9 Ways State and Local Government Can Rethink IT Acquisition
State and local government IT modernization projects continue to receive significant exposure and attention, both from legislators and the media. There continues to be a general perception that S&L governments are struggling to implement technology solutions.
This perception — whether warranted or not — ramps up pressure on governments to improve the management of technology projects and to clearly demonstrate the value that their organizations are providing to business customers.
Over the past several years, there has been a pronounced movement in the private sector away from extended, traditional waterfall lifecycle projects and toward the delivery of software in an incremental fashion, often using agile software development techniques. However, software development lifecycle models are only one part of the story in planning and executing legacy modernization initiatives in government.
The funding, procurement and contracting model used by government can be an even greater influence on project approach. Many of the inherent characteristics of incremental software development do not align well with traditional public sector funding and management practices, particularly where procurement and contracting with implementation vendors is required. As documented in the state CIO survey administered by the National Association of State CIOs (NASCIO), Grant Thornton and CompTIA, IT procurement has been an area of ongoing concern for state CIOs.
The Challenges of State and Local Government IT Acquisition
The following drivers of S&L acquisition practices create particular challenges in the effective planning and implementation of IT modernization projects:
- Lack of trust between government and vendors. The inherent lack of trust embedded in procurement practices requires strong risk allocation measures in contracts to make government feel it is protected from poor vendor performance and is not being taken advantage of.
- Tension between incompatible procurement objectives. S&L governments have two sometimes incompatible objectives: They seek to procure best-value solutions for the government while also enforcing fair, equitable and transparent procurement processes. These two objectives are not always in alignment.
- Unreasonable expectations on what can be planned and promised in complex IT modernization efforts. Existing procurement practices require government planners and vendor implementers to estimate the size and complexity of a project several years in advance of its completion. This is the point in the project lifecycle where parties are least informed on actual customer needs, technological capabilities and the degree of complexity involved in implementing a solution. It’s never been realistic to expect a vendor to commit to a firm scope, price and schedule for a complex system several years in advance, but over the past 30 years we have become accustomed to this practice, and we measure success against this expectation.
- Lack of alignment between government budget cycles and project funding needs. Most government organizations run on a one- or two-year budget cycle and cannot assure funding for projects beyond those timeframes. By contrast, large technology modernization initiatives often have a four- or five-year time horizon. This mismatch deters long-term planning and may put strategic initiatives at risk due to changes in funding availability and administration leadership.
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Government IT Procurement Becomes Inflexible, Misaligned
The consequences of these challenges are significant and result in:
- Rigid procurement processes that limit the flexibility to engage in discussion, negotiation and learning. Procurement officials fear treating categories of vendors differently, public policy goals promote small/disadvantaged businesses even where this might not make sense for a particular type of acquisition, fear of protest reduces the willingness to take risks or to deviate from prescribed processes, and concern that government risks must be mitigated through strong contract language results in onerous terms and conditions that can deter some bidders. When combined, these factors result in extended procurement processes where frequently neither party is fully aware of the needs, concerns and limitations of the other until after a contract is signed.
- Projects set up for “failure.” A project can be set up for “failure” from the beginning when commitments are made by vendors — for example, through firm fixed price (FFP) contracts with hard implementation deadlines — without the necessary information to be fully informed. In many cases, it is practically impossible to make a good estimate so far in advance and with so many unknowns, but commitments are documented and publicized and then any deviation from those commitments is looked at as a failure (by customers, the legislature and the public).
- Misaligned incentives. Projects often start with an adversarial foundation between the government and vendor built in from the procurement process and contract structure. Incentives are not aligned, and parties will plan, execute and negotiate with their individual best interests in mind.
Significantly improving the S&L IT procurement process is not easy, and multiple initiatives at the national and state level have attempted improvements with varying degrees of success. Common sense recommendations include those published by NASCIO. However, the challenge requires a holistic approach that encompasses the root causes of the problem. The following recommendations address the policy, culture and process issues that prevent S&L IT procurement from achieving its objectives:
1. Delineate Constraints and Compromises That Must Be Accepted
Public policy goals for fairness, transparency and equity will not always align with a best-value procurement. For example, if promoting small/disadvantaged business participation is important to a government, make it clear that the government understands that the resulting procurements may be less than best-value in terms of cost/quality, but that the government is willing to accept that to achieve other policy goals.
Where business benefits are paramount or where the business need is critical, be prepared to compromise on other public policy goals if it will promote a faster, more effective procurement. Examples would be limiting the ability for protest, removing small/disadvantaged business requirements, and allowing vendors who have assisted with requirement definition to also bid on implementation work.
2. Reset Expectations for Project Estimation and Execution
Set realistic expectations for what should be asked of government and industry in terms of estimates for large, complex projects, and educate policymakers and oversight bodies on those limits. Restructure budgeting, procurement and project oversight practices to reflect actual levels of uncertainty.
Understand the level of uncertainty/risk a government is willing to accept and use this as a boundary to limit the length and size of projects that are funded. For example, if a government decides it is not willing to accept risks to schedule and budget greater than would accrue through forecasting a project one year ahead, then do not approve projects that take longer than one year to achieve their objectives.
3. Find New Ways to Measure Project Success
Schedule, budget and even scope adherence are just means to an end, not an end in themselves. What matters is business benefits and return on investment. Be more aggressive in demanding benefits realization as a core project activity, and measure success on the delivery of anticipated benefits.
Even if a project comes in over budget, late and with less than full scope implemented, it can still be a success if business users received benefits commensurate with their investment in time and resources.
4. Move Away from ‘Boom and Bust’ Patterns of Modernization
The traditional approach to IT modernization over the past 30 years has been to build large, monolithic systems, to operate them for around a decade until they are judged to have reached the end of their useful life and then to replace them through another large, monolithic system acquisition.
To shift this pattern, government must embrace shorter, more frequent projects that can be estimated, procured and delivered more rapidly. In effect, governments should move to a continuous modernization approach where solutions are continually upgraded and improved and where they never become “legacy.” This will break the cycle of once-a-decade mammoth projects.
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5. Establish Consistent, Incremental Funding for IT Modernization
To reliably plan and execute more frequent, smaller projects requires a dependable funding source. This source should not rely on the annual or biannual budget cycle and should be somewhat insulated from competing demands for general fund dollars.
To make this happen, IT modernization innovation/working capital funds can be employed, with a dedicated funding stream and projects competing for funds both inside and outside the traditional budget cycle.
6. Explore New Ways to Share Risk on IT Projects
FFP contracts expose the vendor to a large amount of risk, causing it to inflate prices through contingency dollars and manage scope very tightly to avoid any unplanned changes. “Time and materials” contracts create a potentially unlimited cost exposure for the government and do not incentivize the vendor to complete the work in a timely manner. IT departments should explore other contract structures (such as cost-plus fixed-fee and benefits sharing arrangements) to better align government and vendor incentives. Penalties and bonuses for late/early completion (as are frequently used for construction contracts) are also candidates for consideration.
7. Use Incremental and Agile Procurement Approaches
Traditional public sector procurement approaches do not work well for projects intended to be rapid; that recognize significant uncertainty in timelines, scope and budget; and that are based on achievement of business outcomes rather than on a prescriptive set of requirements.
Techniques such as Requests for Information, draft solicitations and proposals, confidential discussions and prototyping, and open-ended negotiation can all be used to increase dialogue between governments and vendors during the procurement process.
The challenge is to balance increased dialogue with speed and be comfortable with some level of ambiguity and uncertainly that will extend through contracting.
8. Employ Agile and Incremental Software Development Approaches
In concert with an incremental approach to project definition, funding and procurement, agile and incremental software development approaches can increase speed to delivery, reduce the risk of unmet user needs and focus activities on the functionality most likely to drive business benefits.
These techniques are already being used to some success by S&L governments, and they can be even more successful if tied to complementary procurement and contracting approaches.
9. Change the Nature of Independent Oversight
Governments implement a variety of means to independently oversee IT modernization projects. This can include independent project oversight consultants, independent verification and validation, periodic state auditor reports and legislative oversight committee hearings, to name but a few. In general, these oversight tools have been designed for traditional monolithic, waterfall projects. Adjust oversight processes and expectations to match the new funding, procurement, contracting and software development approaches.
While none of the above recommendations provides a simple fix for the challenges facing the S&L IT acquisition process, together they offer a roadmap for a new acquisition framework that can better match expectations with reality and more closely align government and vendor incentives to achieve project success.