E-Procurement Lives

umors of the death of electronic procurement, the plan to move government purchasing out of the store and onto the World Wide Web, are greatly exaggerated. With the collapse of hundreds of dot-coms in the past two years, many believed that the awesome power of the Internet to revolutionize buying and selling had died, and with it the promise that electronic procurement would transform government purchasing.

But e-procurement still has some life in it. E-procurement today involves more than just setting up purchasing Web sites where agencies can shop, although the General Services Administration and the Defense Department are bucking a commercial trend and adding customers and enhancements to their buying sites all the time. GSA's Advantage! site now lets contracting officers describe a service or product and ask for quotes from vendors. Defense redesigned its EMALL this year, making the login process simpler and adding a feature that lets customers place orders directly with manufacturers even if their products haven't been built yet. GSA Advantage! has 155,000 users and EMALL has 8,500.

Agencies also are using technology to make internal ordering easier and to make contract writing less of a hassle. Some agencies are conducting online reverse auctions and getting rock bottom prices on the goods they purchase. E-procurement also can shed light on what agencies are buying and for how much money, helping executives better track spending and satisfying congressional overseers.

A MARKET SCORNED

In 1999, e-procurement vendors were promising federal procurement officials that the arduous, paper-bound procurement process easily could be moved onto the Web, or at least onto an internal computer network, thereby saving time and money. The vendors wanted to run purchasing Web sites for agencies or to sell them software to automate ordering and purchasing. But most companies didn't understand that the government doesn't do business as quickly or as painlessly as commercial companies do, and that maybe their services or software wouldn't be the best match for the government's needs. Not many companies made money doing online business with the government. Some pulled out of the government market altogether; some died trying to succeed in it. Others pretended they'd never been a part of the whole mess and dropped the dot-com from their company names entirely.

The e-procurement market just wasn't the cash cow companies hoped for, says Paul Brubaker, the Defense Department's former deputy chief information officer and now the chief executive officer of Laurel, Md.-based Aquilent, one of the few e-procurement companies still making a go at government business. Today, the e-procurement market has been whittled down to a few players that run Web sites or provide online services such as auctions. Corporate executives no longer see any potential in the market. They're not stupid, Brubaker says. If they don't think they'll make any money, they won't chase the business. Brubaker knows. He formed Aquilent in March by breaking away from Commerce One e-Government Solutions, one of the big tech firms that walked away from the government market. Brubaker is busy trying to prove they made a mistake.

FORGET WHAT YOU KNOW

Many of the companies that died in the government market told agencies that they had an out-of-the-box, ready-to-go software product that would get the agency up and electronic in three months. The truth is that there's no commercially available procurement software that agencies can pull off the shelf and use without significant modification. Don't even bother looking for the elusive, ready-to-go "COTS" (commercial off-the-shelf) product, because it won't work if it still exists.

Don't believe it? Ask Army Col. Jacob Haynes, the program manager for the Defense Department's much criticized foray into online procurement, known as the Standard Procurement System. Defense halted funding for the $326 million project in February after a scathing September 2001 report by the General Accounting Office called the department's management of the system "a lesson in how not to justify, make and monitor the implementation of [technology] investment decisions." GAO said Defense hadn't met key program commitments and didn't know if it was meeting others on the project, which then was running three years behind schedule.

The government can't use a purely commercial product in a purely governmental environment, Haynes says. Agencies' particular legal, procedural and even cultural requirements are different from those of private companies, Haynes argues, and it's foolish to buy software and then spend millions more dollars tweaking it to make it work for a government user. Haynes says that as much as 60 percent of the computerized Defense procurement system now in place had to be modified in-house. Ultimately, Defense hopes the system will replace more than 75 outdated procurement methods, automate contract writing and give acquisition workers more access to electronically stored contracting data. They also expect the new system to connect with financial management systems across the department. About 23,000 people use the system today, Haynes says, but the target is 43,000 users. He said officials don't know when they'll meet that goal, but that all Defense agencies are working together to determine what it will take to get the system on track.

The era of shoving commercial products into government service "truly was a mess," says Mark Mittelman, a vice president with Anteon, a Fairfax, Va.-based technology services company. Anteon is under contract with the Postal Service to provide a variety of procurement and supply management services, and last year tried to install an off-the-shelf procurement system at the agency. After six months of struggle, Anteon decided to write an application specifically for the Postal Service, Mittelman says.

Postal users seem thrilled to have the customized system, known as eBuy. Buyers can shop online for commonly purchased items, such as office supplies, computers, even tires for Postal Service trucks, through a series of catalogues that have been loaded into the system. eBuy not only tracks the shipping status of an order, but can locate it in the agency's approval process, says Jim Leonard, a technology program manager and eBuy believer at the agency's headquarters in Washington. Thanks to the system's design, Leonard can easily find out who is sitting on his order for, say, corrugated boxes. "If they haven't approved it, I've got their phone number," he says.

NOT JUST CLICKS

Agencies have realized that e-procurement isn't just a matter of setting up purchasing Web sites or putting the requisitioning process online. One of the most controversial procurement innovations to enter government from the dot-com swarm is reverse auctioning, a variation on traditional auctions that allows vendors to bid against one another online for agencies' business. A few companies have carved out a federal market niche by running these auctions-in which prices fall, rather than rise-or by making software to let agencies conduct them on their own. Vendors complain that when agencies decide to hold reverse auctions, companies are forced to bid so fiercely that the winners often end up with unprofitable contracts. Many vendors have been outraged that the government would use the auctions as a way to pit them against one another so the government can get drastically low prices. Proponents of reverse auctioning say competition is a good thing, and the vendors are free not to participate.

James Strader, the CEO of reverse auctioneer Orbis Online of San Antonio, which won a GSA schedule contract in August to sell its auction services to any government agency, tells a story that shows why so many vendors are afraid of reverse auctions. The Air Force had been deadlocked in price negotiations for computer equipment with two major computer manufacturers, Strader says. The companies had dropped their prices significantly, but the Air Force still wanted to finagle them down another 3 percent to 4 percent. Air Force officials called in Orbis. Strader boasts that when the vendors heard the Air Force was going to hold a reverse auction, they immediately tried to lower their prices, just to avoid the ordeal. They knew that if they didn't, they'd be locked into a death match, forced to beat each other's price because, in the end, neither of them could afford to lose the contract. The Air Force used the auction to drive the prices down to half what the companies had first offered, Strader says. The vendors bid against one another 104 times in the course of the four-hour online auction, he says.

In addition to the Air Force, the Army and the Postal Service have had success with reverse auctions. Strader says that after winning its GSA contract, Orbis Online already has received inquiries from the Veterans Administration and the Housing and Urban Development Department. FreeMarkets of Pittsburgh and ProcureNet of Great River, N.Y., also conduct reverse auctions for government organizations, primarily the military services.

Aquilent's Brubaker sees another important advantage of e-procurement: the ability to track agency spending and purchases. In many cases, agency procurement executives have only a general idea of where their money goes, and many purchases slip by unaccounted for. Brubaker says procurement officials live in fear of what he calls the "Congressional bogeyman," the legislator on the waste-and-inefficiency warpath who plops executives before his committee and demands to know why they've spent $100,000 on brass-plated toilet paper dispensers. Procurement software that can track what the agency spends will make a lot of agency officials and legislators happy, says Brubaker.