What the consumption-based cloud model means to you

As GSA moves to apply more commercial best practices to buying cloud services, you must understand the model and the funding available to your customers.

Recent proposed changes from the General Services Administration would apply commercial sector best practices to the process of procuring cloud services -- to improve efficiency and reduce costs. From industry’s perspective, it’s important to strike a balance between this so-called “consumption-basis” model and the various types of funding available to government agencies.

Everyone who procures cloud computing services has the same goals at heart. Whether you are in the private or public sector, you want the most cost-effective solution to meet your technical and security needs. And you want to take advantage of the latest technology available and those that offer the greatest flexibility.

The commercial sector has developed a robust portfolio of software as a service, platform as a service, and infrastructure as a service offerings. GSA is working to develop policy changes that allow for a streamlined approach to procuring these additional cloud computing models. 

Last month, GSA Senior Procurement Executive Jeffrey Koses (Office of Acquisition Policy) requested industry comments on a draft acquisition letter (AL). The letter addressed special ordering procedures for the purchase of cloud computing on a “consumption basis” under GSA’s Federal Supply Schedule program.

The AL’s definition of consumption basis has three components: The offering is measured and billed on a “predetermined periodic basis,” is billed based on what was actually used during an elapsed period of time and is charged based on predetermined pricing and rates.

This consumption-based approach is already widely accepted in the private sector. GSA hopes to leverage a similar model to recognize the same efficiencies, increase cybersecurity, foster competition and provide cost savings and transparency – all benefits that are being realized today in the private sector. 

How will GSA accomplish this goal?

While using a consumption-basis model is already allowed under GSA’s FSS program, Koses’ AL highlights some key requirements to further support this effort. The new procedures would waive the price reduction clause, and consumption-basis offerings will be fixed-price at the schedule and order level. The economic price adjustment clauses will not apply for these items that are offered on a consumption-basis.

According to the draft procedures, the contracting officer will negotiate a “fixed discount against a market price list or an index” that will remain constant as the price list or index changes. The CO will also determine a ceiling price for all estimated cloud computing offerings.

In addition, ordering activities are advised to create a “consumption-based monitor” that will track units and available funding status and notify the ordering CO accordingly. Total increases will be limited to “no more than 50 percent of the initial quantity ordered of the same line item,” and consumption-basis cloud orders will be limited “to only when using ‘no-year funds’ or ‘multi-year funds’ with more than one year remaining.”

While industry has provided feedback on all these requirements, there are very specific concerns with placing this type of restriction on funding type. Some are concerned it may have the undesired consequence of withholding critical cloud offerings to those agencies that do not have multi-year and no-year funds available. 

GSA has also asked for feedback on a “requirements task order” concept for consumption-based procurements. In this case, “the Government will award a contract with the obligation to purchase its future requirements under that contract but does not obligate funds for estimated usage upfront; instead the actual requirements are then satisfied through orders against the contract.”

This approach may reduce costs and lower pricing. There is some concern, however, that contract disputes could easily arise without accurate usage estimates. 

How has industry responded?

The Coalition for Government Procurement has put together comments, concerns and suggestions from industry in a response to GSA’s draft letter. 

These industry comments range from approving the waiving of the Price Reduction Clause to concerns over potentially burdensome tracking and reporting requirements – as well as apprehension around GSA’s ability to handle the number of price modifications that this new model would require. 

The main theme from the feedback, however, is the request for flexibility when it comes to procurement of consumption-based cloud. 

Cloud computing is offered in various models (consumption-based with not to exceed ceiling, subscription based, on-demand, per-use-based, tier-based) as well as pay-as-you-go and fixed- price combinations in the private sector. Each has its own advantages based on the customer’s specific needs, such as environment, consumption usage, usage term and so on.

The ideal procurement path for consumption-based cloud computing would provide agencies with flexibility across both funding and consumption models. This would allow for a customized solution to promote both cost efficiency and private sector best practices.