Minimizing Overreliance on Contractors: Avoiding getting locked in by one Contractor or Technology

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Minimizing Overreliance on Contractors Avoiding
getting locked in by one Contractor or Technology
Normand Masse Director General Services and
Technology Acquisition Management
Sector Acquisitions Branch Public Works and
Government Services Canada September 14-16,
2011 Santiago, Chile Multilateral Meeting on
Government Procurement III
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Agenda

• Introduction
• Issues Specific to Software Procurements
• Current Procurement Practices
• Moving Forward
• Other Issues
• Summary

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Introduction

• Public Works and Government Services Canada
  (PWGSC) is the Canadian Governments central
  Procurement Agency
• PWGSC conducts procurement for all other Federal
  Government Departments and Agencies (other than
  provinces and municipalities)
• Includes procurement of all Information
  Technology hardware and software, and related
  services

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Introduction contd

• Presentation focused on Information and
  Technology procurements (more specifically
  Software procurement)
• Our department spends approximately 500M
  annually on Software and Software Maintenance and
  Support
• Issue approximately 2,500 contracts annually
• Deal with 100s of Suppliers, and 1000s of
  software products

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Issues specific to Software Procurements

• Issue of Lock-in particularly prevalent in
  Software contracts because of the nature of the
  product
• Proprietary technology causes (or seems designed)
  to ensure lack of interoperability (including
  data)
• forcing user to continue to purchase software
  products from the same vendor
• Proprietary technology often used as a reason for
  requiring the procurement of professional
  services only from the software vendors
  certified professionals
• forcing user to continue to purchase professional
  services from the same vendor

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Issues Specific to Software Procurement contd

• Once software procured, we become locked in
• for the long term for maintenance and support
• for upgrades
• for other vendors related (interoperable)
  software products
• for professional services from the vendor

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Issues Specific to Software Procurement contd

• If we try to switch
• Significant switching costs for software
• Significant reluctance to switch by IT
  administrators
• Significant re-training costs for users and
  administrators
• Lengthy procurement process for replacement
  software
• Lengthy transition period to new product
• Results in
• a strong reluctance to switch (run a competition
  (RFP)) unless compelled by significant
  technological change or significant change in
  business processes
• Overall
• Compromises fair and open procurement
• Higher Costs due to monopolistic tendencies

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Current Procurement Practices

• Knowing the problem Canada like most other
  similar countries have instituted clear
  procurement laws and policies to enshrine
  Competition
• Competition is default position for every
  procurement (including for Software)
• As a result, we are forced to evaluate the
  possibility of competition for each new
  procurement and each renewal
• Justification required to direct a contract to a
  particular vendor (typically according to
  articles in North American Free Trade Agreement
  (NAFTA))

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Current Procurement Practices contd

• As a result of Trade Laws (such as NAFTA)
  competing vendors have a procedural mechanism to
  complain if they feel they can provide a similar
  or better software product.
• Again, we must therefore continue to evaluate the
  possibility of competition for each new
  procurement
• This acts as a counterweight to the attempts by
  Contractors to lock-in their product for the long
  term.
• If justification is uncertain, we have a policy
  of publishing an Advance Contract Award Notice
  (ACAN)
• ensures industry has opportunity to challenge our
  decision to award directly to a vendor or renew
  with a vendor

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Current Procurement Practices contd

• We employ significant effort during initial
  competitive procurement (Request For Proposal)
  for a software product
• knowing we will be locked-in using selected
  software for a long time, but also
• knowing that we will be re-competing some time in
  the future.
• Once a need is identified, we use extensive
  industry consultation
• We often publish Requests for Information to
  solicit industry input can be outline of
  project or complete draft RFP

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Current Procurement Practices contd

• Use performance specifications, to specify what
  the software must do (functionality), not how
  (proprietary)
• Draft performance specifications using input from
  industry ensures proprietary technology does
  not creep into specifications
• Use established open standards in drafting
  specifications
• Avoid using proprietary standards
• Insist on interoperability with existing base

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Current Procurement Practices contd

• Use transition costs as part of the bid
  evaluation to ensure incumbent and new potential
  suppliers evaluated from an equal base
• Separation of professional services into those
  that only the software publisher can provide
  because of proprietary information vs those that
  can be competed among consulting firms
• so as to avoid lock-in for all professional
  services
• Establish contracts with options for additional
  licenses and for maintenance and support
• can be used if needed as a simple off-ramp

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Current Procurement Practices contd

• Normally, request perpetual software licenses
• can therefore continue to use software, if
  required, after contractor support no longer
  provided or too expensive
• In software development contracts, the firm that
  is tasked to prepare the Specification, cannot be
  involved in bidding on the development contract.
• ensures Specification uses open standards etc.,
  so as not to restrict competition for initial
  procurement and for follow on procurements

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Current Procurement Practices contd

• In software development contracts, our
  Intellectual property ownership policy allows
  Contractor to retain ownership or obtain
  ownership in foreground intellectual property,
  nevertheless, Canada may, under certain
  circumstances, obtain right to acquire and use
  source code and have maintained by third a party

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Current Procurement Practices contd

• If contract must be directed
• Bargain hard before you become locked in
• Keep your options open
• Retain the rights to transfer your information

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Current Procurement Practices contd

• PWGSC has identified a trends leading to
  single-bidder contract awards following
  competitive solicitations.
• The higher proportion of single bids for
  solicitations requiring TB approval may be
  attributed to
• Complex requirements drive higher bid costs
  (100k 500K)
• Highly specialized nature of the requirement may
  limit ability of suppliers to bid based on their
  capacity

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Current Procurement Practices contd

• Bundling of requirements or consolidation of
  contracts provide better value for money but may
  reduce pool of potential bidders
• Contractual terms may be a deciding factor that
  will keep a vendor from bidding
• In certain sectors (e.g., military), supplier
  consolidation and mergers/acquisitions may limit
  number of potential bidders
• Some industry sectors have limited capacity
• Lack of competition in certain niche sectors,
  combined with sole client (military) for the type
  of commodity

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Current Procurement Practices contd

• Measures being pursued by PWGSC to assess and
  avoid contracts resulting in a single bid
• Following the solicitation process, PWGSC sent
  out questionnaires to be completed by suppliers
  on a voluntary basis. Questionnaires are sent
  out to all suppliers who demonstrated an interest
  in the solicitation but did not submit a bid.
• Objective is to seek information from interested
  suppliers who did not bid on solicitations in
  order to analyse and better understand why these
  suppliers did not submit a bid.
• Information collected will be used in the future
  to guide PWGSC in adapting its procurement
  policies and requirements in an effort to
  increase competition.

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Current Procurement Practices contd

• Preliminary findings
• majority of respondents (77) who did not bid
  after demonstrating an interest, had downloaded
  the Request for Proposal (RFP) for information
  purposes or to form subcontracting partnerships.
  They were not intending to be the prime supplier.
  
• Also key considerations that contributed to the
  suppliers' decisions not to bid
• Frequent amendments to the posting.
• Inadequate time frames given the scope of work.
• Inadequate resources given the scope of work.
• Requirement was restrictively specific.

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Current Procurement Practices contd

• Preliminary findings (contd)
• Suppliers identified the following as areas of
  potential improvement to the RFP
• Longer bid times upfront, as opposed to extending
  it through amendments.
• Include more information on the solicitation such
  as job sizes and construction costs, instead of
  only being on the downloaded package.

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Moving Forward

• Developing a new method of supply for software
  called Software Licensing Supply Arrangement
  (SLSA)
• Individual supply arrangements to be put in place
  with 100 vendors
• Will cover most software products
• Ceiling prices to be publicly available
• Will accept most vendors End User License
  Agreements
• Will establish searchable catalogue of vendors,
  products, ceiling prices
• Note we will continue to retain other methods of
  supply, such as use of competitive RFPs, larger
  enterprise contracts, development contracts, etc.

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Moving Forward contd

• SLSA designed for rapid, small dollar value (up
  to 100K) directed and competitive software
  purchases, and maintenance and support and
  follow-on directed purchases of software where
  there is an already installed base
• The ease of use, and the ability to search for
  products among hundreds of vendors expected to
• decrease End Users reluctance to try competing
  software products
• reduce lock-in by Contractors in some categories
  of software by providing End Users more choices,
  and ease of procurement

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Moving Forward contd

• Negotiation of acceptable terms and conditions
  was an impediment to procurement, the acceptance
  of vendors End User License Agreements (EULAs)
  expected to
• increase competition among small and medium sized
  vendors
• significantly reduce procurement time for smaller
  value RFPs thus avoiding one reason for
  reluctance by Users to switch

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Other Issues

• Open Source
• Using Open standards, Open Data in procurement
  documents
• Service Oriented Architecture
• Going to the Cloud

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Summary

• Lock-in a significant problem in Software
  procurement
• Our current competitive processes designed to
  minimize long term lock-in
• We continue to develop new methods of supply to
  foster competition as counterweight to Lock-in

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Questions?