Embracing Electronic Commerce

oing business electronically got off on the wrong foot in the federal government a few years back. First, electronic commerce was defined as computerized purchasing, a definition that proved much too narrow. A case in point: Federal grants, at more than $300 billion a year, dwarf federal purchases of goods and services, which add up to about $200 billion.

Then Congress required agencies to use the Federal Acquisition Computer Network for most of their purchasing needs, beginning this year. FACNET, a system developed by the Defense Department, found few takers outside DoD. It proved to be difficult, costly and not totally reliable. Even more important, it was not suitable for use by small businesses, and it was national in scope, even though many federal procurements are by nature confined to a local region.

Both of these missteps were corrected in the fiscal 1998 Defense authorization bill. The law defines electronic commerce broadly, embracing technology that facilitates computerized business transactions. And it removes the FACNET requirement, instead requiring agencies to make their systems standard and interoperable to the extent practical.

At Work in Agencies

Even before the law changed, however, agencies were steaming ahead with initiatives to use the Internet instead of FACNET:

• Agencies can order many commodity products and services from the Federal Supply Service schedules on the World Wide Web.
• NASA has built a Web interface for its procurement listings, giving vendors access to bid opportunities from all 11 of the space agency's centers.
• The Interior Department and DoD are installing off-the-shelf procurement software that lets PC users create paperless requisitions.
• The Social Security Administration is receiving its local telephone bills electronically and paying them the same way.
• Thirty-three grant-dispensing agencies are working together to use the Web with their database systems and standardized data formats.

A Single Face

One of the reasons the White House and Congress once pushed for a single, shared federal system is the desirability of presenting a single face to sellers. It's not fair to ask companies to buy and install several kinds of software to do business with federal agencies. And companies should not have to check dozens of sources to be sure that they haven't missed out on making a big sale to a federal agency.

Before the World Wide Web came along, there was no reason to think there would be a single means of accessing networks and servers worldwide, as the Web has turned out to be, according to GSA's Tony Trenkle, co-chair of the Electronic Commerce Program Office. FACNET made sense in the pre-Web days.

Another argument for FACNET is security. There are at least four security issues associated with electronic commerce for the government:

• Confidentiality of vendors' information. Prices, quantities and personnel qualifications have competitive value. Any system that leaves this data open to scrutiny will not work.
• Integrity of transactions. It's important for both buyers and sellers to have confidence that they know who is sending data and that no one has tampered with that data. No one should be able to change the amount on an invoice en route, for example.
• National security and privacy concerns. Some of the business information exchanged between government agencies and their suppliers should not fall into enemy hands. In other cases, such as bills for medical or psychiatric treatment of individuals, disclosure would violate their privacy.
• Assurance that the information is delivered promptly. Anyone who has sent an electronic mail message that disappeared in cyberspace will appreciate that receipt of a tax return or invoice must be guaranteed.

Industry to the Rescue

Although the security riddle has yet to be solved completely, there has been progress. New information security products emerge almost daily, employing encryption, pattern recognition, biometrics and digital signatures.

For example, Symantec Corp. is offering a preview release of Safe on the Web, software that protects users from malicious software on the World Wide Web, invasion of their PCs from the Internet and unauthorized interception of electronic mail.

Sony Corp. is distributing a device that uses a fingerprint instead of a password for logging onto a PC or network. Internet Security Systems Inc., a young Atlanta company, has announced Version 5.0 of its Internet Scanner, software that identifies network security vulnerabilities and reports them to managers.

Unfortunately, not all new products work as advertised, and security products often meet with user resistance. They tend to be awkward and to slow down computer operations. When the extra cost is added to the equation, the upshot often is that the available security products don't get wide enough use.

Choking on Paper

Lately, however, not even persistent security concerns have been able to halt the rush to do business electronically, in government as well as in the private sector. One of the most noticeable steps forward came in November, when Defense Secretary William S. Cohen issued the "Defense Reform Initiative," a 78-page report charting a new business strategy for the Defense Department. "Paper is not only driving the business culture of DoD," the report says, "it is choking many essential systems."

Cohen renewed the push for paper-free contracting for major weapons systems by 2000 and called for more use of electronic catalogs and online shopping malls. These systems allow buyers to browse through lists of products, with specifications and prices, and order with the click of a mouse. Electronic payment systems are key to eliminating paper. DoD already pays some of its bills electronically, but Cohen is calling for virtually all bills to be paid that way by December 1999, eliminating 25 million checks each year.

By fiscal 2000, the report says, 90 percent of DoD purchases under $2,500 will be made with the government IMPAC purchase card. The report makes a point of endorsing electronic commerce on the Internet. Starting this month, it notes approvingly, the Defense Logistics Agency will upgrade its electronic-mall catalog service for easier use, making more than 4 million items available online to military buyers on the Internet. The ability to order and pay online will allow DoD to reduce by $4 billion the value of retail goods it keeps in inventory. "Preliminary estimates of net savings," the report says, "are tens of millions of dollars annually."

This year also will see the phasing in of electronic funds transfer in lieu of most federal government checks. Already, two-thirds of all Social Security payments and 94 percent of all federal paychecks are disbursed electronically. The 1996 Debt Collection Improvement Act requires that all federal payments, except for tax refunds, be made by direct deposit or other electronic means by the beginning of 1999.

Because it costs the Treasury just 2 cents to make an electronic payment, compared with 43 cents per paper check, the savings will add up to $100 million a year. For individuals without bank accounts, Treasury will establish special accounts accessible with debit cards. The states also are ramping up to disburse benefits such as food stamps electronically, with systems that rely on cards.

Smarter Cards

Credit-card-like devices with magnetic strips or actual microprocessor chips embedded in them are seen by many experts as the key to making electronic commerce work. The familiar personal identification number provides fairly effective security, and next-generation cards can be programmed to carry out several functions.

The General Services Administration plans to acquire multi-function smart cards this year for use by any agencies that want them. GSA already has issued to its headquarters employees smart cards for building access and for in-house transactions such as using photocopiers and checking out library books.

But planners at GSA and the Office of Management and Budget envision a much broader role for these devices. A draft report from a committee of the President's Management Council says card-based systems can verify that an individual is authorized to take certain actions. It envisions using the cards as the prime ingredient of a workable digital signature program.

Signatures are an even bigger stumbling block for electronic commerce than security, although the two issues are intertwined. Nothing happens in federal agencies today without at least one signature. Building a system where signatures are established by cards (and where card readers either are attached to PCs or else resemble bank ATM machines) is a daunting task.

But smart cards are becoming more common each month. In October, the Veterans Affairs and Treasury departments began an ambitious year-long pilot program to demonstrate the cards' use in VA hospitals. As a start, about 15,000 Visa Cash cards are being issued to patients and staff at the VA's Bronx Medical Center.

The cards can be used for identification, purchases and meal tickets. The users will load value from their checking accounts into their cards at cashless ATMs operated by NationsBank and spend their money as they wish within the hospital. When the card's value is used, it can be reloaded. The pilot project will shed more light on the costs and benefits of smart card use and test whether the public will accept it.

Electronic commerce is getting strong backing from the top, as part of the drive to reinvent government and streamline business processes. But implementation is occurring in a finance office here and a procurement office there, in ways that make it difficult to see the big picture.

The lesson FACNET taught is that a one-size-fits-all, mandatory solution won't work. Similarly, a FACNET-style definition of electronic commerce is too constrained. Given the pace of change in technology these days, GSA's Trenkle says, "solutions must not lock us in" to a particular set of technologies or approaches.

His co-chair from DoD, Paul Grant, points out that getting rid of paper is not a good enough reason to automate commercial transactions. The initiatives that are taking hold also make it easier to get information and to complete transactions. When the technology can deliver multiple benefits simultaneously, as many of the recent projects are doing, then it succeeds in the marketplace of ideas.