2.2 Critical factors in IT procurement

The Commonwealth can maximize the value it receives from technology and reduce the risk of supplier and technology failures by using smart sourcing and contract strategies. Listed below are examples of IT sourcing and contract strategies to mitigate some potential IT procurement difficulties:

Challenge

Impact/risk

IT sourcing principles to employ

IT contract approaches to mitigate

Complexity of business functions, technology and legal issues make procurement long and difficult

major omissions from a business, technical or legal standpoint are anticipated and prevented

use a structured IT acquisition process that provides a framework to ensure all areas are part of the screening and selection process

draft a clear, easy-to-use contract that documents the business relationship, and includes only mandatory and specialized IT terms and conditions and the essence of the deal

Industry consolidation/ monopoly suppliers

key products lie with powerful suppliers

use solution-based solicitations that focus on business problems and solutions, not technical specifications or requirements

adopt meaningful service level agreements (SLAs) and business performance commitments and measurements to monitor solution continues to meet business need

assign incentives/remedies in the contract to incentivize Supplier performance

Products and solutions are intangibles

difficult to specify and evaluate products

collaborate in an evaluation process that incorporates all areas needed for successful IT solution: business, technical, legal and financial

include subject matter experts (SMEs) on evaluation team who will only evaluate their area(s) of expertise

provide contract template with solicitation, not prepared after selection

incorporate offeror response to contract template as part of the evaluation

use strong warranty language with significant business remedies

give significant attention to intellectual property rights and alternatives to ensure the right to use, access, transfer to other Commonwealth entities

Rapid and planned obsolescence

versions out of date

new entrants into market

conduct market research to evaluate market risk

evaluation based on value-to-cost ratio

include total life cycle costs in evaluation

tie contractual commitments to providing solution, not product

provide support of version and upgrades for appropriate period of time

Significant barriers to exit

customer is locked in to products or services

ensure that evaluation and contract negotiation are part of commitment to strong balanced decision-making process

anticipate transitions/exit strategies

provide system data, back-up; ownership of work product or perpetual license to work product, including third party products needed to run systems/solutions

Complexity of IT products and services

difficult selecting  the best from value solution due to complexity of needed IT good or service

collaborate in a team-based process to ensure all necessary requirements are appropriately evaluated

use data-driven evaluation processes  to coalesce many different perspectives

base contract on solutions, not buying of specific product or version

include protections against product splitters or bundling

IT must support business function

evaluation criteria focused on business value and needs; not specification- driven process

use solution-based solicitations that focus on solving business problems and incentivizing Suppliers to offer solutions, not just meet technical specifications

include meaningful SLAs and performance commitments and measures to monitor solution continues to meet business need

assign incentives/remedies in the contract

Solutions being procured are highly interdependent

no accountability for full solution

the weakest component will drive your risk profile

take a full supply chain view of solutions

evaluate suppliers and components on strength of solution, both independently and collectively

give prime contractor accountability for performance, but also allow Commonwealth to reach through to subcontractors to maintain services

Contracts must protect Commonwealth data and systems

compromise of sensitive Commonwealth data

unauthorized disablement of Commonwealth data and citizen services

understand the data sensitivity of the procurement/project

collaborate with your business owner, project manager, information security officer and other SMEs

include protective contract terms to cover data privacy and security.

require supplier to perform specific actions, to have special insurance coverages and to comply with Commonwealth data, architecture and security standards 

VITA SCM has cloud terms available if the procurement is for  Software as a Service  

Agency may inquire at: scminfo@vita.virginia.gov

A structured IT sourcing process provides a comprehensive framework to ensure agencies that:

  • omissions from a business, technical or legal standpoint are anticipated and prevented
  • the costs and resources for the IT sourcing process are appropriate and are efficiently deployed
  • the business case in support of the IT procurement is reaffirmed prior to selecting a solution
  • across the board executive buy-in to the new system or technology is measurable as a result of user group involvement throughout the IT sourcing process

Regardless of the nature of the anticipated IT procurement, its size, cost and complexity, the following core principles of IT sourcing apply:

  • Use a structured solicitation process which incorporates multiple complex domains, e.g., legal, technical, business functionality, financial.
  • Sourcing should be a data-driven business process, which incorporates and balances concerns across multiple domains.
  • Contract formation and negotiation are part of the decision process. It is critical to include an appropriate contract in the solicitation. If the supplier is not committed to providing the Commonwealth with value through the negotiation process, the Supplier should be evaluated accordingly.
  • Business needs must be supported in the solicitation requirements and any statement of work. Focus less on specification-driven solicitations for major systems/solutions and write solicitations that are structured for IT suppliers to offer innovative and cost effective solutions.
  • The sourcing evaluation process should include a comprehensive cost analysis that includes the total cost of ownership and all cost components including maintenance and not just the price of software or hardware.
  • Long-term issues such as obsolesce, technology replacement and compatibility must be part of the evaluation, negotiation and decision-making process.
  • Negotiations must be conducted prior to the selection of a particular IT solution or supplier.
  • Intangible rights, software ownership and other critical terms and conditions must be considered in evaluation and negotiation.
  • Risk analysis and trade-offs must consider the security of Commonwealth systems/data and continuity of operations for the Commonwealth and the solution and/or supplier's potential impact on the Commonwealth's ability to protect Commonwealth assets and service its citizens without interruption.