Industry not sold on SmartBuy plan

For SmartBuy to succeed, the government must create a business model that reduces vendors' costs, said Ed Naro of Northrop Grumman Corp.'s IT division in Herndon, Va. "It will require some out-of-the-box thinking," he said.

Olivier Douliery

Vendors are uncertain whether SmartBuy will save them money or how it will affect major IT programs, said Bruce Leinster of IBM.

Henrik G. de Gyor

Vendors want more discussion with feds about enterprise licensing

Federal information technology contractors are worried that the government's SmartBuy program for enterprise licensing of software will end up costing them money.

Industry officials acknowledge that it makes good business sense for the government to leverage software buys across its many agencies, but they said SmartBuy likely would cut into their firms' revenues without cutting their sales costs. Many said they still have more questions than answers about how the SmartBuy program will affect their businesses.

SmartBuy "tells you what software assets are already available to you, so you make wise software acquisition decisions. ...You can't argue with the government's right to manage its software licenses effectively," said Brien Lorenze, director of federal e-government for McLean, Va., systems integrator BearingPoint Inc.

Mitch Daniels, former director of the Office of Management and Budget, officially kicked off SmartBuy June 2 in a memo to the heads of departments and agencies. He said buying governmentwide enterprise licenses of commodity-type software would save up to $100 million a year. Federal officials plan to have several enterprisewide licenses in place by Sept. 30.

Agencies engage in thousands of licensing agreements annually, obtaining at least one commercial software package for each one of the government's more than 4 million desktop, laptop and networked computers.

"This uncoordinated approach to acquiring common software is wasteful and ineffective," Daniels said in his memo.

The General Services Administration's Federal Supply Service will negotiate the enterprise licenses and run the program through the GSA schedules contracts. First in line for the new licensing agreements will be commodity-type software that the federal government spends a lot of money on, including office automation, network management, anti-virus, database, business modeling tools and open-source software support.

IT executives said government officials have been responsive to their concerns, but they are still uncertain how the initiative will work.

Olga Grkavac, executive vice president of the Information Technology Association of America, said association executives met with GSA official Neal Fox to clarify that the agency would not freeze software buys before SmartBuy rolls out. The Arlington, Va., trade group does not yet have a position on SmartBuy, she said.

Fox told Washington Technology that software purchases would continue before the rollout.

"There is no freeze. The agencies should coordinate large buys or buys of commodity software with the SmartBuy team," said Fox, assistant commissioner for commercial acquisition at the Federal Supply Service.

The Interior Department, Navy and GSA already have agencywide software licenses. Interior estimated it would save $78 million by 2007 through the enterprise licenses it holds for four software programs. The Navy estimated similar savings from the more than 600,000 licenses it bought for personnel support software from PeopleSoft Inc. of Pleasanton, Calif.

According to federal officials, SmartBuy will reduce vendors' sales and administrative costs. SmartBuy also will standardize terms and conditions, reduce the number of contracting vehicles and provide better federal accounting of vendors' software sales.

"Vendors get guaranteed cash flow, and instead of having to negotiate with 25 different entities, they negotiate once. We get discount pricing; they know how much they are going to sell, and that lowers their sales costs," said Mark Forman, OMB's administrator of e-government and information technology.

But many IT executives questioned how their sales costs will be lower, because GSA will not be purchasing software for the agencies.

"We want to keep the agencies in control of their purchases. Agencies will purchase software themselves through the SmartBuy agreements," Fox said.

[IMGCAP(2)]This will make it difficult for vendors to cut their sales costs, said Bruce Leinster, chairman of ITAA's procurement policy committee.

"If GSA is going to act as a single buyer, and be the single place to where I ship and maintain my licenses, submit invoices and chase accounts receivable, there would be some significantly reduced costs, and I could give them a significantly reduced price. If I am still going to have to market and sell to each agency and ship to different locations, then I'm going to be hard pressed as to how I'm going to save money," he said.

Also unknown is how SmartBuy will affect major IT programs, said Leinster, who is director of contracts and negotiations for the Global Government Industry unit of Armonk, N.Y.-based IBM Corp.

"Suppose I have these [software] products as part of my solution. Do I include them in my bid, or do I assume the government will furnish the product? There is no answer to that question yet," he said.

Other IT executives questioned how much SmartBuy would cut the government's software costs. Already, products from Microsoft Corp., Adobe Systems Inc. and other large firms are often purchased through enterprise licenses. Many resellers will sell below cost to open a gateway for sales at other agencies or to profit from associated services, such as configuration management and training, said Jack Littley, vice president of program and information services for Chantilly, Va., IT reseller GTSI Corp.

The key to SmartBuy will be running it so that the efficiencies gained aren't lost because of the overhead cost to run the program, said Max Peterson, vice president of federal sales for IT reseller CDW Corp. of Vernon Hills, Ill.

"Even at the agency level, enterprise purchasing of software can be a vastly complex business," he said. "You want to make sure that if one office makes a deal for an enterprise agreement, then another office, not knowing of the deal, doesn't go off and buy software separately at a greater cost."

Going from agencywide to government-

wide licensing is "an order of magnitude jump" in the amount of coordination needed, Peterson said.

For SmartBuy to succeed, the government must create a business model that reduces vendors' costs, said Ed Naro, vice president of GSA and indefinite delivery, indefinite quantity programs at Northrop Grumman Corp.'s IT division in Herndon, Va.

"It will require some out-of-the-box thinking," he said. "To Neal Fox's and GSA's credit, they are not putting out a ruling on what the model has to be. He is listening to industry." *

Staff Writers Gail Repsher Emery and Joab Jackson can be reached at gemery@postnewsweektech.com and jjackson@postnewsweektech.com. Government Computer News Staff Writer Jason Miller contributed to this story.

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