Feds Seek to Cut Software Costs and Expand Licenses

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Software vendors who sell their wares to the U.S. government soon will face a significantly different marketing environment in terms of how federal agencies acquire the programs and technologies that keep IT systems going. Federal agencies spent nearly US$9 billion in 2015 on software, according to a recent congressional report.

The Office of Management and Budget has directed federal agencies to adopt practices that will simplify and streamline software acquisition.

Current software procurement practices are grossly inefficient, according to OMB, which reported that the federal government annually acquires software capabilities "through more than 42,000 transactions, which results in a fragmented and inefficient marketplace."

Federal agencies "buy and manage software licenses in a decentralized manner, struggle to create accurate inventories, often purchase unneeded capabilities and generally do not facilitate better purchasing by sharing pricing or terms and conditions across the government," OMB said in its directive issued earlier this month, citing the results of a report from the General Accountability Office.

Software vendors could experience an almost overnight change in how they deal with federal customers as part of a set of acquisition reforms outlined by OMB. The directive affects software referred to as "commercial" or "commercial off the shelf" (COTS) offerings, versus more customized products.

Individual federal agencies are not allowed to accept contracts from software vendors that "prohibit the sharing of all prices, terms and conditions with other government entities," the OMB directive states. The prohibition became effective upon the directive's issuance on June 2.

Over the following 18 months, agencies must implement various reforms in software acquisition practices, including the following:

In addition, OMB directed agencies to adopt category management procedures for software procurement. Essentially, category management involves segmenting an acquisition into discrete specialties and developing procurement expertise for each segment.

That method allows certain categories of IT to be acquired on a centralized, government-wide basis. It already been applied to the acquisition of laptops and mobile devices, and now will be applied to commercial software and COTS offerings.

Software licensing agreements consequently will be made available throughout the federal government rather than be limited to a specific agency. OMB set up an Enterprise Software Category Team (ESCT) to establish at least two government-wide, or enterprise software acquisition agreements in 2016 and two more in 2017. The General Services Administration will implement the agreements.

"GSA plans to create a central resource for a number of procurement categories, so that agencies don't have to develop their own capabilities for each category -- or have to operate under the handicap of making acquisitions with less than optimum knowledge," said federal Chief Information Officer Tony Scott.

As with many federal IT acquisition reforms, vendors should see some advantages, but the OMB policy also could have some drawbacks.

"The appointment of agency software managers will have an overall positive impact for both the agencies and vendors, as this is likely to streamline software renewals and expedite new opportunities," said Mike Hettinger, managing principal of Hettinger Strategy Group.

"In addition, for those vendors that sell broadly across the federal market, the new policy will encourage enterprise licensing, which has proven to be an effective way to serve agency needs," he told the E-Commerce Times.

Still, there is likely to be "ongoing concern over the government's intent to share prices, and terms and conditions across the government," Hettinger noted.

"It is no secret that sometimes different organizations pay different prices for the same or similar software products," he said, "but this comes as a result of the terms of the deal and is impacted by volume, upfront investment, and minimum commitments that agencies make when purchasing software from a vendor. The sharing of prices paid without proper context could lead to confusion."

The Coalition for Government Procurement, which includes many IT-related companies, provided extensive comments to OMB during the drafting process for the directive.

"The Coalition supports OMB's efforts to improve agency acquisition, management and shared use of software," said Roger Waldron, president of the coalition.

"In particular, focusing on improving agency management structures for software acquisition and [implementation] can have a significant impact on increasing value outcomes to meet agency missions," he told the E-Commerce Times.

However, the OMB policy comes up a bit short, and should be a matter for continuing dialog with vendors, Waldron noted, adding that input from the provider community will be essential for the selection of software offerings and for setting up government-wide terms and conditions.

"That process should be open and transparent, allowing for industry and public feedback," he said, suggesting that the use of government rulemaking procedures would be a useful method for engaging the industry.

"There is concern across the procurement community that the drive to create government-wide licenses will foster a one-size-fits-all approach that will not optimize software support to meet specific agency mission needs," Waldron pointed out. "Flexibility in meeting agency needs should be maintained while eliminating unnecessary contract-software license duplication."

The OMB directive "is generally a positive development for government software compliance management, and it may lead to more enterprise licensing," said David LeDuc, senior director for public policy at the Software & Information Industry Association.

"The apparent goal among agencies to have greater transparency on pricing is understandable, but it's not always that easy to do an apples-to-apples comparison with varying terms and conditions. The end result could be false expectations and confusion on pricing," he told the E-Commerce Times.

While the OMB initiative may seem like just another bureaucratic contracting change, the issue is getting attention outside the esoteric confines of procurement officials.

In fact, the problems raised by OMB on software procurement have been echoed on Capitol Hill. By a vote of 366-0, House members last week passed "The Making Electronic Government Accountable by Yielding Tangible Efficiencies Act of 2016." The legislation, also known as the "MEGABYTE Act," essentially codifies into law many of the provisions of the OMB software directive.

"Improving the management of agency contracts and licensing for commercial software is critical to ensuring the procurement process works effectively for both the federal government and industry that provides the software," said bill cosponsor Rep. Matt Cartwright, D-Penn., during a discussion of the legislation on the House floor. A companion bill is pending in the Senate.

John K. Higgins is a career business writer, with broad experience for a major publisher in a wide range of topics including energy, finance, environment and government policy. In his current freelance role, he reports mainly on government information technology issues for ECT News Network.

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