The Inside Guide to the Federal IT Market

David Perera, Steve Charles

• Publisher: Berrett-Koehler Publishers
• Year: 2012
• ISBN:
  9781567263763
• Edition: 1
• Topic: Business
• Subtopic: Bookkeeping & Budgets
• Index: Business

Unlock the Door to the Federal IT Marketplace
Here's your key to selling IT goods and services to the government. David Perera and Steve Charles present the ins and outs of successfully competing for—and winning—a share of the tens of billions of dollars the federal government spends each year on IT. Getting a piece of that business is not easy—it takes accurate knowledge of systems and procedures, as well as sharp insight into the structure and details of government procurement.
The Inside Guide to the Federal IT Market penetrates the haze of jargon and apparent complexity to reveal the inner workings of the IT contracting process. Whether you're just setting out or seek a bigger share, this comprehensive book provides valuable information you can put to immediate use. The Inside Guide to the Federal IT Market covers:
• Technology standards
• Basic contracting concepts
• Advanced contracting concepts, such as getting on and staying on the GSA schedules
• The effect of the federal budget process on the sales cycle
• What you need to know about ethics to earn business fairly, without avoidable delays and hassle
This book's focus on the IT market makes it a unique reference on federal procurement for private companies. Government procurement personnel will also find the depth and breadth of coverage useful in reviewing and evaluating IT offerings.

The Ecosystem 1

You first need to know that there’s no such thing as selling to “the government,” despite our own promiscuous use of the phrase. Most market verticals that exist within the commercial world similarly exist within the public sector, including healthcare, finance, logistics, and real estate. The main organizing principle of the federal government isn’t function, however. Ask most federal officials to describe their work, and they’ll begin with their department or agency. The only civil servants who when asked just say they work for “the government” invariably work in the intelligence community.

Just as federal workers identify themselves by the cross-coordinates of function and agency, so must you. The entire federal government is too big to treat as a single entity, and its technical environments are too diverse to presume that every agency is a potential customer. Even the giants of federal contracting break themselves down into smaller divisions (although their constant reorganizing suggests there exists no perfect solution to the problem of encompassing both agency and function within a single logical unit).

In seeking to sell to all federal agencies, you’re likely to sell to none. After all, you wouldn’t try to sell to “the private sector.” Our use of the term the government throughout is a necessary shorthand for when we talk about certain common rules and assumptions held by executive branch departments and agencies—which, despite acting very much as separate organizations, have the common bonds of federal fiscal and procurement law.

How Big a Market?

We mention this right at the beginning in order to dispel common misconceptions about size. When you see the federal market characterized as half a trillion dollar large—the amount the government spends annually on goods and services—that’s accurate only in a macroeconomic sense. That amount is not a total addressable market for any company, since it encompasses everything from vacuum cleaners to supercomputers.

Same thing goes for sales figures for General Services Administration schedule contracts—close to $40 billion annually, as of this writing. Schedule contracts also encompass the entire breadth of the American economy.

Often, a more specific figure announced annually by the Office of Management and Budget (OMB) purporting to tally projected federal information technology spending during the coming federal fiscal year gets used to represent the size of the federal IT market. In recent years, that number has hovered around $80 billion. Certainly that number is closer to practical reality, although it’s still impossible for any one vendor to be all things to all agencies. No one person or office controls the entire federal IT budget, which is fractured by the boundary lines of departments and agencies. As we want to stress, there isn’t really a unified federal market—just a collection of agencies and functions bound together by common operating and policy principles.

The OMB number is also incorrect for other reasons. As a rule of thumb, contractors get a crack at only about 60 percent of what agencies say they will spend on IT. Also, the real collective federal spend on IT is actually higher. OMB’s figure doesn’t include the intelligence community IT budget. That’s classified, but credible estimates have pegged the figure at around $10 billion. Nor does OMB include spending by quasi-governmental organizations, such as the postal service. Nor does it tally what the judicial and legislative branches spend annually on IT, although admittedly, those branches don’t spend much.

It’s even questionable how well agencies whose spending is included in the OMB analysis accurately report their IT investments, since OMB enforces no standard definition of “IT” and agency definitions can vary significantly. Some agencies include research and development IT projects, others don’t. The Defense Department doesn’t add spending on IT that’s embedded into weapons systems despite the fact that no modern weapons system is without significant hardware and software components. Nor does the Pentagon always break out the IT infrastructure supporting those programs. Civilian agencies with satellite programs act similarly.

Given current spending trends, the real IT budget could be 40 to 50 percent higher than the annual OMB figure.

Why Agencies Buy Information Technology

Federal agencies have a purpose for existing, what feds call an agency’s mission. No federal agency today could accomplish its mission without primary IT systems dedicated to data collection, creation, transmission, manipulation, analysis, or storage.

Federal agencies are also organizations that need IT to sustain the daily grind of managing resources, balancing the books, hiring people—what is often called business lines activity.

In addition, federal agencies have IT shops of their own for maintaining and defending their networks, managing data centers, developing systems, refreshing technology, and so on. See Figure 1-1 for a breakdown of categories of federal spending during fiscal year 2011.

Agencies typically initiate new projects that directly address mission execution in response to a mandate from Congress or senior administration officials. The past decade has seen a significant shift in government. The FBI, once primarily a crime-fighting agency, has transformed into part of the national security apparatus. The Homeland Security Department brought together 22 agencies previously parts of departments as varied as Justice and Agriculture.

Even when the federal government isn’t undergoing a major renovation, there’s constant tinkering with agency priorities and execution. Most administrations go through at least one well-publicized event that starkly illustrates the inadequacy of federal operations, and they typically react by initiating high-priority modernization programs.

Sometimes Congress decides to mandate technological change. For example, following congressional hearings in the mid-1990s about allegations of abuse of taxpayers by the IRS, it passed the IRS Reform and Restructuring Act of 1998, requiring IRS to update its IT infrastructure.

More generally, nearly every president since World War II has declared he will “make government more efficient” and “cut out inefficiency.” This is unlikely to change since there can never be enough efficiency.

Members of Congress similarly keep up constant low-level pressure, especially since the legislative branch appropriates the money that federal agencies spend. Members of Congress get proprietary over “their” agencies and demand a constant stream of reports and briefings on all aspects of agency management, from execution of the mission to internal administration.

Powers of the Federal CIO

To call the Federal CIO the government’s “top IT official,” as sometimes happens, is inaccurate. The Federal CIO’s main function is to issue policy; he has no direct control over agencies’ IT budgets—although, through the policy he issues and the oversight OMB has over the budget, he does influence them.

Still, as at least one Federal CIO discovered (much to his chagrin), it’s far easier to announce policy than it is to get people to follow it. Institutional resistance, the diffuse nature of accountability in federal government, competing priorities, and congressional disapprobation can conspire to make an announced policy fall short of its goal during implementation.

Such complicating factors aren’t announced with the clarity that a policy unveiling is, so a Federal CIO policy decomposing in the murk isn’t always readily apparent. Policy implementation failures are made even tougher to spot by the fact that agency officials rarely openly contradict OMB policy but instead make a big show of compliance, even if substance is lacking in execution.

The Federal CIO is one of the most powerful federal IT officials thanks to the influence he can wield—but he isn’t the top official. There isn’t a single top official; federal IT isn’t a pyramid at whose apex sits a ruler. It’s an ecosystem in which even the lions have competition.

Officially appointed watchdogs also constantly monitor all aspects of agency performance. Each federal agency has an office of inspector general that provides a steady stream of audits nearly always loaded with recommendations, some of them regarding IT systems, others whose resolution could involve IT. The Government Accountability Office (GAO), the investigative arm of Congress, is also a report- and recommendation- generating machine, delivering about a thousand studies a year. Pressure from watchdogs to make changes isn’t insignificant, especially when Congress latches onto the reports they provide.

At the business line and IT infrastructure level, a big influencer of agencies’ plans is OMB, which uses its position as the federal budget request adjudicator to issue and enforce spending policy. OMB, if you’ve yet to otherwise come across it, is easily the most powerful federal agency you’ve never heard of. Located within the Executive Office of the President, its sole mission is to oversee the mission execution and spending of other agencies. Among OMB’s purposes is to diminish areas of redundancy, so it’s apt to do things like tell agencies to consolidate data centers. Within it is housed the position of Federal Chief Information Officer—a position that carries less authority than the title suggests, but one that nonetheless can be influential in setting the federal-wide IT agenda.

An agency’s sense of mission execution and efficiency matters greatly, too. Agencies brim with strategic plans, performance measures, and online dashboards. Feds take the performance of their organizations at every level seriously; the myth of the pencil-pushing bureaucrat doesn’t accurately describe today’s federal civil servant, who typically is well-educated, dedicated, and encouraged to come up with new and better ways of doing things.

Federal Attitudes Toward Technology

Government workers want to do their jobs well and like no more to be left behind the technology curve than anyone else. But the burden of legacy applications weighs heavily. COBOL and mainframe systems persist because ripping them all out would be expensive, not just due to the sheer size of the primary systems, but also because of the myriad secondary systems with dependencies on them.

Although there’s a trend toward centralization of IT operations within agencies, many individual components of larger departments maintain a fair degree of autonomy, resulting in a plethora of mom-and-pop shops throughout government, each with its little IT quirks. Even something as relatively minor as a medium-sized installation of Lotus Notes can be exceedingly difficult to rip out because each covered administrative unit has accumulated its own in-house programmed applications running in the Lotus environment.

In the long run, maintaining obsolete systems is more expensive than replacing them, and the government knows this as well as anybody else. But replacement requires upfront capital funds, and getting those from OMB and Congress is far more difficult than muddling through.

Cost isn’t the only thing keeping legacy systems in place. Change brings up the specter of disruption to agency operations, something that the government especially loathes. With good reason; at the upper scale of functionality, lives depend on government operations, and not just within the military. If the Social Security Administration were not able to send out disability checks, or were the Department of Veterans Affairs to lose patients’ data, some Americans would die.

As a result, the government is naturally averse to incorporating new technology into the production environment. Anything that’s bleeding edge typically won’t find a place in agencies, except around the edges or in special environments. That’s not to say the government isn’t interested in learning about the latest developments; it is very interested. But it flirts more it than commits to the latest version of anything. It likes to see examples of a technology working well in production elsewhere before incorporating it for itself.

Sometimes it’s federal procedure that makes technology adoption difficult. The U.S. Citizenship and Immigration Services, a notoriously atavistic agency when it comes to technology, has clung to paper-based processes in part because of mandatory regulations pertaining to matters such as the correct filing and handling of requests.

On its own, the government would probably never deviate from a process of incremental change, entering into major modernization efforts only when truly pressed to do so. However, the government doesn’t operate in a vacuum. As noted in the previous section, a whole slew of actors and pressures force it into a new equilibrium.

The Rise of Services

In fiscal 2010, the Defense Department spent more than half of its $367 billion budget on services contracts.¹ That same year, the Homeland Security Department spent nearly three-quarters of its $13.6 billion on contractor services.²

The rise of services contracting to a dominant position in the federal IT market has its genesis in Clinton administration–era legislation that resulted in across-the-board cuts to federal employees. It received a shot in the arm by the post-9/11 expansion of government, along with the contractor-friendly policies of the Bush administration. Although the Obama administration has said it wants to bring back in-house some of the human capital the government has outsourced via services contracting, it’s also actively promoted another type of new services contracting: the outsourcing of information technology functionality via cloud computing.

Lest you think you’ve struck a gold mine, research shows that the past decade’s sharp increase in the number of services contracts let per year has been accompanied by a decrease in average value, even when filtering out contracts worth less than $25,000; see Figure 1-2.³

But in contrast to the private sector, services companies, once engaged by the government, pretty much can count on years of steady revenue. The government typically contracts services for 12-month periods with several options to renew, and any company that falls short of incompetence gets its options renewed. Payment amounts are steady and consistent....