IRS Doesn’t Have An R&D Shop, So It Built A $7M Procurement Vehicle Instead

The IRS—like all federal agencies—is under several mandates to incorporate new and emerging technologies to improve its day to day operations and its mission of administering the nation’s tax code.

But the IRS doesn’t have a research and development office nor special acquisition authorities such as other transaction authority or a commercial solutions opening program. The IRS doesn’t even have funds allocated for R&D.

Instead, a team in the Office of the Chief Procurement Officer used parts 12 and 13 of the Federal Acquisition Regulation to create Pilot IRS, a phased, incremental funding procurement vehicle that will let the agency test new technologies on faster timelines without added risk. If a solution fails to meet expectations, it won’t proceed to the next phase of funding.

The office kicked-off the project with a broad request for information back in December but is preparing to debut the first solicitation in August. The first cohort—or Solution Challenge—will focus on automating data reporting on contract spending, something a procurement office in the Treasury Department knows all too well.

“The quality of the data is inconsistent because different contracting activities use different approaches, use different systems and, frankly, as we in the IRS have experienced firsthand, the bulk of the obligations come in the fourth quarter and in September,” Harrison Smith, IRS deputy chief procurement officer, told Nextgov in an interview. “Last year, about 44% of our obligations came in the fourth quarter; that’s up from about 36% five years before that. Last year, we obligated about 25% of our contractual transactions in the month of September; that’s up from 13% five years ago.”

For the agency’s contracting officers, that means a logjam of task order requests flowing in. At the same time, contracting officers are being asked to double-check old and ongoing requests and make changes where needed.

“So, we are constantly trying to find ways to be more efficient, to support our customers and to be more transparent about what we do,” Smith said, a shift from “low-value work to high-value work,” per the President’s Management Agenda.

One area prime for that kind of automation is compliance with data reporting requirements, particularly those mandated by the Data Accountability and Transparency Act, or DATA Act. The draft solicitation is looking for automation solutions having to do with any and all aspects of the reporting process, including finding the data, sorting it and correcting errors or obvious deficiencies.

For example, the solicitation suggests vendors offer a solution for adding the four-digit routing number most people leave off the end of a zip code, a low-level task that could easily be automated.

But as part of the Pilot IRS program, the solicitation is intentionally vague.

“There are no specific solutions or approaches that are being requested; rather, any approach which is focused on the three goals of the solicitation will be considered,” the solicitation states. “The three goals are: 1) Improve the IRS data which resides in the Federal Procurement Data System–Next Generation; 2) limit the amount of manual (re)work required by government personnel in improving the IRS data; and, 3) achieve incremental improvement in IRS data in the near term—the aspirational goal is to improve data no later than 30 September 2019.”

Ideally, each proposed solution will help the IRS meet more than one of these goals.

“A solution which helps improve data in the near term, but does not limit manual rework, may not rate as highly as another comparably-priced solution which helps improve data in the near term and limits manual rework,” the RFP states.

Each challenge will be capped at $7 million for all solutions across all four phases. For fiscal 2019—which will last less than 30 days after bids are due—the team expects to allocate no more than $250,000. That initial funding will cover all projects under Phase I and potentially part of Phase II.

The five-year procurement cycle will run through four phases:

• Phase I: Deliver a proof of concept and demonstrate return on investment. Up to $25,000 per project.
• Phase II: Prototyping and test. Up to $75,000 per project.
• Phase III: Deployment in IRS and other Treasury Department systems to demonstrate ability to scale and be interoperable with government systems. Up to $150,000 per project.
• Phase IV: Scaled deployment across IRS and other Treasury components over four and a half years. Up to $3 million per project.

While the final phase represents the biggest commitment and funding opportunity, the IRS team has included an incremental funding mechanism to ensure the project meets the agency’s requirements throughout the deployment.

“Decisions on whether to continue funding within Phase IV—i.e., exercise individual option periods—will be based on the success of the proposed solution relative to the goals of this” solution challenge, according to the solicitation.

Questions on the draft are due by 7 a.m. Aug. 9.

The team plans to issue a final solicitation shortly thereafter, with an initial goal of accepting bids on or around Labor Day. That timeline might shift slightly, but the team is committed to making Phase I awards before the end of fiscal 2019.

While the agile funding mechanism will keep the risk relatively low, Smith and the team already believe the project has been at least a partial success.

“I’m always cautiously optimistic,” Smith said. “But I would say, right now, this has already been a success because we’ve already identified what can be done within the existing structure—within the existing Federal Acquisition Regulation authorities—and when you do that, it opens up the aperture for everyone.”

With this first solicitation, the team was able to boil the entire draft request for proposals down to six pages—half of which are dedicated to explaining the new Pilot IRS strategy. The bids submitted in September will each be less than 10 pages and awards will be made that month, if everything sticks to schedule. That scaled-down process alone is a success, according to Smith.

That said, they expect there will be many lessons learned from the first Solution Challenge cohort.

“The goal or measure of success here is not perfection,” said Mitch Winans, a special assistant in the procurement office. “The goal and measure of success here is whether Pilot IRS—or whatever tool we’re exploring—outperforms other methods and what can be learned from each iteration.”

“We have got to find a way to eliminate or reduce our manual processes,” he added. “There’s too much work to be done and there’s not enough resources or time to do it. So, we’re trying to do our part in the procurement field.”

For the IRS, creating an incremental, experimental acquisition system should have ripple effects beyond the procurement office.

In fact, the idea for Pilot IRS came out of discussions with the agency chief information officer, who was interested in adopting emerging technologies but didn’t have a method of contracting with vendors who haven’t worked with the government in the past, according to Tim Shaughnessy, a program analyst with the procurement office.

“Part of what came out [of those discussions] was the industry best practices of establishing an opportunity catalog,” he said. “If there are 100 emerging technologies, what are five or 10 that have a nexus to IRS business operations and to tax modernization? And then how would we take those, learn about those and potentially test those and do some limited deployment on that.”

Enter Pilot IRS.

“For those who are familiar with traditional government procurements, Pilot IRS will appear substantively different from how the government normally buys technology. To be fair, it is,” the solicitation states. “Pilot IRS will aggressively pursue a streamlined and cost-effective approach to testing and deploying technology solutions that will have an immediate impact on its mission and how the IRS supports the American taxpayer.”