Bootstrapping the Modernization of Federal Legacy Systems through Agile Share-in-Savings Contracting

— by Chris Cairns and Robert L. Read, PhD

This is the first post in a four-part series.

“Simply put, the missions of government cannot be achieved if only traditional contract methods are used. There is not enough in the budget to make that happen.” — Larry Allen

I’ll start by expressing that it’s great to be collaborating with Dr. Rob Read again. As fellow co-founders of 18F, we started and built the team’s acquisition arm, including Agile Acquisition Consulting, Agile Delivery Services Marketplace, RFP Ghostwriting, Micro-purchase Marketplace, and Digital Acquisition Accelerator.

Over the past several weeks we got together, put on our acquisition propellor beanies, and imagined a world in which the private sector eagerly and confidently invested its own capital to modernize the federal government’s legacy systems, thus presenting a virtuous cycle of possibilities:

1. Agencies could award contracts with “zero” money down (exceptions apply).
2. Funds heretofore locked-up in cost-inefficient systems could be set free.
3. Those extricated funds could be apportioned as payments back to firms for higher-than-normal profits (performance motivation).
4. Remaining funds could be retained by agencies for reinvestment in innovation and modernization projects.
5. Large swaths of antiquated systems could finally meet the 21st century, making government more efficient, effective, secure, flexible, and resilient.

The kicker: this is mostly possible under existing regulations (1, 2, 3, and 5 above) and completely so with a resurrection of old legislation (4). It’s called share-in-savings (SiS) contracting. Unfortunately, this ultimate form of performance-based contracting has yet to take root in the federal government, although attempts were made around the early 2000s. We believe that we’re seeing a confluence of factors that warrants a revisit:

• Aging-systems crisis. Federal systems are old. They’re expensive to run. And they present legitimate mission continuity and security risks. Collectively, agencies spend about 75% of their information technology (IT) budgets on operations and maintenance. That means there’s only about 25% available to undertake new development and modernization.
• Budget limitations. These issues aren’t going to solve themselves. It’s going to take money. To the credit of Federal Chief Information Officer (CIO) Tony Scott, he recognized the IT debt crisis that agencies are in and proposed a solution in the form of legislation for a $3B IT Modernization Fund, which is still lingering in Congress.
• Wiser technology community. The technology community, as a whole, is much smarter about the practices necessary to modernize legacy systems successfully (such as the strangler pattern) than they were 15 years ago.
• In-house technical talent. There’s been a tremendous influx of technical talent into government recently (18F, USDS, PIF, etc.). These trusted technical brains are capable of architecting modernization pathways that yield the greatest bang for the buck.
• Eager vendor community. Industry loves the share-in-savings model: it gives them access to an additional revenue stream that otherwise wouldn’t be there under budget allocations. Deloitte, for example, has recently encouraged wider-spread use.
• Emergence of open source and cloud. Open-source solutions have emerged as near-commodities for many facets of government software operations (for example, PostgreSQL is a less expensive alternative to Oracle Database). Cloud services are orders of magnitude cheaper than the self-hosted government solutions of today. This dynamic duo greatly increases potential costs savings and return on investment and thereby the compensation paid out to vendors under the SiS model.
• The growth of agile vendor pool models. Mark Schwartz, CIO of U.S. Citizenship and Immigration Services, Luke McCormack, CIO of the Department of Homeland Security, and 18F have developed functional approaches and best practices to applying vendor pools to large agile software projects. These best practices include rewarding firms for cooperation, an emphasis on testing, and the fundamental concept of “buying a functional team” rather than buying a piece of finished software, which better conforms to modern software methodologies than does requirements-based contracting.
• Ongoing pursuit of results-based contracting. There’s been countless legislative and policy initiatives to improve contract performance. Yet government still isn’t there. What better way to leap forward than tying a contractor’s success to the government’s success?

Taken together, these are compelling drivers.

So how can the federal government agencies move forward with SiS contracting successfully a second time around, specifically to address their legacy-systems crisis? That’s the big question that we’re going to try to answer in this four-part series.

In our next post, we’ll give a short, riveting history lesson on the government’s experience with SiS IT contracting. Following that one, we’ll talk about the challenges encountered and our ideas for addressing them. And for the grand finale, we’ll present our proposed solution model, which we call Agile Share-in-Savings, or ASiS if you’re short on time. (Pronounced “a-sys”, not “ass-es”.)

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Special thanks goes to Drs. Steve Kelman and Kenneth Buck for allowing us to tap into their expertise on share-in-savings contracting.