Wednesday, January 22, 2014

Federal Contracting Part 2: Good to be a Contracting Firm

This is Part 2 of my Federal IT Contracting series. Please be sure to check out my Introduction posting that includes a disclaimer about my past relationship with CGI Federal, the primary contracting firm responsible for the Healthcare.gov project.

My previous Federal IT Contracting posting presented a jarring insider analysis of how contracting firms realize success from failure. Some may interpret my analysis as a shot against contracting firms, illustrative of a tainted industry that deserves more oversight. With recent movements to reduce how much firm executives can earn despite very limited direct involvement on any customer-facing project, I admit to harboring some animosity towards those firms. But, having also served as an executive in a startup firm for several years, I submit that the government is far from blameless. That government managers often channel an insatiable childlike appetite for wants without really understanding what it is they need leaves them susceptible to failures like that currently embodied by Healthcare.gov.

Large IT development and integration efforts have many moving parts. When it procures contract IT services support, it’s not enough for the government to simply say, “Build me a web site that allows people to select insurance plans.” That’s too open ended, allowing too much room for interpretation and creative license.

Without a clear definition for what exact the government is asking for, contractor proposals can and will vary widely. Then, after the government selects a winning proposal, losing contractors may scuttle the contract through a protest process by claiming that the government failed to provide an equitable evaluation process.

Instead, the government presents its needs as a set of requirements that contracting firms plan against. The trouble is that government managers commonly lack the expertise to accurately and completely define its requirements. To combat the deficiency, managers will generally take one of three approaches: 1) Fake it; 2) Release a Request for Information (RFI); 3) Hire a Contracting Firm. I’ll examine the impact of each of these three approaches against how well they balance want and need.
  1. Fake it. Government managers can’t possible know everything. But, they sometimes get stuck in an impossible position where they’re given too little time to do something really big. Under these circumstances, they try to do everything themselves by becoming experts in applicable technologies as quickly as possible. To achieve this, they may do some research, look to other similar Requests for Proposals (RFPs), and pull from their otherwise legitimate expertise to define and manage the requirements. While laudable, this approach puts the government completely at the mercy of more knowledgeable and sophisticated contracting firms. When a firm hired to do the job senses that something doesn’t quite fit, it will quickly jump on it as out of scope in relation to the requirements that it submitted a proposal against and will therefore require a contract modification (read: more $$$) to cover the new requirement. The secret here is that the contracting firm likely knew about the requirements gap when it was preparing its proposal. Why question the requirements when the firm can get paid more later?
  2. Release a RFI. When they have time to do so, managers may use RFIs to educate themselves on unfamiliar technology areas. They may do anything from throwing a vague objective out to the contracting firm community to posting an early RFP for comment, all to encourage firms to help the government refine the requirements. This can be an effective approach, but like crowdsourcing, it tends to influence government procurement to take a conservative, consensus-oriented solution that may simply repeat past failures. For example, when addressing an emerging area like Big Data, government managers may put out a RFI to help them understand how to best take advantage of large data sets. Traditional contracting firms would likely focus on their experiences building large data warehouses and data analytics platforms, suggesting requirements that provide the best fit for what they can propose. It’s to a firm’s advantage to scope new problems as simple incremental extensions of old problems to put firms in the best competitive position. Again, the firms won’t let their lack of success get in the way. In RFI responses, consensus naturally weighs more heavily than success potential.
  3. Hire a Contracting Firm. In a turn that may seem odd to outsiders, government managers may hire contracting firms to manage project requirements and to help supervise the contracting firm that the government will eventually hire to fulfill the requirements. This approach usually represent a costly venture, but I tend to favor it because it probably represents the most effective way to augment the lack of government expertise. In this arrangement, the government can bring in a firm that has a bit more specialization to serve as its trusted partner and voice in many interactions with the project execution firm. In practice, though, the government generally hires this firm based on customer familiarity rather than demonstrated experience in the desired technology area. Also, the government often falls into a trap where the managing firm is a common competitor of the execution firm, inevitably leading to a politically-charged environment that pits one against the other when they cannot reach consensus on execution.
Each of these approaches ultimately puts contracting firms in an advantageous position. Without committing to invest in building internal domain expertise, the government can, at best, only convey what it thinks it wants. Managers cannot qualify how wants equal needs, and worse, cannot recognize when wants contradict mission needs and existing functions. So, when problems arise, the contracting firms can easily argue that requirements must change and warrant additional funding to execute against. Why do things right the first time when the government will pay you to do it right some subsequent time? Then, as the government continues to pay, contracting firms reward their employees with higher salaries, effectively pricing them out of government service, and perpetuating the cycle.

Continue on to Part 3 of this series: The Definition of Madness.