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State procurement model reform a boon for channel partners

As state CIOs modernize their approach to IT procurement, channel partners may discover unprecedented bidding opportunities.

Channel partners may want to explore opportunities emerging in state IT procurement as the traditional procurement model undergoes reform.

State IT procurement has historically involved creating budgets and business cases for monolithic systems replacements, "measured in the tens or even hundreds of millions of dollars," said Josh Nisbet, director of Deloitte's Public Sector Practice based in Sacramento, Calif. "These are 5- or 7-year projects that have certainly had their share of failures over the years."

One of today's major trends in state IT, Nisbet said, is a movement toward an agile, modular procurement model, where states break up their procurement efforts into smaller pieces. As states institute the agile model, the $100 million procurement of the past changes into seven or eight $10 million procurements or even smaller. States might divide procurements into phases or by functionality -- first procuring a technology platform, then the implementation of that platform, followed by additional domain expertise or functionality such as a case management system, he said. These modular procurements may give smaller channel partners and vendors a chance to make bids.

"I think the trend right now in procurement is to open it up to the little guy, whereas traditionally … the big providers had been the only ones with the footprint in place to respond to these large procurements," he said. He noted states across the country are learning how to modernize procurement policy to allow for this approach.

While the opportunities for channel partners are still unfolding, one potential area that Nisbet identified is vertical integration work and implementation services that platform providers, such as cloud platform providers, haven't shown interest in offering.

Nisbet also said that while there is an opportunity for managed service providers to sell managed and hosted services, these providers will have to comply with policies like FedRAMP and state security protocols that states will continue to drive.

Integration challenges of the new procurement model

I think the trend right now in procurement is to open it up to the little guy, whereas traditionally … the big providers had been the only ones with the footprint in place to respond to these large procurements.
Josh Nisbetdirector of Public Sector Practice, Deloitte

The agile procurement approach isn't without caveats. For example, the approach generally places state CIOs into the role of integrator. Comparing the traditional and new procurement models, Nisbet offered an analogy of building a car: In the old model, if you wanted to build a car, you would ask someone to build it -- in this case, a systems integrator -- who has general expertise in cars; in the new model, you ask someone to build an engine, someone else to build a suspension and brakes system, and yet another person to build an entertainment system, and so forth, and you ensure it's put together.

"These people all know a lot about the small piece that they're providing," but the state is still figuring out how to "capture the value" of that more holistic view of what the car is and does, he said. Additionally, whereas large systems integrators would be on the hook for projects in the past, the risk now shifts to the state.

This can create integration problems, as was demonstrated in the launch of HealthCare.gov, which, in Nisbet's opinion, initially failed because the federal government had bid out "different pieces of an enterprise solution … milestone by milestone." When those pieces were put together, it didn't work as a whole. "That's the risk I think that an agile procurement environment [takes on]," he said.

In many cases, state CIOs face a skills gap as integrators, which Nisbet noted that many CIOs have already identified. "They recognize … they may not have the skill set or enough of the skill set to manage that more complex environment." Whether channel partners could possibly fill that skills gap has yet to be determined. "[Channel firms] would have to work with the state in an integrator-type role, and I don't know if that's where they want to go or not. But certainly the need is there," he said.

Greater flexibility welcomes new bidders

State CIOs today grapple with a framework of laws and regulations that are meant to protect the state government yet often create hurdles for IT procurement, said Meredith Ward, senior policy analyst at NASCIO, an organization that represents state CIOs. "Procurement laws apply to every type of a procurement that a state may need, but with technology sometimes things are a little different," she said. "As technology advances and moves faster, laws and regulations and practice need to adapt with that."

As part of the transition to the agile procurement model, many states are introducing more flexible terms and conditions and removing the unlimited liability clauses and performance bonds that may have at one time prohibited channel partners from bidding. States are also undertaking more creative approaches to negotiation processes.

But state CIOs must also change the way they look at vendors. For example, as opposed to laying out a system's blueprints with thousands of requirements, they should regard the vendor community as potential problem-solvers and consider the range of products they can propose, Nisbet said. "States need to become more comfortable with a lack of commonality in their [bid] responses, and, in so doing, give the flexibility back to these vendors to come up with innovative solutions."

Furthermore, Nisbet noted that while state CIOs have improved in the area of pre-procurement market research, they need to maintain better communication with vendors throughout procurement so vendors can communicate "either their concerns with the procurement or feedback on solutions," he said.

Nisbet encouraged channel partners to invest more into their relationships with state procurement leadership, because as procurement reform initiatives take hold, these relationships could yield unprecedented opportunities. "There will be more opportunities, I think in the next year, for companies that have not historically bid on state technology procurement to bid -- more than ever before," he said.

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This was last published in August 2016

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