GSA opens SmartBuy, Act II

In signing its second governmentwide enterprise software licensing deal earlier this month, General Services Administration officials showed that they recognize a one-size-fits-all approach will not work with the SmartBuy program.

SmartBuy is designed to allow the government to harness its volume buying power to negotiate lower prices for some types of software. The recent deal with Manugistics Group Inc., which develops supply chain management software, bears little resemblance to the first deal with ESRI, a geographic information systems vendor.

The ESRI agreement, announced in February, was based on pooling the anticipated demands of three agencies that already use the software. The Manugistics deal bases discounts on several factors, including whether agencies buy the company's software products individually or in bundles.

An additional discount will be based on the total amount of money the government spends with Manugistics, with higher discounts kicking in as thresholds are reached.

"The more software the government buys from Manugistics, the larger our discount becomes," said Neal Fox, assistant commissioner of the Office of Commercial Acquisition at GSA's Federal Supply Service. "This is a different type of agreement than we used the first time around."

GSA's willingness to approach each deal individually is wise, industry observers say.

"Each deal in SmartBuy, or any other enterprise agreement, has to stand on its own," said consultant Robert Guerra, a partner with Guerra, Kiviat, Flyzik and Associates Inc. "Enterprise agreements, to have any real value, have to be about more than just low price. The details and structure of the [licensing agreement] have to be adapted to the specific situation."

Because the agreement considers the amount of sales starting with fiscal 2004, which began last November, the government is already in the second tier and entitled to a 3 percent discount, said Jeff Holmes, president of government, aerospace and defense at Manugistics. The maximum discount will be 47 percent once agencies spend enough to enter the sixth tier, he said.

Manugistics expects the SmartBuy agreement to be a good base for expanding its presence in the federal market and for doing more government business directly rather than through partners, he added.

"It supports our desire to be the easiest vendor to do business with for the federal government," Holmes said. "Part of that is being sure we've got the best contracting vehicles in place to facilitate business between us and the government."

"This is a very good deal for a company that wants to gain very broad penetration across the government," said Scott Orbach, president of consulting firm EZGSA. "Manugistics is set up well for that because they're doing a lot of supply chain management, a lot of database work. A lot of that stuff doesn't talk to each other."

The ESRI agreement used the company's GSA contract as it was, with discounts applied to existing GSA schedule prices, Fox said. The Manugistics deal involves changing the schedule contract itself to include the volume discounts.

"You have to make the agreements match the company business model and also [match] the way our customers want to buy the software," Fox said.

Because of the tier system, agencies that buy the software later will get bigger discounts than earlier buyers, he said. However, he emphasized that "everyone gets discounts, from day one. The first customers come in right away and already have a significant discount."

Officials at GSA and the Office of Management and Budget began developing SmartBuy last year, but the program proved to be more complicated than expected. Analysts now say that pursuing each licensing agreement as an individual deal is the best route to take, even though it may be time-consuming.

"The main purpose of the program is to get the optimum contractual arrangements for the total government enterprise," said Ray Bjorklund, senior vice president of consulting at Federal Sources Inc. "But the sellers need terms, conditions and prices that work for them, too."

"Categories of software are often

purchased and implemented using best practices that correspond to the type of software," he said. "Similarly, different companies can have different sales models and different business models. Consequently, we are most likely seeing the free market at work."