Miller On Procurement - Government Activity

EDP Weekly's IT Monitor, Nov 27, 2000 by Terry Miller

SOLE SOURCE: Probably the two most interesting subjects re government contracting are FOIA and sole source. Here are some vignettes re sole source. FOIA is interesting because it is complex, many court cases and the government generally performs without distinction. Sole source is so interesting because it is fairly well defined, very few court cases, clear as to what is proper (only one firm can perform and is so poorly done by everyone).

Most vendors have no idea as to how to engineer a sole source. Most salesmen have no interest in the rules. It is my belief after over 40 years in this business that about 80% of sole sources would not survive in court.

In IT and other high tech areas contracting officials do little more than guess as to what is proper. Sometimes agencies are outrageous. NASA sent me a sole source for approval when I was working under the Brooks Law at GSA for some Univac disk drives. Their paper work said only Univac made such a device. I could name three other firms without pulling a reference work. Needless to say, they got no approval.

I have been involved in at least two on behalf of clients where the government shoots their own foot. One was the Navy and one was Treasury. In each case, we told the agency we were a sole source. We all know you can seldom believe anything the sales guy says. They didn't. They issued the RFP and got one bid. Ours told them so. In the Navy case we raised our price by $500K for the inconvenience of having to bid after we told them we were truly sole source.

But perhaps the two most indelible ones were a Treasury and an Air Force job. In both of these the government wasted literally many millions and this was caused by contracting people's arrogance and technical people's ignorance. The techies did not understand their own problem. We did. The contracting people thought they were skilled to the point they could buy anything. In fact, I wouldn't want them to buy me a canoe. Can you imagine a CO at Treasury who could be this arrogant with justification?

In the Air Force case my client had some very complex software which cost more than $50 million to build; took ten years and which had been honed and fine tuned in actual operation for more than a decade. We were the incumbent vendor in a large AF account and were billing them about $10 million per year. This was one of those rare cases where the software was so efficient and valuable that it was cheap at any price.

Suppose I could sell you a little button to install in your car and if you pushed it before a trip your fuel efficiency would double? Suppose I made it for $3 and sold it for $25 or $75 or $575. No matter the price you would still be saving money especially as the price of fuel rose. This illustrates in a hypothetical way what this software would do. But the AF got mad at us and felt they were being ripped off. And we weren't cheap but it worked beautifully. So they started a 5-year program to dump us out and get someone else. First, they tried to use another product. It did not do the job.

Then they went to a GSA requirements contract and hired a system's integrator. After spending more than our cost - about $2 million - they gave up and did a T for C. Then they did another RFP and hired a bigger systems firm and spent even more and it fell further behind schedule etc.

The last time I talked to the client the AF was still mad and still trying to dump him and still failing. In the next attempt, if they get it free, they will be behind the cost comparison for at least a decade. The Treasury story is similar but worse. After going through the re-competition process, hiring the large, super sized systems firm, seeing this firm throw up his hands after the expenditure of several million and issuing a T for C they now, 8 or 9 years after are still doing business with the original firm on a sole source basis.

Sometimes it is not easy to tell when you really have a sole source or your really don't. And agencies, traditionally and ignorantly, seldom get outside expert opinion.

REVERSE AUCTION 3.1: Once a captain in the AF told me he did not care if his IT supplier went broke bidding too low as many more firms were clamoring for his business.

Once when I was at GSA, I asked a smart official as to why the government didn't call a meeting, get all the vendors in the room and auction off the bid to the low bidder. His response was that some of the vendors weren't too smart and would bid so low they went under.

Now it would appear that was as a detriment 30 years ago is a positive now since reverse auctions cause vendors to line up and cut their own and each other's throats.

But what will you do when GSA looks at the auction price, calls all the firms with that item on the schedule and tells you to reduce your schedule price or lose your schedule?

And if you have a reverse auction for Oracle software we are only competing on reseller's markup. But the same thing happens which Justice or NIH or someone illegally names a brand name in a bid. Your thoughts please on reverse auctions.