There is one main theme here, and a case study that gave rise to it. The main theme is the light shown on the so-called "reverse auction" fad.
The business about the FedBid business is just to add a bit of salacious spice to the otherwise drab story line. Most procurement story lines are drab. But that doesn't diminish their importance, as this blawg hopes to point out.
First, the juicy bits:
Air Force moves to debar FedBid
On Jan. 26, the Air Force suspended and moved to debar FedBid from providing reverse auctions for federal agencies contracts, on the grounds that there was "adequate evidence" of a "lack of business honesty or integrity" at the company.
Most recently, the company split its federal auction and commercial operations into separate companies. FedBid founder and former chief executive Ali Saadat is now head of the private sector business, but remains chairman of the FedBid board, while Jordan was named CEO of the federal side.
Saadat was also suspended by the Air Force while the service considers whether to debar the company.
In the immediate wake of the report, the company's board of directors appointed a special committee to determine any response or actions the company should take related to the report. That committee retained the law firm Arnold & Porter as outside counsel to conduct an independent review of company employees' actions. That review is said to have found "no legal wrongdoing by FedBid or its employees," though it did raise some concerns about how the company's internal culture dealt with third-party relationships.
So far, this is not that juicy. Just how juicy is a "cultural" problem, anyway? Blaming the culture means no one is at fault. Can't convict a culture, can we?
So, read on.
The real dirt:
FedBid barred from new government contracts after watchdog report
The federal government has barred a fast-growing Northern Virginia contractor with deep ties to the Washington establishment from winning new work because of “conduct indicating a lack of business honesty or integrity.”
Last year, the company was the subject of an investigation by the Veterans Affairs inspector general, which found that an agency contracting official helped steer a contract to the company. When a more senior VA official became concerned about the contract and put a hold on it, FedBid mounted an aggressive campaign to have the moratorium overturned, the IG found. It concluded that FedBid executives were part of an effort to discredit the VA official who put the hold on the contract and to “unduly influence VA decision makers.”
“Need to assassinate his character and discredit him,” read an e-mail from a top executive in 2012, according to the IG. The firm also vowed to “unleash the hounds” and “take off the gloves” in its “storm the castle” campaign to win back the business.
The theme -- Reverse Auctions:
Continuing with the WaPo story immediately above:
FedBid has built a thriving business over the past decade helping the government hold what are known as reverse auctions. Through FedBid Web sites, federal contracting officials post solicitations for items such as office supplies, computer equipment or furniture. Companies submit bids for the work and are told through the site whether they are the lowest bidder. If they aren’t the lowest bidder, they can try again with a reduced price, which ultimately should save taxpayer money.
The government’s reliance on reverse auctions has recently exploded, with FedBid leading the way. The company said that from 2007 to last year, the federal government made 131,623 awards through FedBid, totaling $8.2 billion, which represented nearly $1 billion in savings. In 2013 alone, FedBid said, $1.8 billion in government contracts were awarded through its system.
VA rips FedBid, questions value of reverse auctions
FedBid's claims of sizable savings generated by the reverse auctions the firm provides for federal contractors are overblown and misleading, according to the Department of Veterans Affairs' Office of Inspector General. Furthermore, Maureen Regan, counselor to VA's IG, told FCW that reverse auctions can unduly complicate the contracting process and limit competition by squeezing out potential vendors.
What Regan told FCW echoed a second IG report that says reverse auctions can inadvertently derail federal efforts to properly record contract documentation.
More significant, however, was the assertion by the OIG that the main purpose of reverse auctions -- to save money -- can be negated by multiple factors, including FedBid's fees and the Industrial Funding Fee customers paid to cover the General Services Administration's operation of the Federal Supply Schedules program.
Furthermore, the formula that reverse auction providers use to calculate savings -- subtracting the final award price from the "independent government cost estimate" -- was not reliable, the OIG argued, in part because of frequent mismatches between that independent estimate (which is required by VA policy) and the target price set by agency contracting officers. In addition, contract prices represent funds obligated at the time a contract was awarded, but many purchases were not fully funded at that time, resulting in inflation of the reported savings.
"We are enormously proud of the role that FedBid is playing, and will continue to play, in facilitating millions in cost savings for U.S. taxpayers," a FedBid spokesperson said in an emailed statement -- noting that "last year alone," the FedBid marketplace "enabled an estimated $160 million in savings for the government and taxpayers."
Regan, however, asserted that reverse auctions contain other costs, including GSA's Industrial Funding Fee, that might not be readily apparent to agencies.
The federal contracting schedules offer baseline pricing that agencies can use to negotiate lower costs, she said, adding that "it's not uncommon to get price reductions on schedule items," often by conducting a limited competition among schedule vendors. Regan said the OIG has had complaints from vendors, including a substantial number from health care supply companies, that FedBid's reverse auctions set up a "pay-to-play" system that is cost-prohibitive.
At the same time, other reverse auction vehicles might be getting short shrift. Regan said GSA offers services that comply with federal contract documentation requirements and include items on federal schedules.
Regan recommends that agencies "look at contracts and how people are buying things" before committing to the approach. "Reverse auctions were something of a fad in the 1990s," she said. "Everyone decided at the time they weren't really worth it."
Review of the Veterans Health Administration’s Use of Reverse Auction Acquisitions (RAs)
We found that priority sources such as the FSS (Federal Supply Schedule) are not utilized as required by VA policy and VHA’s SOP (Standard Operating Procedure) for all RAs. Further, when RAs are used for FS S purchases, VHA is paying the Industrial Funding Fee (IFF) in addition to the FedBid RA fee when FedBid’s RA fee is not waived by FedBid.
We found instances where the CO would identify an FSS source for the required products; however the Invitation for Bid (IFB) would subsequently be issued for open market bids. These situations occurred without any documentation in the contract file to justify the use of other than priority sources. In addition, if the awardee is an FSS vendor, these sales may be considered non-FSS sales which deprive the Government of the IFF.
We found that the reported claimed savings, computed by subtracting the final award price from the target price, was not reliable in determining the success of using RAs for several reasons.
First, although the target price set by the CO should be equal to the Independent Government Estimate (IGE) as stated in VA policy and the implementing VHA SOP, we found that the target price was not always equal to the IGE, and that the basis for the target price was often not documented within the contract file.
Second, we found that the award price represented funds obligated at award and that many buys were not fully funded at the time of award, thereby inflating the reported savings. Lastly, we found that the target price could be changed by the CO during an active RA via a reposting of the IFB. Such changes were not always documented and justified within the eCMS contract file.
We also determined that COs run the risk of acquiring gray market items through RAs, because sellers are only required to self-certify that they are authorized distributors of the procured items. We found VHA was procuring items from unauthorized distributors through the use of RAs.
Government Award Of Contracts Will Be Scrutinised
A Programme and procurement implementation management information system has been launched to ensure transparency in the award and execution of government contracts. The new accounting software is also to provide a framework that will give Ghanaians the platform to be abreast of happenings in government agencies in the country.
The project, which is under the auspices of the Ministry of Local Government and Rural Development (MLGRD), is primarily to halt the arbitrary award of contracts and to help the government in the fight against corruption in the country. At the launch of the system, the Minister of Local Government and Rural Development, Mr Kwasi Opong Fosu, said the enterprise was an initiative of President Mahama to bring transparency and accountability to the planning, contracting, procurement, monitoring and implementation processes of public projects and programmes.
The motive for the establishment of the contract portal, the minister added, was to ensure proletarian democracy, hence the need to engage the public to influence decision making by the government. “Citizens of Ghana want transparency and accountability and expect their government to involve them in decision making,” he said.
The MLGRD, he said, had decided to embark on an open government initiative to meet its mandate for good local governance and grassroots democracy.
I truly hope this turns out to be more robust than the kick-the-can approach it seems at first blush. Government itself must take the lead in policing and scrutinizing contract awards, and cannot abandon responsibility to a public process. As we see in Guam, even a full court coverage by the press does not seem to stem the flow of procurement train wrecks.
Benjamin Franklin is credited with the saying in the title to this post. He's also quoted in the following story, but I hadn't heard this one before. Loose lips, yes, but small leaks?
UK public procurement most expensive in EU
"Beware of little expenses. A small leak will sink a big ship." The words of Benjamin Franklin, one of the founding fathers of the United States, are as relevant today as they were in the 18th century. In fact, they are eerily true when considered in the context of government procurement.
Public sector procurement in the United Kingdom is certainly a big ship. It accounts for some £230bn of public funds each year. And as for the leaks? Fresh research released by the Centre for Economics and Business Research has found that the UK has the most expensive public procurement processes in the European Union. The cost to a public sector body to attract a bid from a potential supplier in a competitive process is £1,260.
This leads to the question of why the UK is such an expensive place to conduct procurement processes.
Combined with high labour costs, the length of a typical competitive process plays a critical role in increasing the cost of public procurement on both the buy-side and sell-side. The public sector purchasing process was found to be 53 days longer than the EU average.
Higher costs are obviously bad news for government departments that are fighting budget cuts, but the high cost of procurement also has more indirect negative effects. Expensive processes create barriers to entry and dissuade firms from taking part. The net result is that fewer firms submit tenders, reducing choice and competition, and therefore value, for public sector organisations looking to award contracts.
But all of this is about to change. In 2016 the European Commission's ruling mandating e-procurement for all European public sector organisations will come into force. The savings are predicted to be substantial: in the region of £30bn according to some estimates. These cost reductions will come in part from better management of costs and improved spend analysis enabled by e-procurement. But as well as cost savings, the widespread introduction of e-procurement will bring benefits such as greater transparency, a reduction in procurement fraud, plus faster and more cost-effective purchasing and bidding processes.
The UK public sector already has e-procurement frameworks, such as CloudStore, which private sector companies are compelled to join to ease the process of selling to public sector organisations. However, some firms feel the accreditation process for joining is still too stringent to justify the allocation of limited resources. For e-procurement to enable greater competition and lower costs for buyers and sellers, these barriers need to be removed. If the government can make best use of these new platforms, it could soon be plain sailing for public and private procurement.
Read more: http://www.publicserviceeurope.com/article/3755/uk-public-procurement-most-expensive-in-eu#ixzz2Z6wrvhSH
We'll see, and hope for the best.
New User Fees Fund Pennsylvania's No-Bid Website Contract By Melissa Daniels | PA Independent Read more at the link.
Pennsylvania teamed up with a private company to revamp and manage its official websites, promising the latest and greatest advances over its own old technology. Last fall, Pennsylvania entered a sole source contract with NIC USA, an “eGovernment” services firm. It will operate Pennsylvania’s entire online system, from page design to online transactions, and from customer support to hardware upgrades.
The state pays NIC nothing out of its own budget. Instead, the site work gets funded by adding “convenience fees” to certain online transactions residents or businesses might complete, like a license renewal. This self-funded model spares the state from spending up front on expensive redesigns, system upgrades or app development.
But the contract does not have a cap on what fees might be for users, meaning there’s no limit to how much could be assessed. It was a sole source contract, meaning there was no competitive bid process.
NIC provides all website design, development, services and maintenance, managed through a Harrisburg-based subsidiary called Pennsylvania Interactive, LLC. Because there is no other company that provides all these services under one umbrella, the state deemed a competitive bid process unnecessary, according to the contract summary.
But NIC’s own filings with the Securities and Exchange Commission seem to dispute that point, as they attest to “intense competition” in their industry. The filing, from late February, says NIC faces competition from government-managed services, system integrators like CGI and Unisys and developers like Microsoft and Oracle.
Dan Egan, spokesman for the Office of Administration, said the NIC contract was precipitated by multiple issues with the current system. The state was faced with a need to upgrade its server by 2015. “No one company does everything that NIC does and can do in a way that isn’t going to cost us tens of millions of dollars,” Egan said.
The state researched NIC with an outside research firm and contacted other states who use its services. “None of those states who’ve ever contracted with them have left,” Egan said. “It’s because they like the service and they like what they get from the company.
”Before the contract was signed, the state put the procurement on its website, and offered a 10-day comment period where no other vendors reached out to the state, Egan said. It was also approved by the Office of the Attorney General, like any other state contract.
Angela Skinner, director of communications for NIC, said NIC is “comfortable with the sole source procurement,” given the commonwealth’s research, legal justification and the public comment period. And a majority of the services, she said, are “free.” Any fees are set and approved by state officials.
Egan said the state expects to keep about two-thirds of transactions free, while a third may have some kind of “convenience charge.”
Egan compared the fee to what a consumer might pay for having express delivery to their home – the charge is there for the extra convenience.
“There will still be a choice,” he said. “If you still want to walk into a government office or lick a stamp or do what the old process was, it will remain available to you without the convenience charge. But if you want to get online, get it faster, get it more conveniently, that’s what it’s there for.”
There is essential information in this article that you will only get by reading the source at the link.
Feds Stoke IT Vendor Competition
the idea of promoting increased competition among IT vendors serving the federal market has resurfaced as a cost-cutting tool.
The reasons for the lack of diversification range from technical requirements to sheer inertia. MeriTalk reported that 65 percent of respondents said they specify a manufacturer to ensure compatibility with existing infrastructure, 17 percent contend it's what management wants, 11 percent said it saves time, and seven percent said "it's just what we always do."
In a recent survey of federal IT professionals, almost half believe that adding a competitor to IT infrastructure projects drives down acquisition costs. According to MeriTalk, an online community for both government and private sector IT professionals, results of the survey it conducted indicated that federal agencies could save 20 percent of their annual budgets by adding a competitor.
That equals about $15.8 billion per year, government-wide. Also, nearly half of the agencies that use multiple IT vendors contend that supplier diversification increases network performance.
Federal agencies still fall short of having adequate supplier diversification when it comes to IT infrastructure, according to the MeriTalk survey, which was conducted in January.
Federal law requires agencies to conduct "fair and open" competition in procurement. While the law does provide exceptions when certain circumstances come into play, such as technical requirements, obtaining such exceptions is not routine.
"The government has a substantial burden to demonstrate why the normal competitive requirements should be waived," Alan Chvotkin, vice president and counsel at the Professional Services Council, told the E-Commerce Times.
Despite the law, and the acknowledged advantages of vendor diversification, MeriTalk reported that 76 percent of survey respondents said their agency's IT infrastructure procurements specify a vendor at least some of the time. 77 percent reported that their agency's IT infrastructure acquisitions are contracted directly with suppliers, rather than with a reseller or integrator, at least some of the time.
Nearly two-thirds of the 208 respondents reported that they only have one or two vendors in several key areas: network operations, client operating systems, and data center operating systems. Supplier diversity for server and storage hardware is only slightly better, the survey showed.
"It is time to redesign the critical network infrastructure to accommodate current and future network bandwidth and security needs," Robbins said. "There is a tipping point where maintaining the old infrastructure becomes substantially more expensive than acquiring new. While it depends on the agency, the average refresh cycle is estimated at four to seven years for basic infrastructure lease or purchase."
Recent research from Gartner showed that adding a second vendor to an enterprise network infrastructure would reduce capital expenditures by at least 30 percent, while only minimally increasing operating expenditures.
The issue is important given the more rapid pace of change and improvement associated with IT infrastructure vs. highways and roads, which are replaced or upgraded perhaps every 20 years or even longer. "
About 70 percent of every IT dollar spent by the federal government goes to supporting legacy systems and infrastructure, according to the General Accounting Office. "The IT network infrastructure in the federal government was designed decades ago and has evolved over the last 20 years -- increasing complexity and driving up support costs along the way," said Robbins. "Agencies typically have been very slow to modernize their networks and this is costing them millions of dollars each year."
"It's a little tricky to define exactly what constitutes 'vendor lock-in.' It could come from agency preference, the way a contract is written, or what a particular vendor is offering. Sometimes agencies accept 'proprietary' services which reduce options," said Chvotkin.
That perception was borne out by MeriTalk, which reported that agencies consider 30 to 40 percent of their IT infrastructure locked up by current vendors in a reliance on standards, systems, or technologies that would be considered proprietary.
In a genuine pursuit of system integrity, agency IT specialists may close themselves off to potentially better pricing or better performance by writing specifications that are so technically detailed that they effectively eliminate competition.
In the acquisition process, agencies need "to be sure that the legal requirements for competition are followed," Gordon said, "and not allow 'wired' procurements, whether explicitly calling for a particular name brand, or disguised with the specifications written so as to favor one company."
Gordon was among several panelists who addressed the vendor competition issue at a February 27 hearing conducted by the House Committee on Oversight and Government Reform. The committee, headed by Rep. Darrell Issa (R-Calif.), is investigating federal IT contracting, and Issa is seeking feedback on his proposed bill to reform IT procurement.
During the hearing, Professional Services Council CEO Stan Soloway said that "competition is the single most effective means by which federal agencies can drive down their IT costs while also improving performance and efficiency."
