IT Acquisitions: Consumption Based Contracting.

[formerfed]

This appeared in the latest NCMA Journal of Contract Management.  The summary is: 

Quote

Abstract
PURPOSE: Current procurement efforts suggest the Department of Defense (DoD) is applying outdated approaches to acquiring modern information technol- ogy (IT) capabilities. The development of new and innovative IT occurs every day in the commercial sector, while the DoD languishes with procurement methods that prohibit rapid acquisition. This failure to meet the pace of evolving IT developments with appropriate procurement strategies potentially threatens missions. A gap exists within DoD acquisitions of IT because of an inability to fully leverage cloud-based and consumption-based solutions. This research examined the current DoD contracting supplies and services models, seeking methods to modernize to a consumption-based approach.
DESIGN/METHODOLOGY/APPROACH: Qualitative analysis of data from current acquisitions allowed the evaluation of the impact of procuring capabilities as consumption-based solutions and identified costs and benefits.
FINDINGS: The study found that cloud-based solutions were often mischaracterized as a product or service under the DoD’s existing taxonomy. It is recommended that the government institute commercial accounting practices to posture toward payment methods follow- ing consumption of cloud-based solution offerings to avoid Antideficiency Act violations. The government purchase card is suggested as a viable means of fund- ing consumption-based acquisitions.
ORIGINALITY/VALUE: The authors recommend the adoption of a new contract type known as Con- sumption-Based Variable Price (CBVP). It will offer the ability to acquire items that are neither strictly products nor services, in the same manner that such items are procured commercially. The implementation of consumption-based acquisition procedures would allow the DoD to invoke commercial practices. These include paying based upon actual usage and allowing for more rapid acquisition of upgraded technologies.

The full article is available as a free download from NCMA. https://www.ncmahq.org/Web/Insights/Journal-of-Contract-Management.aspx

While I personally don’t think this is the ideal fix, the authors should be commended for offering a solution to a long standing (over 20 years) issue.  It’s the first solution I’ve seen offered despite many criticisms from both government and industry that offered nothing but complaints.

Page 15 includes astonishing data from the DoD IG on the administrative cost of competitive task orders under multiple award versus single award contracts too.

 

 

 

[Don Mansfield]

1 hour ago, formerfed said:

This appeared in the latest NCMA Journal of Contract Management.  The summary is: 

The full article is available as a free download from NCMA. https://www.ncmahq.org/Web/Insights/Journal-of-Contract-Management.aspx

While I personally don’t think this is the ideal fix, the authors should be commended for offering a solution to a long standing (over 20 years) issue.  It’s the first solution I’ve seen offered despite many criticisms from both government and industry that offered nothing but complaints.

Page 15 includes astonishing data from the DoD IG on the administrative cost of competitive task orders under multiple award versus single award contracts too.

Why can't agencies use consumption-based contracting under existing acquisition rules?

[formerfed]

4 hours ago, Don Mansfield said:

Why can't agencies use consumption-based contracting under existing acquisition rules?

Apparently DoD agencies don’t see that’s possible.  How do you see it can be done?

[Vern Edwards]

Consumption-based was a recommendation of the Acquisition Advisory Panel in 2019, see Recommendation 43.

https://discover.dtic.mil/wp-content/uploads/809-Panel-2019/Volume3/Recommendation_43.pdf

https://nps.edu/documents/105938399/0/Consumption-based+Solutions+for+NPS+Webinar+2021-02-03.pdf/d94094e3-04fd-310b-d20d-f9fa530a795f?t=1613103679877

https://innotechtoday.com/consumption-based-pricing-the-next-value-driver-in-it-services/

[Don Mansfield]

19 hours ago, formerfed said:

Apparently DoD agencies don’t see that’s possible.  How do you see it can be done?

The 809 Panel suggested adding "fixed-price resource units" as a new contract type to FAR subpart 16.2 to enable contracting for consumption-based "solutions". What prohibits the use of that contract type now? I appreciate the Anti-deficiency Act issues, but I'm not understanding why the FAR needs to change.

[formerfed]

19 minutes ago, Don Mansfield said:

The 809 Panel suggested adding "fixed-price resource units" as a new contract type to FAR subpart 16.2 to enable contracting for consumption-based "solutions". What prohibits the use of that contract type now? 

The authors of the article believe the FAR needs changed to allow use

Quote

Implementation would require the FAR Council to modify the content under FAR Part 16 to include the new contract type CBVP. It incorporates characteris- tics of both time-and-materials as well as labor-hour contract terms and conditions that are more favorable to the government than FFP arrangements.

I believe a CO could justify and document use of that type without a FAR revision or at least an individual agency exception.  But how many COs are willing and able to do that.  Certainly they would get pushback from policy oversight and review personnel as well as legal. 

[Don Mansfield]

25 minutes ago, formerfed said:

I believe a CO could justify and document use of that type without a FAR revision or at least an individual agency exception.  But how many COs are willing and able to do that.  Certainly they would get pushback from policy oversight and review personnel as well as legal.

I agree.

[Contracting_in_Wonderland]

In the organizations I've worked in, we tend to call them Fixed Unit Price contracts wherein the agreed upon rate/price is established and we then expend based on usage in the previous month/period. They're funded at an amount commensurate with predicted usage. Some COs will add some terms that are akin to the 85% reporting rule that you'd see in T&M and some other T&M-like safeguards, but some do not. For the most part, it works; even if many from the CO to policy to legal don't really love it since it doesn't fit into a specific contract type. Since I've seen it work, I'd agree a FAR change isn't necessary, but imagine it would help out in agencies wherein the CO cannot get something like this approved. 

 

Edit to add that GSA has added a clause on this: 552.238-199 SPECIAL ORDERING PROCEDURES APPLICABLE WHEN PROCURING CLOUD COMPUTING ON A CONSUMPTION BASIS (MAR 2022)

Edited December 9, 2022 by Contracting_in_Wonderland
Added additional info.

[formerfed]

3 hours ago, Contracting_in_Wonderland said:

Edit to add that GSA has added a clause on this: 552.238-199 SPECIAL ORDERING PROCEDURES APPLICABLE WHEN PROCURING CLOUD COMPUTING ON A CONSUMPTION BASIS (MAR 2022)

GSA has done a decent job dealing with this issue.  FSS contracts are IDIQ types and having vendors propose fixed price unit pricing for cloud services seems to work, especially when applying their price reduction clause to contractor offerings when prices drop. So ordering agencies are free to place orders for work defined in the FSS contract.  But that only covers items under the contract.  Agencies usually need more flexibility so GSA is somewhat limited. 

[Contracting_in_Wonderland]

On 12/9/2022 at 6:09 PM, formerfed said:

Agencies usually need more flexibility so GSA is somewhat limited. 

No disagreement there. The GSA clause just so happened to come up in conversation right after I had posted my response and thought it was worth an add to the discussion. I'm not at GSA and do not use FSS much, but thought it was interesting that at least one agency has tried to address this issue within its authority and doesn't seem to think a change to the FAR is required to implement such practices. 

[REA'n Maker]

On 12/7/2022 at 2:43 PM, Don Mansfield said:

I appreciate the Anti-deficiency Act issues, but I'm not understanding why the FAR needs to change.

My main takeaway from the Journal article was that defining Cloud Computing more akin to a Utility would provide tangible benefits, but other than that, I agree with your sentiment.