In 2019, I wrote an article titled, “The Evolution of Federal Health IT Contract Vehicles and How to Stay Ahead.” In this article, I summarized how five major contracting vehicles that impact the Federal health IT community were continuing to evolve. Although I did not get every prediction correct, we also did not anticipate so many changes over the last twelve months — this includes one GWAC hitting its ceiling prematurely, another one being cancelled altogether, and a third facing numerous protests after years in source selection!
This is truly an unprecedented and unpredictable time for the Federal health contracting community. Coupled with an election year, this makes the future very difficult to predict. Here are my thoughts and recommendations on what we can expect (and should expect) to see in the future on Best-in-Class (BIC) contracts for Federal health:
Will Tiers via the defined OMB BIC still be required and will the same contract vehicles exist in those Tiers, especially Tier Three?
Over the last 3-4 years, OMB and GSA have released guidance on category management and specifically, what defines BIC solutions. There were several reasons behind this push, which included better handling Spend Under Management (SUM) and also to avoid duplicative use of contract actions. This is also where the various Tiers of contract vehicles were offered to industry. This is not an article to define the Tiers, so for a refresh, here is how OMB defines them: https://hallways.cap.gsa.gov/app/#/gateway/best-class-bic/22576/list-of-best-in-class-solutions
The challenge for industry was understanding how this impacted their Federal growth strategies. Many companies soon realized that they did not have immediate access to many of the contract vehicles that Federal agencies were being told to prioritize. To further complicate the matter, even those contracts deemed the highest priority (e.g. Tier Three) have been tumultuous and unpredictable to manage. For example, we have noticed these changes just occur over the last 12 months:
- GSA cancelled Alliant 2 SB in July of 2020.The NIH CIO-SP3 Small Business On-Ramp took over three years to get awarded and then subsequently was hit with multiple protests. By the time this article is printed, the CIO-SP3 SB On-Ramp awardees will all have recently been awarded this contract to have a total period of performance of roughly two years before the contract expires in October 2022.
- GSA had to increase the ceiling for STARS II in June 2020 by another $7 billion to $22 billion, but reduced the period of performance by two years from August 30, 2024 to June 30, 2022. This obviously had a definitive impact to a number of 8(a) STARS II Primes as they saw potentially competed task orders go to other vehicles given the decrease in the period of performance.
- GSA VETS 2 has seen a year over year decrease in spend over the last 5+ years.
The Federal Government spends now, on average, more than $30 billion in IT services every fiscal year. Is it fair to require or advise agencies to allocate their spend to a set of contract vehicles that are difficult to compete and award? Further, is it fair to limit those contracts to only a limited set of Prime awardees given the sheer amount of spend? Currently, the only eligible set of Tier Three IT services contract vehicles are GSA Alliant 2, NIH CIO-SP3 Unrestricted, CIO-SP3 Small Business, GSA VETS 2, and GSA 8(a) STARS II. In comparing the list of Primes between GSA Alliant 2 and NIH CIO-SP3 Unrestricted, more than 50 companies alone are duplicated. While it is important to align spend and vendors via GSA’s Category Management to deliver more savings and reduce contract redundancies, is it doing so at the expense of fair, open, and reasonable competition?
In order for OMB to truly maximize Category Management principles, it needs to broaden the number of available contract vehicles for Tier Three status. If that is simply not possible due to the limited number of GWACs available, then each contract vehicle needs to expand the number of possible awardees (e.g. think GSA 8(a) STARS III or Navy SeaPort Next Generation – NxG) with a reasonable and easy to execute, on-ramp and off-ramp process.
What will the Federal Health IDIQ Landscape Look Like 3 to 5 Years From Now?
Federal health agencies continue to spend throughout all three tiers including Tier Three (NIH CIO-SP3), Tier Two (i.e. GSA Schedule and VA T4NG), and Tier One (i.e. CMS SPARC and many other IDIQs). Can anyone say, without any level of doubt, that these will continue to be the primary means of Federal health spend?
While some agency-level IDIQs have fared well, such as VA T4NG, others have taken some time to start up (CMS SPARC), others have faded away (CDC CIMS), or simply never got off the ground (DHA DHITS Gen I). Many Federal health IDIQs are only in their second or third iteration, but it is hard to determine if they will remain for their follow-on recompetes. For example:
- CDC CIMS was in its third iteration of its contract vehicle. HHS ITIO Next Generation IT Services Acquisition (NGITS) is in its second iteration.
- FDA’s Information and Computing Technologies for the 21st Century (ICT21) only lasted one iteration. The existing task orders became single-award BPAs when it came time for the re-competition.
- FDA Enterprise System Life Cycle Management Support (ELMS) only lasted one iteration, as well.
- DHA Health Information Technology Services Generation I was the only contract that was planning its fourth iteration. Prior iterations were called Defense System Integration, Design, Development, Operation and Maintenance Support (DSIDDOMS).
As Federal health contracting continues to evolve, we will continue to see contract vehicles evolve as well. We will likely see a transformative shift occur over the next three to five years where BIC will include more and more contracts that have a proven history of success. I would not be surprised to see some of the above IDIQs disappear and a new crop of contract vehicles emerge. Further, we will likely see agencies compete specific requirements via Blanket Purchase Agreements off of GSA Schedules to provide them flexibility in using a smaller subset of companies for niche requirements. It is important for companies to keep a close eye on how agencies evolve their contracting practices and whether their customers shift their spend to BIC GWACs, continue to compete and use Federal health agency-specific IT IDIQs, or use a mix of targeted BPAs and GSA Schedule.
What Will be the Impact to Those Companies That Don’t Have Access to Those BIC Contracts?
There is a long history of companies winning IDIQs and GWACs and using those contracts to bolster their growth. What we often don’t hear of are the abundance of other companies that continue to grow and scale without having one of the GWACs (Tier Three) or Federal health IT IDIQs (mostly Tier One). Red Team Consulting knows of dozens of Federal health IT firms that have outgrown their IT services NAICS size standards without the help of a BIC Tier Three contract vehicle and have relied mostly on GSA Schedule and/or winning standalone FAR Part 15 competed contracts.
For those companies that think they will quickly grow from small to large by winning one of these BIC Tier Three Contracts, I want to provide a word of caution – most companies who win these contracts do not grow substantially as a result of winning the IDIQ. Many lose task orders as a result of no capture, fall short in bringing qualified customers to the vehicle, or simply don’t respond to enough task orders. For example, on NIH CIO-SP3, the top five small businesses captured 30% of the total spend on that contract out of the initial 70+ small business winners. In fact, the top 10 captured nearly half of the total spend on the small business side. The top 10 contractors of the original OTSB CIO-SP3 awardees accounted for 75% of that spend. As of the beginning of 2020, more than 60% of CIO-SP3 awardees have not won a single task order. This is perhaps the most extreme example, but there are countless other Federal health IDIQs that have generated returns for only a handful of the Prime contractors.
My advice to those pursuing a health IDIQ or GWAC that supports Federal agencies – be absolutely certain that the contract aligns with your overall growth strategy.
If your current and intended customer base does not even use those contracts, focus your time and efforts on activities that will provide higher probability returns. Also, companies should not rely entirely on just the contract vehicle itself for growth. Winning those IDIQs/GWACs without the relationships, customer intimacy, understanding of the agency, or a defined growth strategy, is simply just buying a portfolio of stocks that generate 0% return for you in the long haul.
As you are planning your growth strategy, I am not discouraging you from pursuing these Federal health IDIQs or BIC Tier Three contracts. I am simply suggesting it should not be your only or primary source of growth in the Federal health market since there is still so much spend that occurs outside of these contracts. For example, single-award contracts still account for almost half of Federal IT spend outside of IDIQs and BIC contracts. Further, there are additional methods of obtaining Government work through simplified acquisitions, OTAs, grants, and SBIR/STTR, to name a few. I encourage companies to continue to build relationships in the Federal market and to diversify their capabilities across multiple programs, teaming partners, and customer agencies. Also, spend some time researching those contract vehicles that your customer actually uses, even those that are not yet classified as Tier Three or Two.
Who knows, in 3 to 5 years, the Tier system may go away in favor of specialized contract vehicles for niche solution providers. Is that something I’m willing to bet on for the future? Ask me again in twelve months.
About Jeffrey Shen
Jeffrey Shen, President at Red Team Consulting, brings more than 20 years of proven leadership and expertise in Federal contracting, corporate strategy, and business development.
About Red Team Consulting
Red Team Consulting, LLC (Red Team) is the premier provider of proposal development, capture strategy, pricing, and training services in support of Federal contractors. Founded in 2004, we have been helping Federal contractors of all sizes achieve their strategic goals. Red Team has supported more than 1,000 small and large companies compete on thousands of procurements and captured over $100 billion worth of Federal contracts. We have strong relationships throughout the Government and industry, and our experience spans a broad array of service areas. Our mission is simple — help our clients grow their business.