Commercializing the federal market

Why would anyone want to focus on a market known for unique requirements and a cautious attitude toward innovation?

The answer, experts say, is simple. The explosion in federal technology work has forced agencies to improve access to the market, said David Litman, senior procurement executive at the Transportation Department and immediate past vice chairman of the federal Procurement Executives Council.

"We've made it easier for companies to get access through governmentwide contracts and the [GSA] schedules," Litman said.

Agencies, now with several years of contracting experience, are more sophisticated about which companies can handle what types of jobs. For instance, the Commerce Department's Commerce Information Technology Solutions contract attracts a different type of company than the National Institutes of Health's Chief Information Officer Solutions and Partners contract.

Those contracts — available through the GSA schedule — offer direct entry to a nearly $50 billion-a-year market, said John Allen, co-president of Quarterdeck Investment Partners Inc.

And these days, government contracts can also offer a profit margin. In the past, companies were not intrigued by cost-plus, fixed-fee contracts. But now a company can get paid for time and materials on a fixed-price basis, Allen said.

In the future, Litman said the Federal Activities Inventory Reform (FAIR) Act — which mandates that agencies must inventory and outsource functions that are not inherently governmental — could increase activity for private IT contractors.

But it is difficult for companies to enter the government market without prior government experience, he said.

"When e-procurement flared up last year, and all of a sudden we had tons of vendors offering e-procurement services, I took a step back approach and said, "Let's let the market work itself out a little,'" Litman said. "The thing we saw in e-procurement is when some of the purely commercial firms came in, they didn't totally understand the business rules in government."

Much like the elimination round going on in the commercial IT market, however, the government playing field also will narrow to include only contracts that maximize competition, Litman said.

"That kind of shakeout may happen in government as well, because there are an awful lot of vehicles out there, and I don't know if they can all be sustained."