HHS Awards First Federal Blockchain Contract

Blockchain, which powers cryptocurrency and has proved itself an effective profit generator, has produced a lot of buzz in the federal government but also many doubts about its usefulness in the public sector. On Dec. 13, 2018, that all changed.

The Health and Human Services Department (HHS) awarded the federal government’s first blockchain contract as an acquisition vehicle to streamline the notoriously lengthy federal procurement process. By creating a single, absolute record of vendors’ information, HHS can bypass resubmissions and acquisition legwork to instead focus on solutions.

“The way that we look at blockchain in the Department of Health and Human Services is it is an enabler for modernization,” said Jose Arrieta, Director of the Office of Acquisition Workforce and Strategic Initiatives at HHS. “It gives us the ability to separate data from process.”

HHS uses blockchain to compile a centralized record of acquisition contracts that can be sorted according to certain parameters. Acquisition agents can see the price range of certain products, and in return, industry partners can know the going rate for their products.

HHS has more than 100 contracts and $24.2 billion of contract spending. The five-year investment in blockchain is authorized for $34.7 million, with a goal of an 896 percent return on investment (ROI).

Arrieta noted that without blockchain, it takes six months to even gather the data from software systems during the acquisition process. The data, being so siloed, is onerous to retrieve.

All those numbers are to say, blockchain has incredible cost-saving potential in government – even in areas that aren’t traditionally considered. The HHS project is the first federal authority to operate – or permission for industry solutions to integrate with government IT systems – using blockchain for public procurement in the world, Arrieta said.

Easing the burden on industry was a central focus for ensuring an ROI with blockchain, he added. While the onus on government to lighten industry responsibility may not be clear, the connection is actually simple.

The federal acquisition process can be costly and timeconsuming for both government and industry. Vendors must go through extensive checks, demonstrations and paperwork before they secure – or fail to secure – a federal contract. Meanwhile, government needs faster acquisition times to ensure that their solutions remain relevant – especially in the technology space.

“We believe this [blockchain-based] infrastructure is the way government will modernize all of its administrative functions and then extend itself with those savings into the mission space,” Arrieta said.

With blockchain, agencies can vet their data, organize it centrally, and protect data privacy and security by detaching identity through encryption. Then, they can keep identity information off the chain and determine who is who by comparing verifying information on the chain.

The process of incorporating blockchain and securing the contract was not easy for Arrieta. However, a fleshed-out plan and support from within HHS allowed the agency to see the process through and achieve an immediate ROI.

“When you have support like that, you can do iterative implementation,” Arrieta said. “Why? Because what that support is telling you is, ‘OK, go out, take a chance, spend a little money, create a proof.’”

Arrieta did exactly that. After his team identified $2 billion in potential savings, they created a business model and looked for solutions. They aimed to capture $720 million over five years, starting with 5 percent – or $36 million in savings – after the first year, by looking at products, process improvements and moving to the cloud.

So far, HHS has spent $2.85 million and met all its goals, meaning the project is highly scalable, as well as effective.

Arrieta hopes that the project will spark interest from other departments, and that the federal government can use the framework at HHS to build more blockchain projects. DHS has already looked into blockchain technology, for instance.

For those considering it, Arrieta emphasized an iterative approach that produces business value, scalability and immediate payoff.

“Somebody at a higher pay level would have to determine if they wanted to scale it across government,” Arrieta said. “At this point, we just want to prove that it works, and we want to be able to provide that insight and that valuable information as it relates to HHS data to anybody that may have a need for it.

This article is an excerpt from GovLoop’s recent guide, “Emerging Technology of 2019: Meet Your New Digital Coworkers.” Download the full guide here.