FedConnects recently interviewed Darren House, Technologist-Data Center for UNICOM Government, on the rise of LPTA contracts and how this is creating the perception that government IT is a commodity.
Be sure to check out the full interview below, which provides some candid and unique insights into how to shift this perception in the government. You can view the original article on FedConnects here.
In addition, the original post on FedConnects garnered some very insightful comments from readers and Mr. House. Feel free to share your thoughts as well.
FedConnects: Tell us about what is going on with the government IT world and commoditization.
House: There is a perception that everything in government IT is a commodity, which has become a major problem because this causes customers to only consider price when implementing technology solutions. And, this is something that is happening in the commercial sector, as well as with state and local governments.
The reality is that we are not talking about sugar. The technology solutions used in government IT are far more complicated than items that are truly considered to be a commodity. They are complex systems with many differentiating factors. The problem is the perception of diminished value due to the commodity label puts the focus on price and causes many government agencies to truly miss opportunities to leverage IT in ways that are more efficient and support mission goals.
FedConnects: How can agencies best leverage existing technologies that they are using (perceived to be commodities)?
House: While agencies don’t need to use every feature available in a technology solution, many if not most solutions have been implemented quickly due to pressures to get the solution operational. The basic configurations are done to enable the basic features of the solution. This essentially turns a complex multi-vendor solution into what I call a “configured commodity.” There are many features that can provide value to the government that are not turned on, resulting in sub-optimal value being delivered.
It is vital to recognize there is a gap and start thinking about the business value objectives and map the solution to the value through a features-alignment approach.
When this happens, they will most likely realize that these technologies are not really commodities and there are plenty of ways to gain truly differentiated outcomes from fully maximizing these solutions.
FedConnects: In today’s LPTA world, how are commoditized technologies changing the government IT sector (i.e. only selling on price).
House: It is precisely this false commoditization perception of government IT, which along with tighter budgets, that is accelerating the rise in LPTA contracts. As I mentioned, price is driving everything because the value is lost when technology is categorized as “commodity.”
This does not mean there are no commodities in IT. It just means that when you throw all IT infrastructure technologies into that category, you lose the ability to see the real differentiation in the technology. These architectures differ when configured fully. They also enable their features to function differently, at different levels of performance, scale, security and availability — with different levels of operational efficiency. These map back to business value outcomes, and they are getting lost as well.
With more LPTA contracts, many smaller companies are losing out on opportunities because they can’t afford to price their services so low. Conversely, government agencies are missing out on an opportunity to make their IT systems be truly effective, which is critical in today’s resource-stretched times.
FedConnects: What is the likely outcome of these LPTA contracts?
House: It must be understood that there is a place for LPTA, just as there is a place for best value and other contracting approaches. LPTA is part of the government contracting toolkit and when used properly provides value to the government. The issue is the encroachment of LPTA into contracts where it does more harm than good. In that case, the outcome is that everyone is going to be hurt if this trend continues. As I mentioned, smaller industry members are going to either lose opportunities or bid so low that their profit margins are razor thin. The reseller, VAR and SI ecosystem becomes dis-incentivised to innovate and the solutions they offer begin to look more like a commodity that they are being perceived as.
For government agencies, they most likely will have to deal with a project that underperforms, that might not scale as well, and that will have more hidden operational costs, which will cause contracts to be cancelled or modified. In the long run, this will actually cause the government to spend more money.
FedConnects: How can members of industry find a way to differentiate themselves in today’s commoditized LPTA world?
House: I think its twofold. First, industry needs to put a focus on the value that is realized from turning on features and capabilities that can enable government customers to have desired outcomes. They need to develop strategies for both performing the features to value mapping, and ways of communicating this value, based on the uniqueness of their architecture.
Next, during the RFP process, industry must tease out the true business value from the requirements communicated in the RFP, and from an understanding of the realities in the government IT environment.
Focusing on business value is paramount, whether it is enhanced operational efficiencies, reduced overhead costs, better delivery of SLA’s, increased security, better monitoring, greater transparency or all the above. There should always be a bottom-line need that IT is fulfilling, and all technology features and benefits should map directly back to these business value discussions
With LPTA contracts, it is all too easy to forget about building out a more strategic RFP response, especially when you know the contracting officer is just going flip directly to the budget section of the proposal response.
FedConnects: In tying back technologies to business value, how can the government IT community do a better job at this?
House: We really need to change this commoditization perception and push the dialogue further between industry and government. When you look underneath the hood of most technologies, there truly are differentiations. Unfortunately this “commodity” perception, the disassociation of value and technology, along with today’s austere budget climate, is preventing government customers from doing this.
There is hope, however. The DoD released its Better Buying Power BBP 2.0 memorandum in November of 2012. There are a number of points in BBP that relate to this issue. Its recommendations include refining the guidance to emphasize the use of the appropriate contract vehicle for the product or services being acquired. It also covers improving the ability to define the value of performance that is above minimum levels so the DoD can make appropriate source selections. This way industry can bid intelligently and provide a predictable basis by which companies can bid with an enhanced-performance strategy — with the knowledge that any increased costs are within an acceptable range. Lastly, it specifically identifies that when LPTAs are used, they must better define what Technically Acceptable means to ensure needed quality.
Hopefully, this is one in many steps in a shift back towards recognizing the true value of technology solutions and innovation, and that differentiation within government IT and associated services will return to the conversation.