Everyone agrees we are living in the age of information. The pace of change in the IT space continues to increase. The length of time of an IT company’s strategic plan doesn’t exceed 12 months. The migration to the cloud is underway. The proliferation of sensors and computationally-capable devices is becoming a tidal wave. Every piece of hardware now has sensors and computers in it. Wearable sensor/computer systems could be the next big thing. We are moving from big to “colossal” data. Also, there is the beginning of the phenomena of small data which was explained to me as the body of individual, personal and, hopefully, private information one generates that needs to be protected as well as continually refreshed and manipulated. The one thing we generate more of than trash is data. But since data storage is becoming virtually a free good, this may not matter.
One consequence of the ongoing IT revolution is that a sector once dominated by big, complex, sophisticated, proprietary and expensive devices, software and services is being reshaped into a largely commodity environment, certainly for hardware and even for a lot of services. It makes sense for the federal government to take advantage of this phenomenon, up to a point. Going commercial is smart, even to meet some military requirements. The use of commercial satellite communications, Earth observation information, even smart phones, for example, is helping the government do its job better and cheaper. Government policies that emphasize open architectures, platform agnosticism, strategic sourcing and rapid technology refresh are good things.
However, there are other government acquisition policies that are more questionable, particularly in defense IT. One of these is the increased use of lowest price, technically acceptable (LPTA) as a standard for awarding contracts, and not just for hardware and support service but for engineering and even development of new capabilities and products. Even higher-end analytic services are beginning to fall prey to the LPTA phenomenon. This is creating a “race to the bottom” or a ‘death spiral” as the demand to lower price forces companies not just to squeeze their profit margins but to reduce costs, particularly for people. More talented and experienced people cost more than more junior personnel so, to put it bluntly, the former must go. But go where if the entire sector is becoming commoditized and there are fewer new contracts?
Also, since the value added from unique technologies, processes, software and experience doesn’t count in an award, why invest in it? The government’s position is ironic insofar as it also is encouraging companies to be more innovative and to do more R&D. Without the prize of a contract at the end of the road companies are reported to be reducing Independent Research and Development, particularly for IT. Commercial companies who want to enter the DoD market also have to confront demands for certified cost and pricing data which is particularly difficult to acquire for commercial IT and for their intellectual property, even on commercial items. Because DoD is not the 800 pound gorilla in the IT marketplace that it is in the acquisition of tanks, fighter planes and warships, the commercial IT companies are quite capable of telling DoD where it can go with its demands.
The Undersecretary of Defense for Acquisition, Technology and Logistics, Frank Kendall, has warned the acquisition corps to use their judgment when applying cost as a determinant in contract awards. However, reports from the field are that this message hasn’t filtered down to the working level. Let’s face it, contracting officers are safer from criticism when they let a contract to the lowest price bidder.
The drive to increase competition in government contracting is having the perverse effect of actually driving up costs while reducing performance. This is true not only in single source awards but in the plethora of IDIQ contracts that now populate the IT space. It takes time and dollars for a company to bid on contracts and task orders and for an awardee to spin up and move down the learning curve. Just when they get to the point of being effective and being able to recoup the costs of winning the contract, it is time for the next competition. Moreover, even when there are option years on a contract, the criteria for awarding them often emphasizes reduction in costs over the base year. Companies are being forced to low-bid to win and then to squeeze further to get the option year(s). This is a recipe for disaster down the road.
After commoditization could come decline. The gap between government IT and what is available in the private sector will widen even under the most optimistic scenario. If government becomes a bad consumer, the gap could become a chasm. Foreign governments and military establishment willing to pay extra for innovation and high quality could outpace the U.S. in critical capabilities.
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