In last week’s Wall Street Journal’s CEO Council Special Report, President Obama was asked what he has learned from the Healthcare.gov experience. In his response, he focused squarely on federal procurement problems, and particularly on the feds struggle in procuring IT, by stating, “[the] way the federal government does procurement and does IT is just generally not very efficient. In fact, there’s probably no bigger gap between the private sector and the public sector than IT.”
The President is so right.
I just returned from last week’s Dreamforce conference in San Francisco where the bleeding edge of private sector IT was on full display. While software-as-a-service (SaaS), cloud, and agile are still struggling to catch on in the federal space, the private sector is moving beyond SaaS and agile. They are going directly to “build your own apps” where you buy into a platform and build cloud-based apps that suit your needs at the moment, and evolve them as your needs evolve. The focus is moving away from the what, because the what doesn’t matter so much anymore, and is going to change tomorrow anyway. What you need is to possess the tools (the how) to solve your own problems and build your own solutions quickly, efficiently, responsively, and affordably.
Even though many federal IT managers are pushing to do things more like the private sector, a large chasm remains between the federal and private approach. In the federal space, by the time the government has taken the time to release a sources sought notice, hold a vendor conference, outline the requirements, evaluate proposals, chose a vendor, respond to protests, and finally make an award, months or years can elapse. In the private sector, you could have had a solution in place and be on the 6th iteration in the same time span.
Still, many would argue that the federal procurement process is the way it is because it has to ensure fair competition and get the best value for government. But it often doesn’t deliver on those promises either.
As Healthcare.gov highlights, the government went through a lengthy procurement process, followed the rules, and in the end, didn’t get the quality or timeliness it thought it was buying. What is more, it will likely cost hundreds of millions of dollars more to fix the mess. How did this happen? As the President rightfully points out, the procurement process failed us.
During the Clinton administration, Al Gore talked about $2,000 hammers, and while that example is easy-to-grasp, the intricacies of federal procurement are much more complicated.
It isn’t just that things cost more, it is that they often don’t deliver on many levels—cost, quality, timeliness, adaptability, scalability, etc. These problems can happen in the private sector, too, it is just that the market auto-corrects much more quickly. If a firm’s procurement process delivered poor quality and overpriced goods and services, it would not be long until the process itself was examined and improved. In government, we have gone decades without a fundamental change in the way we buy things. So the same problems happen time and again.
The government creates the market conditions that private firms/contractors respond to. Change the conditions (the procurement process) and the contractors will change the way they deliver products and services, too.
For example, if the federal government passed a law tomorrow that it would only buy off the shelf solutions and the purchase price would have to include all implementation, support, and maintenance, where a maximum of 5% of the purchase price would be allocated to customization, private sector firms would rush to build applications that government could use out-of-the-box. Contractors would have incentives to build applications that would be intuitive, easy-to-implement, easy to learn, highly scalable, and very secure, because to provide anything less would just eat into company profits.
Right now, the incentives firms face can actually encourage mediocre or substandard technology, and the money isn’t in out-of-the box solutions. Charging separate fees for the training, implementation, support, maintenance, and any changes are big money makers.
The government is still paying a la carte, while the private sector asks for complete, simply-priced and intuitive solutions that will be quickly adopted and will grow with their organization. This is why Software-as-a-Services and Platform-as-a-Service companies are dominating private sector IT.
Back to Healthcare.gov… The healthcare IT market is huge and vendors want in on the act. It is hard to believe that private sector firms, recognizing the huge potential for profit, would not have been willing to design and build a solution, in a short period of time, that could have been used to meet federal and state needs. Yet federal procurement processes haven’t led to a well-developed marketplace for ready-made solutions. When the RFPs went out, government didn’t have a good selection of solutions to choose from and they had to build from scratch and greatly adapt the components that did already exist.
Healthcare.gov gives us another opportunity to delve into the intricacies of federal procurement and see if we can make it better. A good place to start is by creating a marketplace and refusing to accept the a la carte, custom-built approach. We can’t afford to go on like this, and we don’t have to.
The responsibility of government procurement is to get the very best products and services at the very best price for the taxpayers. Change the rules, and the private sector will respond. Contractors will still make money, just in a different way. Government will have to give contractors a little lead time to change their approach, but they are used to responding to market forces and do this all the time in their private sector work. They can do this for the public sector, too.