Buying Innovation

Agencies look to startup firms for new technology, but the rules are restrictive.

In May 2009, federal Chief Information Officer Vivek Kundra told an auditorium full of venture capitalists that the White House would make it a goal to buy innovative technology from atypical contractors like startups and Silicon Valley Web outfits. Two years later, that kind of outreach is on the rise, but hasn't translated into easier contract wins for the newbies, industry members and observers say.

In the nearly two years since Kundra told that Mid-Atlantic Venture Association conference that the Obama administration was reviewing the procurement process to help technology startups, the General Services Administration has established terms of service with dozens of entrepreneurial developers that have let agencies incorporate new media, such as the location-based social network Foursquare, into their online presences. Also, White House officials issued guidelines in February directing contracting officers to speak with firms on the cutting-edge of the marketplace before writing requests for proposals.

More recently, the administration introduced a "business breakthrough" series of information workshops aimed at aspiring contractors too large to qualify for small business incentives but not big enough to compete with corporations. The program is "a vital next step in our efforts to maintain an open dialogue with the business community and provide innovative companies with the tools to grow and create new jobs," says Jiyoung Park, associate administrator in GSA's Office of Small Business Utilization. GSA will try out the sessions in May at two yet-to-be-determined cities and expand the program nationally later this year.

Still, even some of the successful startups say acquisition procedures remain complex and costly for them, and Washington insiders have yet to see the administration offer many exemptions to the Federal Acquisition Regulation-the set of rules for procuring services-that would simplify the process.

In his State of the Union address in January, President Obama laid out a U.S. competitiveness strategy that some in the technology industry hope will finally level the playing field for upstarts that want to vie for tax dollars.

Software company IdeaScale, which sells a tool for hosting online discussions, became one of the first nontraditional vendors to enter the federal space after a White House adviser connected the company with federal officials in 2009. That spring, the administration used the application to rank Americans' suggestions for making government more transparent.

"The help came in the form of a massive amount of feedback," says IdeaScale President Rob Hoehn. The company worked with GSA staff to develop software that would meet federal requirements that ensure agency IT is accessible to people with disabilities. "We came up with a base license and a base set of features [for $3,000] that generally fits in most agencies' discretionary budget," Hoehn adds.

The terms of service agreements that GSA negotiates with commercial app providers have eliminated some duplicative agency reviews, he says, but the federal procurement process could use some additional streamlining.

Every time Hoehn talks with a new agency, he says, he is confronted with "ridiculous requirements." He cites the example of the Interior Department, which stipulated that the public must be able to log on to IdeaScale's tool without providing an e-mail address. "There isn't really a way to prove a person is real without an e-mail address," Hoehn says. "I couldn't understand it. We just couldn't work with the agency. There was no way around it."

Interior officials confirm they chose not to move forward with IdeaScale because they wanted to allow anonymous dialogue, and they also were concerned the tool would be too time-intensive.

TechAmerica, a trade association that represents technology companies of all sizes, sees a disconnect between the current regulatory regime and the call for more innovative practices across the federal government. "We are seeing more regulations added for federal contractors every year that are making it more expensive to sell in this marketplace," says Olga Grkavac, Tech-America's public sector executive vice president. "There has probably been more outreach to tech than ever before, but again, I have not seen much easing of acquisition rules if any. Actually just the opposite."

For the most part, to enter the federal market, companies must sell through integrators or resellers that are listed on the GSA schedules. "The rules are still the rules," Grkavac says.

IdeaScale's Hoehn suggests "a GSA schedule-lite"; his firm got on a timetable only after teaming with a reseller. Administration officials say they are working on this part of the problem.

A recent 25-point strategy for transforming government computing calls for, among other things, reducing barriers to entry for small, innovative technology companies. "Without existing knowledge, or access to specialized lawyers and lobbyists, small firms default to more traditional channels," the plan states.

"And given their limited size, small businesses often find it difficult to bid on the large chunks of government work that require a substantial workforce across many functional capabilities."

During the next 14 months, the Small Business Administration, the Office of Federal Procurement Policy and GSA will take concrete steps to develop clearer and more comprehensive policies for smaller outfits, White House officials say.

In addition, the February contracting guidelines, sometimes referred to as the "myth-busting" memo, aim to dispel misperceptions surrounding acceptable conversations between procurement officers and vendors. The purpose of the guidance is "to improve communication between government and industry, especially during the pre-award phase of the acquisition process, which can help new entrants to the federal technology market better understand how to do business with the government and can help the government understand how these companies can support mission needs, delivering the best results at the best price for the American public," Office of Management and Budget spokeswoman Moira Mack says.

Government watchdog groups say they hope to see more competition from startups, but officials shouldn't cut too many regulatory corners to attract them. "I think that's smart to kind of lure nontraditional contractors onto the schedule," says Scott H. Amey, general counsel for the Project on Government Oversight, but "there are a few hoops that you should have to jump through when you're a federal contractor because you are eligible to receive taxpayer dollars. Protections are needed to ensure that taxpayer dollars aren't wasted."

Some procurement lawyers say they haven't seen regulatory rollbacks yet. "It's not clear that FAR has really changed to accomplish the initiatives that Kundra outlined," says Daniel P. Graham, a partner at Washington area law firm Wiley Rein LLP. "It does seem like a lot of what may be happening is still in the communications stage-and outreach. And that's consistent with the memo that came out on myth-busting."