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Innovative Acquisitions and Procurement

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"Innovations arise when people are given a problem to solve instead of being told to implement a known solution."

Purpose and Outcomes

Purpose: Innovative acquisitions and procurement methods help the government get the most value of its purchasing and outcomes while spending less on contracting processes.

Acquisitions (often described as procurement) is the process by which the U.S. federal government acquires goods, services, and property through appropriated (set aside by Congress) funds. This is one of the key tools the federal government has to get things done. Acquisitions implies the strategy behind getting a product , while "procurement" is used to define the technical process of getting a needed service or product.

In FY 2016 the US federal government spent $462 billion on contracts, with more than $86 billion in federal information technology (IT), making it the largest buyer in the world. Nearly $64.5 billion goes to maintain current systems rather than improve them.

The federal government spends a lot of money on IT purchases, but doesn't always receive the full value's worth of that money. In 1974, the Federal Acquisition Regulation (FAR) codified federal acquisitions. The FAR is nearly 1,500 pages and was created before modern technology.

Federal IT acquisitions have had difficulties because:

  • The skills gap because few people in the workforce understand both IT and procurement.
  • The status quo approach of large, multiyear, waterfall-based, extended requirement gathering, year-long competitions moves slower than technology.
  • Companies that have creative solutions to many of government's tech problems find it challenging to do business with the government due to high barriers to entry, lack of customer-facing tools, complex acquisition processes, and not understanding how to identify opportunities.

Therefore, the acquisitions and procurement community has had to rethink and reframe the practice to meet user needs. Innovative acquisitions comprise a variety of procurement approaches for both digital services and physical products that reduce risk while delivering required outcomes. These approaches:

  • improve the likelihood of on-time or early delivery of contracts,
  • increase end user satisfaction
  • can reduce the total cost of ownership.

The recent fresh perspectives and focus on IT acquisitions or procurement. Because that's the biggest need, but they apply to other fields as well.

Approach

Common features of the innovative acquisition methods profiled here include early and frequent collaboration between acquisition teams and end-users, and the use of agile, iterative, and modular implementation methods. (see "Human Centered Design", "Lean" and "Agile" sections)

Many innovative contracting models can reduce transaction costs and increase access to innovative contractors while still operating within the limits of existing law and regulation.

Here are some new ways of thinking in acquisitions:

Traditional Thinking New Thinking
If it's not explicitly allowed, it's prohibited. If it's not explicitly prohibited, it's allowed.
Creating a statement of work with requirements (prescriptive rather than descriptive) Offering a statement of objectives with overall purpose/direction (descriptive rather than prescriptive)
Acquisitions professionals manage and lead the process Acquisitions professionals form part of the team, all of whom are needed to successfully acquire modern products and services
Large, monolithic contracts Modular contracting and agile delivery
Too-large Request for Proposals (RFPs) Just-right RFPs that are short and to the point
"Push" methods where products and services are outlined in detail; funded whether or not the final product meets agency needs "Demand pull" methods depend upon user needs to stimulate non-traditional methods and companies to participate; funded when the needs are met

With fewer resources, agencies must use procurement practices that ensure federal agencies pay only for successful results, not just best efforts. Existing regulations and authorities permit new and more effective acquisition models and processes, currently being tested by and used at many agencies. Many proven practices, some listed in this Toolkit like human-centered design and agile software development, help to close the gap.

As new approaches become available, each agency can consider how to encourage the workforce to test and adopt new and better ways of doing business.

Most agencies have Acquisition Innovation Advocates and acquisition labs or similar mechanisms, which were announced in 2016 by the Office of Management and Budget Office of Federal Procurement Policy Memo. With the dedicated support of this advocate or lab, agencies can reframe problems and produce better results.

Examples

Modern Contracting Vehicles

18F Agile Delivery Services Blanket Purchase Agreement (BPA)

In keeping with its mission to transform the way the federal government builds and buys digital services, 18F set out to find a new way of procuring digital services at the speed of agile development cycles. That means ideally less than four weeks from solicitation to contract kickoff, and from there no more than three months to deliver a working product.

18F partnered with the General Service Administration (GSA) Office of Information Technology Category to establish a blanket purchase agreement (BPA) featuring vendors specializing in agile delivery services (e.g., user-centered design, agile software development, DevOps). The Agile Delivery Services BPA (Agile BPA) attempts to align acquisition practices with agile delivery practices.

The Agile BPA is different from most other traditional IT services contract vehicles. It uses novel ways to select vendors: the most important thing for them is their ability to ship high-quality working software. They issue task orders — consistent with the TechFAR — that feature shorter time-frames, smaller dollar amounts, and user-centered design principles.

Push versus Demand Pull Methods

Traditional complex procurement processes discourage small business and non-government innovators like startup companies from participating. This process, called the "push" method, outlines the exact needs up front and all acquisitions/procurements are treated roughly the same despite their demand and based on forecasts that are almost always wrong (Source: The Standish Group, "Chaos Report 2015," 2015). Procurements with this method is usually set aside for traditional government contractors, and provides funds upfront whether or not the final product meets the agency's needs.

Opposite is the "demand pull" method, which uses actual real-time customer demand to generate the need for the product and its direction. This method stimulates innovation and allows smaller businesses and inexperienced government contractors to participate. Demand pull mechanisms offer agencies the ability to discover, prove, and scale new solutions and more effective outcomes.

There are two distinct categories of demand pull methods: pay for performance and purchase commitments, described below:

Category Demand Pull Mechanism What It Does
Pay for Performance Advance market commitments Creates new markets and commits to long-term pricing for purchases
Motivating or "Incentive"prizes Gets citizens involved in solving problems  
Competitive milestone-based payments Attracts new solutions to well-defined, multi-component problems  
Micro-purchase authority Uses a government purchase card to make small awards for coding challenges  
Purchase Commitments Challenge-based acquisitions Breaks the entry barrier for startups and young organizations
Non-binding purchase agreements Collaborates with industry and encourage new solutions, without firmly committing to them  
Rapid technology prototyping Tries out new technologies rapidly and inexpensively  
Staged contracts Solicits proposals and assesses them quickly  

Pay for Performance

Advanced Market Commitment (AMC)

The Pneumococcal AMC The Gates Foundation and governments of Italy, The United Kingdom, Canada, Russia, and Norway promised to purchase vaccines on a per-unit basis for a limited amount of time. In return for that promise and financial support, companies developed a pneumococcal vaccine and manufacturers provide it at a reasonable cost to citizens in developing countries. In 2015 the target was 1 year ahead of schedule, and by 2016 an estimated 109 million children had been immunized.

Incentive Prizes

New York City Big Apps Challenge In 2012, NYC launched the Big Apps Challenge, which sought innovative software applications that made municipal data more accessible to city residents. Designers tapped into the developer community to access external expertise. They considered many challenges to help net the $50,000 purse. Designers broke the challenge into 10 topics (for example, green, health and safety, and mobility) and posted clear requirements for each category. They included commercial benefits, inviting investors such as BMW to help judge the challenge. Finally, New York City included an "Investor's Choice Winner" and allowed the grand prizewinner to demo the app at the New York Tech Meetup. The Big Apps Challenge spurred the development of 96 apps using municipal data in new and innovative ways.

The Ansari X Prize Until October 4, 2004, space flight was the exclusive purview of government. The possibility of space tourism was considered too dangerous and too expensive for the general public, and space exploration for the private sector was neither possible nor affordable. The Ansari XPRIZE aided investment in a brand new industry. Over the course of the competition, 26 teams invested more than $100 million for research and development in suborbital space flight.

In 2004 the Ansari Foundation awarded a $10 million prize to Scaled Composites' Tier One Project for developing a reliable, reusable manned spacecraft. Among other participants, SpaceX and Virgin Galactic continue to develop private space travel (2018 is the projected date for first trips) and payload delivery. Breakthroughs made as a result of this successful competition led to a private space industry worth more than $2 billion today.

Purchase Commitments

Challenge-Based Acquisition

Department of Defense (DOD) Robotic Rodeo

The key difference between challenge-based acquisition and a traditional performance-based acquisition is the requirement to demonstrate product performance in real-world conditions before an agency commits resources for full production. Payment is made only after a successful solution is shown.

Twenty-six companies participated in a two-week robotics competition in 2012 held by the DOD at Fort Benning. Four different events tested innovative technical solutions for surveillance and inspection of Improvised Explosive Devices (IED) in real-world conditions. A follow-up competition in 2014 choose those who would participate in the next phase of the $49.5 million contract.

Micro-Purchase Award

18F Micro-Purchase Agreement Experiment

An 18F Micro-purchase is an experiment in federal acquisition, which makes it easier for individuals and businesses, or vendors, to use their technical expertise toward building the open source software that powers federal agencies — and vice versa.

Conceptually, the platform is simple: 18F Micro-purchase functions as a reverse auction house. Federal agencies work with 18F to create auctions that start at $3,500 or less (this is the ceiling of the federal government's micro-purchase authority, the authority from which we draw our name).

Vendors evaluate auctions, review any source code associated with that auction, and place their bids. At the end of each auction, winners deliver their work in accordance with policy and 18F pays.

Anyone can participate in this work. Vendors need only have GitHub and System for Award Management (SAM.gov) accounts to sign up and place a bid. If you work in government and are interested in running auctions for an open-source project, read the getting started guide. Members at 18F are available to scope features, develop an auction strategy, and run your auctions. Although many auctions ask for code, this process can be applied to any kind of contribution to an open source project, including design, content, etc. This experiment will also soon be extended to auctions with starting prices of $25,000 or less.

Non-Binding Purchase Agreement

The Department of Energy (DOE) Purchase Challenge

The DOE created a coalition of more than 200 major commercial building partners and issued a challenge to U.S. manufacturers: "If you can build wireless sub-meters that cost less than $100 apiece and enable us to identify opportunities to save money by saving energy, we will buy them."

At least 18 manufacturers have responded, and DOE's private-sector partners have signed letters of intent to purchase the wireless sub-meters since DOE issued the challenge in 2013. U.S. Energy Secretary Ernest Moniz described this activity as "a perfect example of how government can team up with industry to identify a problem and promote the innovation needed to solve it."

Rapid Technology Prototyping

Defense Advanced Research Projects Agency (DARPA) Fast Track Robotics

The recent explosion in robotics comes from small businesses and individuals in maker and hacker spaces and incubators of low-cost innovation and collaboration. DARPA partnered with Virginia-based hacker space TechShop to streamline the contracting process to address non-traditional performers' needs while still meeting all requirements under the FAR. DARPA supported the rapid development of new robotics capabilities designed to respond to, and even anticipate, quickly evolving warfighter needs. New robotics projects have an average cost of $150,000 and require only simple contracts lasting 6-12 months. The contracting process itself, from the time a proposal is submitted (via a website) to when a contract is signed, took less than a month.

Actions and Considerations

According to The Standish Group, small IT projects have more than a 70% chance of success while a large project has virtually no chance of coming in on time, on budget, and within scope. For this reason and for others discussed in this overview, the federal government needs to rethink and reshape how it builds and buys products and services.

Below are some known pitfalls identified during the Digital Acquisitions Accelerator in 2016. These are all things that haven't worked well for us when it comes down to digital acquisitions. Avoid them–or at least use them carefully.

Avoiding these common pitfalls is the first steps in transforming acquisitions at your agency.

Pitfall #1: Large, monolithic contracts

These often do not work well for digital products and services. The Standish Group points out that you're only giving yourself a six percent chance of success when you start these types of projects. Also, technology moves fast, and if you want your agency to be able to respond quickly in an ever-changing landscape, you'll need to avoid these.

Pitfall #2: Writing too-large RFPs

In 1907, the U.S. Army wanted to acquire an airplane. Airplanes were so cutting edge at the time that they weren't even called airplanes; they were called "heavier than air flying machines." Guess how many pages the solicitation was for this? 50? 20? No, 2 pages!

You don't need 100-page RFPs to acquire the best digital solutions for your agency. Often, all this does is encourage some of your better potential vendors to not respond. These long RFPs are typically driven by the old requirements-gathering mindset combined with bloated legalese, focusing on oversight and liability rather than product quality and project success.

These long RFPs take too much time for your agency to write, too much time from vendors to respond to, and discourage good vendors from bidding. There are very few good outcomes.

Instead, work internally to develop a sound problem statement and product vision. Think in terms of objectives and user stories. Indeed, modern agile development methods pay careful attention to alternative ways of specifying and achieving desired outcomes for product development.

Pitfall #3: Only having acquisitions people involved in the acquisitions process

Acquisitions is more than just buying, and it's important to bring key expertise, like policy, law, engineering, design, and security, to the table early in the acquisitions process to ensure a project's success. Leveraging a cross-functional team's expertise will help ensure your agency is solving your users' problems.

Pitfall #4: Not being open to change

The world moves fast, and technology moves even faster. You must be willing to adapt, change direction, and try new things to get the best digital products and services. The goal is to get better outcomes, not just contracts. No matter what your experience has been until now, you can learn and apply new techniques to make acquisitions more effective, more efficient, and hopefully more joyful.

Being open to change means shifting the focus from a "no, we can't" to a "how might we" context. It allows you to solve the problems as they arrive based on any given context, known or unknown.

Pitfall #5: Forgetting that people, not contracts, manage projects

Often, a contracting officer will work really hard to be sure that every possible clause that may or may not be needed is included within the contract. This is fine, but it often overlooks the reality that over the life of the contract, new ideas will be formed and business strategy may shift.

So it's important to have someone from your agency working hand in hand with the vendor to help make rapid decisions that still align with organizational goals. Relying too heavily on contract clauses to solve every problem that may arise over the period of performance doesn't work. You'll need to assign a resource to be a product owner who works with the vendor until the period of performance is complete.

These steps will help you to rethink and reshape how you build and buy products and services:

  1. Talk to your agency's advocate for innovative acquisition. They are there to help you
  2. Use "demand pull" mechanisms
  3. Think big, and act small
    • Break large projects into small, discrete components with clearly defined objectives
    • Simplify the contract or use a Memorandum of Understanding (MOU) to get started
    • Establish constraints on time, money, complexity, and size
    • Add a "kill switch" so contract ends when objectives cannot be met
  4. Track results against metrics established by Office of Management and Budget (OMB)
  5. Share results in the Innovation Hallway of GSA's Acquisition Gateway
  6. Participate in the Acquisition Innovation Advocates Council that meets regularly with OMB and 18F Consulting to broaden awareness and cross-agency collaboration

Policies

Innovative contracting approaches are allowed under existing law. New regulations are not needed to deploy any of these authorities:

  • Federal Acquisition Regulations (FAR)
    • Provides a variety of pathways that allow agencies to reshape existing processes to reduce transaction costs while still operating within the confines of existing law and regulation.
  • Other Transactions Authority (OTA)
    • Funding mechanisms that target non-traditional sources and allow a high degree of flexibility in how the agreement is awarded.
  • American Innovation and Competitiveness Act 2016
    • Expands the use of challenges and gives the authority for any federal government agency to work cooperatively with and pool funds from multiple government agencies and profit or nonprofit private sector entity, state, tribal, local, or foreign government agencies and higher education institutions.
  • America Competes Reauthorization Act of 2010
    • Established authorities for all federal agencies to offer incentive prizes and run challenge competitions "to stimulate innovation that has the potential to advance the mission of the respective agency."

Additional Resources

Government Services Administration (GSA): Acquisition.Gov and Acquisition Gateway

Office of Management and Budget's Office of Federal Procurement Policy's Memo establishing Acquisition Innovation Labsand an Acquisitions Innovation Advocate Council

18F and the Presidential Innovation Fellows

U.S. Digital Services

Further reading:

How to Get Connected

Better Government Playbook

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Six key guiding principles or “plays” for public sector innovation

Better Government Stories

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In-depth case studies of where innovation is happening and working in the government

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