Making the government the market of first resort

In the immediate aftermath of the HealthCare.gov debacle, criticism focused on the government's inability to efficiently procure technology. Even President Barack Obama stated that the government probably needed to "blow up how we procure for IT" and that there was "probably no bigger gap between private sector and public sector than IT."

Around the same time, the blogosphere erupted with the narrative that a small and exclusive set of IT companies win government contracts because only they have the ability to navigate complex procurement rules. Furthermore, Standish Group research found that from 2003 to 2012, just 6.4 percent of large government IT projects were successful.

How did we get to this woeful state of affairs?

Some brief history is in order. In response to a series of acquisition scandals in the 1980s, Congress reformed laws to make it easier for the government to buy consumer products, including IT. In 1996, the Defense Department spent less than 1 percent of its budget on commercial items. By 2011, that number was about 20 percent -- equating to $75 billion. Not all of that was IT, of course, but the trend line is clear.

However, unlike any other customer, the government requires adherence to a rigid set of regulations that prescribe internal business operations for commercial companies -- in an expensive and intrusive way. Worse still, a firm must change its business processes and adhere to those rules simply to seek $1 of government business.

It's a simple economic choice for young innovators: When commercial markets are growing, why bother to endure all the "one-off" requirements to sell to the government? As a result, only IT companies that are already mature or have reached slower growth rates are willing to direct meaningful marketing efforts to the government. Although some of those firms do great work, a cohort of radically innovative disrupters finds the federal market repellent. For many firms, the government is the IT market of last resort.

The extraordinary cost of compliance is exemplified by the General Services Administration's IT Schedule 70. That schedule is probably the easiest way to get a foothold in the government, but it is not for the faint of heart. Its requirements are spelled out in a dense thicket of 129 pages where hardly a single clause would be familiar to even the savviest commercial IT company. Many clauses are uniquely onerous, and none are negotiable.

Furthermore, Schedule 70 business comes with considerable risks. In the past five years, sophisticated vendors Oracle, NetApp, Cisco Systems and EMC have collectively paid more than $400 million in fines for violating terms of the GSA schedule.

It doesn't have to be this way. Rather than ask IT innovators to wear the full cloak of compliance before a single dollar of revenue, the government should allow new market entrants to graduate into compliance. This could easily be handled through a GSA contract vehicle created exclusively for this purpose. If that vehicle removed the most repellent clauses for three years or a sum of $20 million in revenue, it could invite entry for innovators regardless of size or sophistication.

The government has compelling reasons for many of its regulations, which often involve promoting social policies or protecting tax dollars. Nonetheless, by temporarily lowering the barriers for new companies and taking a graduated approach to the most expensive compliance standards, the government could invite innovation with little risk. And young innovative companies could instead look at government as the market of first resort.