Why are large procurements so complex? Healthcare.gov vs. Deepwater

Healthcare.gov has been a massive contracting challenge from the onset. What went wrong? “Contractors have pointed the finger at the Centers for Medicare and Medicaid Services, citing insufficient guidance, inadequate resources, a lack of authority to lead the project and changes requested a month before the site went live. In testimony to the House Committee on Energy and Commerce, Cheryl Campbell of CGI Federal Inc. deflected blame. “CMS serves the important role of systems integrator or ‘quarterback’ on this project and is the ultimate responsible party for the end-to-end performance of the overall federal exchange,” she said. But CMS officials pointed the finger at the more than 50 contractors on the project, saying vendors relied on outdated software and failed to coordinate and adequately plan for the anticipated wave of users.”

So what’s the real story? And is the key to solving government contracts in the history books? Trevor Brown is the Interim Director of the John Glenn School of Public Affairs at The Ohio State University and David Van Slyke is the Louis A. Bantle Chair in Business and Government Policy at Syracuse University’s Maxwell School of Citizenship and Public Service. Together they are the authors of the book Complex Contracting: Government Purchasing in the Wake of the U.S. Coast Guard’s Deepwater Program.

They sat down with Chris Dorobek for a two-part interview on the DorobekINSIDER program to talk about complex contracting issues.

Why are large procurements so complex and disaster prone?

“In all of our work we distinguish between two kinds of products: simple products and complex,” said Brown.

• Simple products are easy to describe and easy to make. Think of office supplies and paper and chairs. All of the run of the mill stuff.
• Then you have complex contracting, those are the things like big information technology systems or complex weapon systems. Those products are distinguished first because of how hard they are to describe. It is hard for the purchaser to tell the supply chain folks, ‘This is what I want, and this is what I want it to do.’ As a result, it is hard for producers to figure out how to make it and how much is it going to cost. Finally, complex contracts are simply hard to make.

“Complex contracts require certain kind of specialized investments that are unique to the product, so that once you start building the product you can’t easily take it and transfer it to make something else. That issue is not unique to government. There are all sorts of complex products that get purchased in the private sector,” said Brown.

What makes the public sector procurement’s more complex?

“There is always this degree of uncertainty with contracting. The uncertainty is not just around the product, although that is an important component, there is also the broader range of stakeholders who are involved in the product itself. Those who are going to be users, those who are going to be designers are also involved, but there is also the uncertainty about the appropriators as well. How much money are they going to spend on this? Are we going to see funding stability or is there some uncertainty about how much money we are going to be able to spend in future years. I think the policy environment, the multiplicity of goals, the unevenness of who has access to what information, as well as the uncertainty about the product and the funding itself, all of these things together makes the public sector environment more complex,” Van Slyke.

What went wrong during the Deepwater contract?

The Setup: “The US Coast Guard is the largest Coast Guard in the world, but in the mid 1990s it had the 37th oldest fleet of assets, boats, ships, airplanes, helicopters, shore stations, technology. We had the 37th oldest fleet in the world of 39 fleets. The Coast Guard has a very complex mission, some is law enforcement, some is homeland security. The Coast Guard was looking for a more integrated system, where the planes and the ships and the helicopters and the people on shore would be able to communicate. They wanted a common operating picture. They wanted there to be be a degree of interoperability. In other words, all of these assets would be working together in real-time to help the Coast Guard maximize its effectiveness on its mission performance,” said Van Slyke.

The Procurement Model: “The Coast Guard was looking to move away from buying one piece at a time. They wanted to develop a very sophisticated system of systems that would be able to do a lot of the things they needed it to do in all of the dynamic and very uncertain environments which it operates,” said Van Slyke.

The model sounds amazing, what went wrong?

“It was an impressive undertaking. The Coast Guard and its partners did some things pretty well. They developed a set of product rules, exchange rules and governance rules to be able to really try to take what was admittedly a very incomplete contract. The contract was very complex, it had hard pieces to it and it had lots of services characteristics as well. They wanted to be able to manage the uncertainty and determine those requirements in a more jointly interactive way. They created some good processes to be able to do that, but it was just too complex. The two partners did not understand each other very well. They didn’t understand how one another thought or did business,” said Van Slyke.

• The Coast Guard did not have the type of capacity that they needed at the time in terms of acquisition experts or systems engineering experts.
• Like a lot of relationships at the time, both parties saw the contract in a very positive and proactive light. They wanted to show that they were really cooperating with one another. But a partnership is more than simply trusting one another, it is being actively engaged and making sure that each side understands what the other side is doing.
• How are they are trying to move the ball forward in a way that is mutually beneficial.

Compare and contrast healthcare.gov from Deepwater?

“One big issue that is common in all of these types of acquisitions that often leads to challenges, it was endemic in Deepwater and is a clear source of the challenge of healthcare.gov, was changing requirements. A complex contract is hard to describe and it is hard to know what you want, but you do write some things down when you start. You are going to buy a certain amount of boats and planes. Or you want a website that does certain kinds of things. But then halfway through the purchaser changes their mind. They want to move something forward, they want to buy something sooner rather than later. In the case of healthcare.gov, they changed some of the requirements for the certification of people’s income which was supposed to be a back-end function (something that happened after they selected their insurance product), they wanted that to be done at the front end. Technically that was possible. However, it was not possible in the amount of time the producer was given to perform the task. The problem wasn’t so much a technical challenge as it was the purchaser changed their mind in the middle of the project. That is a very common phenomenon on these complex contracting products,” said Brown.

• Who was in charge?

“An interesting difference between Deepwater and healthcare.gov was that Deepwater was managed on the producer side by something called a Leads System Integrator (LSI). Think of a LSI as a super general contractor. If you have ever had work done on your house you need somebody who manages all the sub contractors and pull all the things together. In Deepwater there were problems in the relationship between the purchaser, government and the LSI so that term was sort of banished from the lexicon of government. We don’t work with LSIs anymore because of these problems, which is unfortunate because to put together a complex website that is supposed to put together multiple functions, there were a bunch of different subcontractors. You needed someone who can take the lead. In healthcare.gov there was a lot of uncertainty and a lack of clarity about who was in charge. Some folks on the purchasing side said one you vendors, CGI, you’re in charge. The vendors looked at the government and said you are in charge. If you are going to buy a product with lots of moving pieces you need an integrator. You need a general contractor and healthcare.gov didn’t have it,” said Brown.

• Accountability is key

“You need some accountability. There are a lot of different people involved looking for lot different things to happen with these systems. That can lead to some of these requirements changing. Admittedly government had engaged in some high profile systems of systems projects with LSIs, like the Future Combat Systems, Coast Guard’s Deepwater Program, Custom and Border Protection’s Secure Border Initiative network, each of those fell short of the promise the government and the private sector had claimed were going to be the outcomes. So there should be some healthy skepticism. But too often, the response can be throwing the baby out with the bath water. In healthcare.gov what was really needed was some accountability, someone to really lead the process, someone to take charge and to drive that forward,” said Van Slyke.

Part two of our interview: Solution to procurement woes, people?