise resource planning concepts in supply, finance and maintenance.
"The government is definitely asking for commercial best practices on this one," said Joe Doherty, account manager for Computer Sciences Corp. of El Segundo, Calif. Doherty is one of the leaders of the group at CSC tracking the contract.
Not only are the Navy and Marine Corps eyeing new technology, they also want to push responsibility and ownership of the intranet onto the winning contractor.
"They want to buy a service; they don't want to own a system," Doherty said. This strategy is very similar to one used by large corporations that want to field complex IT systems, he said.
The Navy-Marine Corps intranet contract is being structured with a lot of incentives for performance rather than holding penalties over the contractor's head as a way to get performance, said Maggie Bauer, senior director of strategic programs at the systems integrator Affiliated Computer Services Government Solutions Group Inc. of Rockville, Md.
The government wants to base its incentives on customer satisfaction, she said. "It is more the carrot-and-stick approach."
The government drive to use commercial best practices dates back to the Government Performance and Results Act of 1993 and the start of procurement reform, said Lauren Steinkolk, leader of the civilian research team at the market research firm Federal Sources Inc. of McLean, Va.
The legislation, along with downsizing and rapidly changing technology, has helped foster a cultural change in the government, she said.
In recent years, new concepts such as outsourcing of desktop services, also called seat management, have begun to take hold. "It has been a slow process, but more agencies are starting to turn toward seat management," she said.
Other commercial sector solutions and applications that Steinkolk said companies need to follow include Web-based applications, financial management software such as enterprise resource planning solutions, and call centers.
For companies, the changes in the government's approach means more than just introducing new technology; it also means structuring proposals differently and managing projects in new ways.
"When you think about procurement reform, what the government is really trying to do is act more like a business," said Jeff Babcock, vice president of public sector sales and marketing for SAS Institute Inc. of Cary, N.C., which develops data warehousing and decision support services for government and commercial customers.
The government's focus on performance creates opportunities for companies such as SAS because agencies, like their corporate counterparts, are looking for help in strategic planning and measuring performance, Babcock said.
"The next wave in procurement reform is going to be performance-based contracting," he said. "That is one thing that commercial contracts have had for years."
SAS is renegotiating a data warehousing software contract with the Census Bureau to convert it from a site license to a performance contract, he said. With a site license, the customer pays for the software according to the number of users it believes it will have.
"The advantage for us is that we will get much more direct involvement from our customer," he said. Too often, the thinking is that once the contract is signed, the work is over, "but the work is just beginning," Babcock said.
Many technology projects fail to meet expectations because the contractor and the customer do not work closely enough together after the contract is signed, he said.
There are signs that concepts such as performance-based contracting are gaining favor. The two most notable examples are Andersen's contract with the Education Department, which was awarded in August, and CSC win in December 1998 of the IRS Prime contract.
To award these types of contracts, the government has to make decisions based on best value, said Bruce Burton, executive vice president of AverStar Inc., a Burlington, Mass., systems integrator.
"The government is moving that way, but I think too many contracts still go to the low bidder," he said. "The government is still trying to understand what best value means."
Among the signs that the government wants to buy like its commercial counterparts is the growth of the General Services Administration schedule and the move away from cost-plus contracting, where companies charge a set percentage above their cost of doing business, said Joe Saponaro, AverStar president and chief operating officer.
The GSA schedule allows agencies to look across several companies selling similar products and services and compare prices, he said. Decisions can be made quickly, similar to how a corporation makes its purchases, Saponaro said.
The schedule also allows companies to approach agencies with an idea and "turn that idea into work in a matter of days or weeks rather than months," Burton said.
Saponaro said it has really changed the way his company does sales and marketing. The move to more fixed-fee contracting also mirrors the commercial marketplace, he said. He estimated that between 10 percent and 15 percent of AverStar's contracts are now fixed-fee contracts. With the fixed-fee contracts, the government gets better control of what a project will cost and the contractor has the freedom to find the best solution, Saponaro said.
Burton said contractors have to develop packaged solutions that can be marketed and sold to several customers. "This is much more commercial," he said.
With the push for more commercial-like contracting there also is a trend toward more commercial solutions, especially in the area of electronic commerce.
While governments have long posted information on Web pages, agencies are now using the Internet to revamp processes and find new ways of doing business, said Todd Ramsey, general manager for IBM Global Government Industry in Bethesda, Md.
Foreign governments, such as those in Singapore and the province of Manitoba, Canada, and others, such as Washington state, are ahead of the U.S. government in using the Internet to improve processes and services, Ramsey said. "U.S. government agencies are very complex," he said.
The best government solutions are similar to the finest commercial solutions in that the senior management looks across the organization and makes changes to use the Internet to improve services, said Ramsey. He called it the top-down approach as compared to the bottom-up approach.
"You need to rethink the whole way you reach your market or the citizens," he said. The top-down approach requires "boardroom-type decisions. This has to come from your senior political leaders."
The Singapore government, with the help of IBM Corp., developed the TradeNet system, which consolidated the data collection of the 26 agencies that companies have to deal with when importing and exporting products from the country, Ramsey said. "They reorganized around the customer," he said.
For example, instead of filling out individual forms for different agencies, there is only one electronic form, which is then shared with all the agencies.
One of the ripest markets in the government for electronic commerce solutions is the delivery of welfare and social services to citizens, Ramsey said.
Electronic commerce and other commercial solutions such as wireless communications technologies in the government are creating business opportunities for small companies, said Federal Sources' Steinkolk.
"There is room in the market for so-called niche companies to get a piece of the action," she said. "Specializing is the best way for small companies to stay alive."
At the same time, the push for commercial solutions, especially outsourcing, plays into the strengths of larger companies because such companies have broader resources, she said. The squeeze continues on middle-tier companies.
While companies such as Affiliated Computer Services, CSC, Electronic Data Systems Corp. of Plano, Texas, and IBM Corp. of
Armonk, N.Y., are major players in the government market, the majority of their overall revenues come from commercial work.
Of CSC's $8 billion in 1999 revenue, only about 23 percent comes from the government. EDS' global government business accounted for $2.4 billion of the company's nearly $17 billion in revenue.
ACS gains about a third of its $1.6 billion in revenue from the public-sector market. IBM sells more than $1.5 billion in products and services to the U.S. government, while the company as a whole earned about $81 billion.
Thus, these companies have a built-in reservoir of commercial experience to leverage into the government market, company officials said.
For example, CSC employees from both its defense group and its commercial group work on the Navy-Marine Corps intranet contract, Doherty said. The structure is similar to the one used on the IRS contract so that CSC can bring its commercial experience to the government market, he said.
"The government gets a fresh look," Doherty said.
But not all the action comes from government agencies studying commercial practices. There is a reverse trend under way with commercial companies looking toward the government for best practices, especially in the hot area of protecting data and IT systems through information assurance, company officials said.
Doherty's defense group is working on CSC's contract with J.P. Morgan to provide information assurance services, he said.
"The interest in security [solutions from the government] is huge in the commercial market," said ToniAnn Thomas, executive vice president of business development at ACS Government Solutions.