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

or Technology

Normand Masse Director General

Services and Technology Acquisition Management SectorAcquisitions Branch

Public Works and Government Services Canada

September 14-16, 2011Santiago, Chile

Multilateral Meeting on Government Procurement III

2

Agenda

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

33

Introduction

• Public Works and Government Services Canada (PWGSC) is the Canadian Government’s 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

4

Introduction cont’d

• 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 100’s of Suppliers, and 1000’s of software

products

5

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 vendor’s certified professionals– forcing user to continue to purchase professional services

from the same vendor

6

Issues Specific to Software Procurement cont’d

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

7

Issues Specific to Software Procurement cont’d

• 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

8

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))

9

Current Procurement Practices cont’d

• 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

10

Current Procurement Practices cont’d

• 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

11

Current Procurement Practices cont’d

• 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

12

Current Procurement Practices cont’d

• 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

13

Current Procurement Practices cont’d

• 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

14

Current Procurement Practices cont’d

• 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

15

Current Procurement Practices cont’d

• If contract must be directed:– Bargain hard before you become locked in– Keep your options open

– Retain the rights to transfer your information

16

Current Procurement Practices cont’d

• 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

17

Current Procurement Practices cont’d

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

18

Current Procurement Practices cont’d

• 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.

19

Current Procurement Practices cont’d

• 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.

20

Current Procurement Practices cont’d

• Preliminary findings (cont’d)– 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.

21

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.

22

Moving Forward cont’d

• 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

23

Moving Forward cont’d

• Negotiation of acceptable terms and conditions was an impediment to procurement, the acceptance of vendor’s 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

24

Other Issues

• Open Source

• Using Open standards, Open Data in procurement documents

• Service Oriented Architecture

• Going to the Cloud

25

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

Questions?