Cloud procurement stumbling blocks

Why do some experts believe that current procurement practices are ill-suited to the cloud? They point to four key challenges.

Challenge 1: Variable service levels

With the cloud model, IT managers can shop for new, on-demand services via online catalogs. That approach acknowledges that demands can change from month to month, or even more frequently.

“From a contracting perspective, that’s pretty tough to deal with,” said Wolf Tombe, chief technology officer at Customs and Border Protection. He contrasts that variability with contracts that designate the technologies purchased and specify the delivery date.

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Challenge 2: Nonstandard terms of service

Backers of the cloud model promote economies of scale, whereby costs decline because multiple customers share common resources, such as a suite of office productivity software. But consultants say many agencies try to negotiate cloud contracts that have custom services, which slows the procurement process.

“Everybody thinks what they need is special,” said Michael Sorenson, director of cloud services at systems integrator QinetiQ North America. Some compare the approach to asking Microsoft to customize its Office suite before buying the product.

Challenge 3: A shifting landscape

Cloud providers bring additional uncertainties to service terms. In the past, when a software vendor revised a commercial package, agencies could choose to install the new features or stick with the existing version of the program. But cloud providers regularly revise their service offerings, and the changes automatically flow to all customers, whether they ask for them or not.

“This makes procurement uncomfortable because you cannot be sure what you buy today will be there tomorrow,” said Peter Gallagher, a partner in the Civilian Federal Systems group at Unisys. “The pace of change is more rapid than with [off-the-shelf software].”

Challenge 4: Pricing uncertainties

Some agencies struggle to determine whether a firm fixed-price or cost-plus approach delivers the most benefits in a cloud-computing contract. “The best procurement procedure we’ve seen is a firm fixed price, and then if there are any modifications to the core service — say, additional storage for an e-mail user — the agency will pay for it by the drink,” Sorenson said. “But that is more complex than a standard utility scenario.”

All of that is leading some government executives to call for new procurement methods that address contracts oriented to service and performance. Officials are still far from having all the answers, but they understand the challenges they face. “It is a new way of doing business, and it requires new contracts,” Tombe said