Here is how this works. To get funding in 2009-10, the client agency must obtain approval for a feasibility study report (FSR) and budget change proposal in the summer of 2008. That gets it into the Governor’s budget, released in January 2009. The money becomes available at the start of the fiscal year, July 2009. The client agency then expands upon the FSR and submits a draft request for proposals (RFP) to the Department of General Services procurement division (DGS) in June 2010. DGS wordsmiths the RFP and adds several requirements. The contract will have a firm fixed price. The contractor will receive no payment until the system is delivered and accepted by the client agency. The contractor must provide a 50% bond. COTS software vendors must sign the DGS terms, which give all rights to the State and none to the copyright owner. At least 50% of the score will be based on price. As there are numerous COTS products that meet the State’s need equally well, the competition boils down to a low bid.
The RFP is issued in January 2011. Takai and Schwarzenegger are gone.
Very few bidders will sign-on to the DGS conditions. At most, there will be two bidders. I decide that I will be one of them. DGS issues numerous addenda and finally receives bids in the summer of 2011. Both proposals place limits on the DGS intellectual property clause. DGS rejects both bids, saying that bidders are forbidden to modify the standard language. They negotiate with both bidders and others that are interested and issue a revision to their intellectual property clause. They invite new bids and I submit the only bid. It is now June 2012.
Throughout the process, bidders cannot talk to the client agency. Questions must be submitted in writing to DGS and are answered in writing. It is difficult to understand exactly what is required without the give and take of live conversation. The RFP language is vague and does not give a good basis for a firm fixed price. In pricing my bid, I estimate a realistic cost for what I understand from the RFP. I obtain a credit line and double my estimate to cover the cost of carrying the contract to the end without any payment. I also add an amount equal to my estimate to address the uncertainties in the RFP and, finally, I add a similar amount to cover the inevitable litigation. Add it up, and my bid is four times the reasonable price.
The client agency returns to the legislature for additional funding, while DGS negotiates with me. My COTS subcontractor is objecting to the intellectual property clause. Eventually, we succeed in negotiating a contract that is signed in July 2013.
The two-year contract is a straightforward installation and configuration of COTS software. By now, however, the client agency has new leadership who want something different from what was wanted in 2008. Our scope, however, is determined by the FSR. The clients refuse to accept and I receive no payment. We go through several rounds of negotiation and eventually wind up in court. I get paid in 2020. The amount paid is my original four times the reasonable price plus interest and my legal fees.
Throughout this time, the client agency and DGS have been paying their staff and consultants to work on procurement, implementation and litigation. Their internal costs are as much again as what they pay me.
The client agency has a product designed to meet the needs that it perceived in 2008. Much has changed, and the system is out of date.
Working with the other 49 States is nothing like this. There, the selection is based solely upon what product best meets the client's requirements. They negotiate a contract to buy the product that best meets their needs. This makes sense – the cost of the software is a tiny fraction of the cost of the processes that it will be used to manage. Selection based on functionality alone provides the best value. The client agency’s staff is actively involved face-to-face in the contract negotiations. That ensures that the product will meet their needs. The contract is generally signed within six months from the date that the RFP was issued.