IT consulting companies hopeful on new federal procurement rules

IT companies that sell consulting services to the federal government are crossing their fingers that upcoming changes to contracting rules in their sector won’t cause the uproar Public Works created earlier this year over printer purchasing.

A new request for standing offers –- the rules under which suppliers can bid and be listed for contracts –- is expected to be issued in several weeks for what the government calls informatics professional services. That covers the contract hiring of everyone from application analysts to IT project managers.

“We were given a briefing (last month by Public Works) and the stuff that was on the table was fairly acceptable,” said Mike O’Neil, chairman of CABiNET, an association representing 20 small Ottawa-area solution providers and consulting companies. He’s also vice-president of sales at Nortak Software, an applications development firm.

“In general, we were satisfied that we had gone back to where we were in January 2006 (in negotiations), and maybe come a little bit further in meeting the needs of SMEs.”

However, Alex Beraskow, founding partner of IT/Net of Ottawa, is less pleased. “I believe what (Public Works) has is a 70 per cent solution rather than a 90 per cent solution,” he said. “I’m not really sure they’re listening.”

According to government figures, Ottawa buys some $621 million in services a year from more than 330 companies, ranging from giants like CGI –- the biggest earner in 2005 with about $110 million in revenue — and IBM (second, with about $58 million) to little-known firms like IT/Net ($14 million).

The top 10 out of the 339 eligible firms accounted for 55 per cent of Ottawa’s services spending in 2005. The top three (CGI,IBM and TPG Technology Consulting of Ottawa) accounted for one-third of the total.

Public Works had been quietly talking to associations representing many of those companies for over two years about changing the process, talks the head of one services company described as “fairly productive.”

But as in the controversial proposals to change printer procurement , negotiations turned acid in the spring after Public Works hired consultants, including AT Kearney, to advise it on how to squeeze all suppliers for cost savings.

In part, says one source, that was because industry felt the government wanted a process to cut the number of suppliers and cut prices.

“We’ve contended from Day One that professional services isn’t a commodity group,” said O’Neil. “It’s not like selling (hardware) product – the more you sell the cheaper the price gets, which is what AT Kearney was trying to do to us.”

Following furious protests as the ballooning costs of the consultants and alleged uncontrolled spending, two of the advisors were dismissed over the summer. Several industry sources report that the attitudes at Public Works changed at that point.

Perhaps in part learning from the loud protests printer VARs put up over the summer, and perhaps in part due to quiet resistance by IT consulting companies, in the fall Public Works brought in The Conference Board of Canada to host meetings between the department and several supplier groups, including the IT service companies.

Whatever the reason, the refereed talks and new proposals from Public Works seems to have cooled down the services companies. “People were able to go (to those talks) and vent,” said the head of an Ottawa company who didn’t want to be identified.

Now, he said, “the process seems to be back on track.”

Among the changes Public Works offered is modifying three-year length of time a company can hold a standing offer. (Firms with a standing offer are approved suppliers departments can buy from). There will be an annual refresh of each standing offer, and an annual price competition for all approved suppliers.

To make sure the number of suppliers isn’t restricted, the department will award a standing offer to any company whose price for a service is within 40 per cent of the median of all qualified applicants.

Public Works was asked for an interview for this article. No one called by press time.

A Conference Board summary of its position said changes the department wants includes creating a system with more bidding opportunities, more price competitions and increased weight given to value – such as a service’s company’s experience and customer satisfaction.

The department also said that while it wants to buy more efficiently it doesn’t want to cut suppliers’ margins.

It also wants to give more business to suppliers who win bidding competitions. Currently, many firms with standing offers – that is, whose names are on the list of approved suppliers departments can buy from – don’t get any business. Instead a few favoured suppliers take a lot of the business.

Public Works says it wants to create mechanisms to push business to winning suppliers. For IT services it has proposed creating what it calls three streams or categories of work providers could qualify for: online (specialized services that can be marketed directly to departments); task-based (for work with a specific number of human resources and a defined duration) and solution-based (for complete solutions where the number of resources and duration required are unknown).

What bothers some providers is that solution-based services are sub-divided into 11 co-called domains, such as CRM, ERP, business transformation and networked services that bidders would have to show expertise in. But few small service companies could show expertise in more than one domain, said O’Neil, so they might be shut out of solution-based work.

He’s waiting to hear back from Public Works if companies with different specialties will be allowed to form consortiums so they can bid on such projects.

While O’Neil is optimistic his association will find the final rules workable, Berkaskow is less so. Public Works, he said, doesn’t understand how consulting companies work. “They’re becoming the Wal-Mart of the public sector,” he said of the drive to cut costs, a goal that could affect national prosperity.

He also complained that government has allowed the numbers of the civil service to swell instead of supporting the private sector.

On a practical level, he wants eligibility rules to recognize the difference between consulting firms that invest in training and governance and individual consultants who don’t, and the government to publish the names of all contractors so favoured consultants would be exposed. Under current rules untendered contracts under $25,000 are private.

Meanwhile the government has awarded new standing offers to companies selling internetworking equipment. However, a Public Works spokesman said the names of the winners aren’t being released yet.

In 2005 Ottawa spent about $621 million on IT services. These are the top suppliers, followed by their share of that spend.

1. CGI Group(17.8 per cent)

2. IBM (9.4)

3. TPG Technology Consulting (5.8)

4. ADGA Group (4.5)

5. Accenture Inc. (3.7)

6. Ajion Canada (3.6)

7. Calian Ltd. (3.4)

8. AJJA Information Technology Consultants (2.8)

9. IT/Net Group (2.2)

10.xWave (1.9)

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Howard Solomon
Howard Solomon
Currently a freelance writer. Former editor of and Computing Canada. An IT journalist since 1997, Howard has written for several of ITWC's sister publications, including Before arriving at ITWC he served as a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times.

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