May 16, 2018
Public servants are hacking procurement to drive innovation
Governments around the world must do more with less. Rising healthcare and pension program costs are squeezing public budgets. Simultaneously, citizen expectations of government and demand for new kinds of services are increasing. The public sector, known for its organizational silos, risk-averse culture, and crushing bureaucracy, faces an imperative to innovate. Governments must create new services while also improving the quality and efficiency of existing ones.
Governments have access to a powerful, often under-utilized lever for innovation: public procurement. Procurement is more than just a back-office function. Agencies are hacking procurement to access new tools and technologies from new types of partners, like entrepreneurs and members of the creative economy. For governments seeking to innovate, updating procurement processes can be a force-multiplier.
I worked in the San Francisco Mayor’s Office of Civic Innovation, connecting startup vendors with city agencies through Startup in Residence, and now am the founder of a government technology startup. As such, I’ve learned procurement can be one of the largest barriers to innovation. But it can also be one of the most powerful tools for enabling it. Below, I’ve outlined three great examples of the latter. Which will it be for your agency?
By “hacking procurement”, the Defence Unit Innovation Experimental (DIUx) has made it easier for the U.S. military to take advantage of high-tech inventions
In the last decade, private commercial investments in technology have overtaken government spending on R&D. In the past, innovative high-tech companies would have first looked to the Department of Defense (DoD) as a target customer. Today, these companies are generally weary of pursuing business with the federal government because of long, drawn-out, bureaucratic procurement processes and traditionally inflexible contracting terms and conditions.
In response to this trend, U.S. Secretary of Defense Ash Carter created DIUx in 2015 to help the Defense Department find new ways of working with the private sector.
DIUx needed to help the department work with new kinds of vendors to purchase innovation; this meant figuring out how to contract with companies in a way that more closely mimics the speed and flexibility of commercial transactions. DIUx leveraged “other transaction” (OT) authority, an alternative purchasing method authorized by congress in the 1950s that allows select government agencies to work with commercial companies on prototypes without going through the traditional acquisition process, or Federal Acquisition Regulation.
Leveraging OT authority, DIUx created a first-of-its kind acquisition mechanism called the Commercial Solutions Opening (CSO). Through this mechanism, DIUx solicits solutions to problems that the military is facing by posting areas of interest on its website. These solicitations describe a problem to be solved or a technology of interest, rather than detailed specifications and requirements. Vendors with potential solutions submit a solution brief to DIUx via their website. Selected solutions are awarded OT contracts for prototype projects.
DIUx’s CSO helps businesses avoid the “valley of death” — the gap between R&D or pilot and actual production. DIUx can move from prototype to production work by awarding follow-on production contracts to select companies without re-competing the work, provided that the original OT was competitively awarded (all projects awarded via the DIUx CSO are competitive) and that the prototype project was successful.
By going around the Federal Acquisition Requirements to create an acquisition mechanism that moves from a paid prototype to follow-on contracts, DIUx has enabled the Department of Defense to work with new types of high-tech companies, faster. As of February 2018, DIUx had awarded 61 OT agreements totaling $145 million, with an average of just 78 days from initial contract with a potential partner to a signed agreement. DIUx has also awarded several follow-on contracts, which scale prototypes to greater production.
Startup in Residence connects city agencies with startups and provides a new pathway to procurement
Like DIUx, the City of San Francisco identified traditional procurement processes as a barrier to accessing innovative solutions to civic challenges. San Francisco’s Startup in Residence (STIR) program is a cohort-based program that matches city agencies with startups to develop new technology tools during a 4-month residency. The program originated in San Francisco in 2014; it has since scaled to 11 other cities nationwide.
Through its STIR program, the City of San Francisco gave its traditional request for proposals (RFP) process a makeover. Without changing existing rules and regulations, STIR re-presents the competitive bidding process, making it easier for startups to work with the City and expediting the transition from a successful pilot to a competitively procured contract. It re-presents this process in three ways.
First, STIR facilitates problem-based, rather than requirements-based, sourcing. Whereas more traditional procurement approaches tend to prescribe a solution or specific approach, STIR instead invites companies to respond to city needs as broad problem statements.
Second, STIR presents the competitive bidding process in a more user-friendly way. The STIR program application, which is posted on F6S, looks and feels more like an application to an accelerator than a traditional public sector request for proposals document.
Finally, even though the application doesn’t look like an RFP, it is one — behind the scenes, the RFP is there. This is huge for startups looking to do business with local government, because it means that after the program ends, the startup and city can move directly into contract negotiations. Startups Binti and Civic Chatbots have already, through STIR, won competitively procured contracts with the City of San Francisco.
West Hollywood, CA uses bench contracts to make it easier for city staff to access creative talent from freelancers and small, local firms
At the City of West Hollywood, Kate Mayerson and her innovation team colleagues identified procurement as a challenge to connecting the city’s small full-time staff with the tools they need to be creative thinkers and service providers. In particular, departments were asking for more help with innovation, technology, communications, and creative work, from graphic design and videography to website design and marketing.
The city was already using bench contracts, which are awarded to multiple firms for the same type of services, to engage with contractors on work like sidewalk repair. But in 2015, the innovation team put out a request for qualifications (RFQ) for a set of vendors to provide support on innovation and communications projects.
Out of about 60 submissions received, the city ultimately awarded 10 contracts. The individuals and small firms on these contracts can each earn up to $25,000 each year (the limit for purchases without West Hollywood City Council approval), not to exceed a total of $75,000 for the duration of three years of the contract, for services to the city.
Setting up bench contracts has made it much easier for government staff to access creative support services for projects, even for very small projects. Instead of initiating and navigating a new procurement process, which would take at least two to four weeks, city staff can request a response to a scope of work and fee for specific services, select a vendor, and issue a purchase order all in just two to four days.
This article was originally published on Apolitical on May 11, 2018.
Are you working on procuring innovation? Reach out: hello@coprocure.us.
