The U.S. Senate this week passed a bill that’s poised to significantly alter the way federal agencies procure IT services.
The Defense Authorization bill includes the Services Acquisition Reform Act, also known as SARA. Introduced earlier this year by Rep. Tom Davis (R-Va.), SARA would move the government away from costly “time and materials” contracts. The bill is now being prepared for President Bush to sign.
A key section of the SARA provisions offers incentives for agencies to use performance-based contracts, a shift that analysts and industry executives said will force IT product and services vendors to change the way they do business with the federal government.
Most IT service providers will likely benefit from the legislation because it will give them flexibility to choose the best commercial technologies to use under a contract, rather than having to build custom products to meet government specifications, said Jim Howard, CEO of CrownPeak Technology, a Los Angeles-based Web content management service provider that counts many agencies among its customers.
The legislation would also benefit the government by ensuring that money isn’t spent on products and services that aren’t doing what it needs them to do, he said.
“With the (performance-based) software service model, in which you pay for what you use, the vendor is taking the chance that the software will work well for the customer, as opposed to the government paying a lot of money to make it work and then betting that the entire enterprise will use it,” Howard said.
Risky Business
SARA is also likely to have a significant impact on systems integrators that do custom work on an hourly basis, Howard said.
Some large systems integrators have historically shied away from performance-based contracts, which they consider a risky approach to business, said Mike Barbee, president and general manager of WamNet Government Services Inc., a Herndon, Va.-based company that’s helping to build the U.S. Navy’s US$6.9 billion intranet.
“The big systems integrators are relatively inexperienced at this and are risk-averse. So there’s a question if they will embrace this,” he said.
On the government side, performance-based contracting “really requires a lot of upfront planning on service-level agreements by the agencies involved,” said Barbee. “And some agencies view the requirement to define the end state as risky. They will ask themselves, What if we’re wrong?”
But all agreed that performance-based contracting will have clear benefits for the government.
“They pay for what they get,” said Barbee. “With time and materials contracts, the bill comes in every month, regardless of what was accomplished.”
