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Best Practices in IT Services Procurement

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1 Best Practices in IT Services Procurement
Jean Clark, Arizona Don Greene, New York Bill Burns, Idaho

2 ProcureAZ E-Procurement Change Management Principles

3 Desire for Success – Belief in Change
Single opportunity to transform procurement Phased project approach

4 Communication of Clear Vision
Procurement roadmap Project communication

5 Right People on the Team
IT Project Manager Contractor

6 NASPO Best Practices in IT Procurement Hourly Based IT Services (HBITS)
Caveat and background - Tentative Contract awards have been issued, awaiting imminent approval of our OSC. All the information I will discuss is public NYS spends a great deal on various types of IT Services Hourly based, project based deliverables, training, maintenance etc While the existing IT Services contracts were amended numerous times, they were more than 10 years old and the consensus of almost all parties is, the contracting category was long past due for a review and overhaul. Previous contracts were a staffing drain – for the central contract office and agency uses Contract spend data was based on vendor reported sales – much of our information was anecdotal - while we knew there was a lot of spend, we didn’t know what, who, how much and how the prices compared from agency to agency or even within the same agency for the same title A procurement success story. September 12, 2012

7 Background Objectives and Key Questions NYS attempted to address multiple objectives and answers key questions about IT Services marketplace. Objectives Understand how NYS is procuring IT Services Present observations about the current state of IT Services including spend profile, contract summary and business requirements Complete an industry analysis to identify market trends and external factors which affect potential future models for NYS IT Services procurement Provide a fact base that depicts how the OGS ITS contract is used for hourly-based services versus deliverable-based Key Questions What are the cost drivers that can be leveraged for potential savings opportunities? What opportunities exist to reduce the cost of hourly-based IT Services? How do NYS Executive Agencies use the OGS ITS Back-Drop contract? What is the nature of the current supply base? As we moved forward with the area we knew it was important to get a deep understanding about IT Services based on facts. - We had certain objectives and wanted to answer fundamental questions

8 Background NYS Data Gathering Process – External and Internal Detailed spend information was requested from New York State’s top IT Services vendors and top Agencies by spend. External and Internal Data Template Key fields requested: Procurement Mechanism (contract type), State Agency/Entity, Location, Job Title, Skill Category, Regular Time Pay Rate, Regular Time Bill Rate and Hours Billed The external data request differed from the internal in that vendors were asked to provide data on deliverable based IT Services in addition to hourly-based External Data Collection Results Sent data request template to 91 vendors The list of data request recipients was derived from the 788 IT Services suppliers identified in the Spend Assessment which included deliverable and hourly spend from Executive Agencies during the 12/09 to 11/10 time period Vendors on this list who had over $500K in spend and NYS certified M/WBEs who had $100K or more received the data request template; this accounted for approximately 64% of the total IT Services Assessment spend (approximately $260M) Received detailed usage data from 66 suppliers totaling approximately $684.1M over two years Seven suppliers returned over 16,000 detailed line items Internal Data Collection Results Sent data request template to eight high spend agencies Received data from six agencies So we asked the top spend users and vendors to provide very specific information Since we knew not all service acquisitions are from the centralized contracts, in order to get the big picture we requested all of the hoursly based data from the 8 high spend users regardless of the contract acquired under (including non- contract discretionary spend). And in the case of the vendors (sent to 91 vendors) – we asked not only for Hourly based but also project based from all of the eligible contract users (state executive agencies and all other eligible users regardless of contract).

9 Background Key Findings Through completing an internal and external profile, NYS identified several key findings regarding the IT Services marketplace in NYS. Hourly-based IT Services represented 87% of total spend on past OGS IT Services contract Executive Agency hourly-based IT Services spend is $134.9M The majority of deliverable-based IT Services across NYS were not procured off of the OGS ITS contract Deliverable-based spend is concentrated in New York City, rather than in the Executive Agencies Hourly rates from one supplier vary greatly across Agencies for the same job titles The NYS procurement process discourages Executive Agencies from engaging and promoting competition among hourly-based IT Services suppliers Many agencies have created their own backdrop contracts. The OGS Centralized contract itself contained 600+ vendors (at one point almost 800). A discussion guide was developed and interviews were conducted to collect state-wide requirements and processes from the top spend agencies. All agency discussions emphasized the procurement process as a significant pain point. Depending on the type of contract, agencies are required to obtain approvals at different stages in the process to place an IT contractor Agencies shared documents that were considered as representative of their agencies procurement practices. Documents included RFPs, vendor evaluation instruments, assignment notifications, candidate evaluation instruments (for MASA contracts), invoices, and hourly rates as specified in various contracts These are some of the key findings We were spending a great deal of time administering contracts that were hard to use, the contracts included large areas of services which agencies had less than 15% of spend on, and we unknowing forced agencies to sacrifice savings for what we felt was ease of use – when in fact it cost them money and a large administrative burden. So: From this information we developed a guide to help discuss the findings and data with the large spend agencies. It was important to see what their needs are, where they had suggestions for improvement, and to gather examples of best of practices and documents. Historically, NYS had minimal enterprise-wide insight into the breakdown between hourly-based and deliverable-based IT Services spend across the State.

10 NYS Current Business Requirements
Buyers’ Business Requirements NYS’ buyers found that if a need is not explicitly defined in the contract, the vendor will not always be willing to meet this need; the following were expressed as items that should be contractually required of vendors if a new contract was to be put in place. Reporting Requirements Removal of non-compete clauses Subcontracting Reporting Ease and/or flexibility of termination M/WBE Reporting M/WBE Recruitment and Participation Ability to provide in-demand skill sets Margin and/or markup information Confirmation by vendor of consultant work/visa Status Incentive to provide “better” candidates Consider longer placement durations Specialized agency needs Mandatory knowledge transfer to State staff Background checks/fingerprinting HIPAA compliance Standardization for reimbursement of travel expenses Through this collaborative process the sourcing team also considered the business needs of the buyers – those specific items, that through experience in this contract area, they felt were necessary to include in any contract going forward Many of these needs were addressed at the outset of the past contract but each agency had to account for them subsequently as part of their individual engagements. Others were terms that had to change and if centrally managed could be done for the benefit of all (thus eliminating redundancy) The MWBE use and reporting requirements in NY have been intensified as a result of Executive Order. Past multi-layer subcontracting added costs. This contract requires detailed reports of sales, including markup and payments to sub-contractors, not only to assist agencies in reporting their MWBE usage in attainment of goals, but also to discourage piling on of margins at the expense of the state.

11 Opportunity Assessment
Key Considerations Several considerations as a strategy was developed for hourly-based IT Services in New York State Managing large current vendor base Transition from multitude of existing hourly-based IT Services agreements across the agencies to a central agreement Risk of losing institutional knowledge if existing IT Services personnel within agencies are replaced in the future Agencies may have resistance to potential transition of long-term IT Services personnel Timeline influences by control agency approvals (OSC, DOB, OFT) Contracting effort could be extensive The agencies reps (including CIO’s and purchasing/finance personal) were vocal and open about their needs. In addition to the business concerns, other things were identified as key to any future contract strategy for hourly-based IT services. The team had to deal with these items as they developed the final strategy. .

12 Strategy for NYS IT Services Procurement
Primary Decision There were 3 main Hourly-Based IT Services models that were identified during the requirements gathering phase. # Strategic Option Pros Cons Option 1 - Multi-Vendor A competitively bid “short list” of preferred vendors that provide personnel directly to the customer Most flexibility for Agencies to find staff Pre-qualifies the best of the best vendors Vendors believe that agencies benefit from a direct relationship Requires high administrative burden on agency staff Less visibility into other agencies rates Decentralized buying power Risk of losing direct spend with M/WBE vendors due to “short-list” Option 2 - Managed Services Provider A single vendor or team manages a network of multiple 2nd tier vendors on behalf of the customer Central knowledge of rates across Executive agencies Minimizes interagency competition Adds a performance/feedback loop between vendors, MSP, and agencies Alleviates resume filtering Similar model used in Texas with success Potential administrative bottleneck Central authority won’t have direct knowledge of agency needs Potential conflict of interest with vendors managing other vendors if MSP layer is bid out Option 3 - Master Vendor A single vendor provides personnel to customer (vendor manages own sub-contractor network) Some State agencies do not currently have the resources to continue doing “mini-bids” Direct relationship with vendor can improve quality of candidates provided Formal bidding process removed as rates are pre-determined Potential contract approval issues with OSC due to similarity to OFT ITSA procurement Potential conflict of interest with vendors managing other vendors Difficult for new vendors to enter the process due to lack of pre-existing relationships with master vendor These are the models identified for the contracting strategy. As we all know there are pros and cons to the contracting decisions we make. The strategy was to choose the one best suited based on all the stated needs and facts evident from the data discovery exercise.

13 Strategy for NYS IT Services Procurement
Inputs into Strategy The Category Strategy includes options and recommendations for Hourly-Based IT Services based on vendor input and agency needs. Model - What model best fits the Hourly-Based IT Services category requirements of NYS? Result: NYS chose the Managed Services Provider Option to centralize and streamline procurement of IT Services. Regionalization - Should NYS adjust the hourly rate for IT services consultants based on geographical regions? Result: NYS identified three (3) distinct geographical regions that mirrored established Civil Service regions. (NYC Metro, Mid-Hudson, Upstate) Rate Card Structure - How should the job titles and accompanying rate card be structured in the RFP? Result: NYS identified two (2) service groups of job titles; one for industry standard titles and another to introduce competition to historical large scale contracts with limited service providers. Vendor Pool - How many vendors should the State contract with for Hourly-Based IT Services? Result: NYS determined to use 25 vendors to satisfy Statewide demand. Strategy Choice reflected in bid and award: - Internally Managed Service Provider - adjusted rates based on NY’s distinct region for this type of work - one for industry standard titles and another to seek competition for the very large scale ones engagements where there is very limited service providers - the idea is not to force all users to pay hedged rates for so others can get needed high priced services - smaller vendor pool with real rates (elimination of not to exceed) 25 total vendors (only 20 active during the year) this pool will be changed out yearly as a result of previous year performance scores.

14 Strategy for NYS IT Services Procurement
Inputs into Strategy, cont’d The Category Strategy includes options and recommendations for Hourly-Based IT Services based on vendor input and agency needs. Managed Service Provider - Should the Managed Services be provided by the State or by a 3rd party? Result: The Managed Services would be provided by the State (in-house). Approval Process - What can be done to help streamline the procurement and approval process for hourly-based IT staff? Result: NYS identified and made recommendations regarding internal approval processes that presented barriers to efficient procurement of Hourly-Based IT Services. Contract Term - How long should the term of the new contract and the placements under this contract be? Result: NYS issued RFP for a five (5) year contract with an individual placement duration of no longer than two (2) years. Interim Savings - What other strategic options can be implemented to help agencies obtain better rates for hourly-based IT Services in the interim period before a new statewide contract is implemented? Result: NYS performed additional data analysis to identify specific savings opportunities by vendor and identified areas that assisted in the engagement of rate negotiations under existing contracts. Contract includes a faster approval process so agencies can get IT staff on the bench faster Stewide contract is for 5 years with engagements allowed only for 2 year maximum Since we let the past centralized IT Services contracts lapse on 12/31/11 a coordinated plan was put in place to assist the agencies who had either existing engagements that ran beyond that time or had needs for new services until the new HBITS contracts were implemented. The needs were identified and managed. NYS selected a new model not only to deliver cost savings but also to increase efficiency by creating a defined, consistent process for all agencies for selecting Hourly Based IT Services consultants NYS selected a new model not only to deliver cost savings but also to increase efficiency by creating a defined, consistent process for all agencies for selecting Hourly Based IT Services consultants.

15 The HBITS RFP– RFP Summary
Definition of HBITS: Hourly-Based IT Services The HBITS RFP implements a new model for procuring hourly-based IT services in New York State, competitively bidding out 24 Job Titles across 3 Regions*. The HBITS RFP evaluation consisted of three parts: Administrative, Financial, and Technical. It was evaluated with a 60/40 Financial/Technical split to signal to the Bidder community the State’s emphasis on competitive pricing and to further encourage Bidders to bid actual Hourly Wage/Bill Rates, rather than Not To Exceed (NTE) rates Administrative Evaluation: Pass/fail assessment to ensure that Bidders provided complete proposals in the proper format. Only Bidders that passed the Administrative Evaluation moved forward to the Financial Evaluation Financial Evaluation: Calculated a Total Cost for each Bidder based on historical usage of all Job Titles and the Bidder’s proposed Hourly Wage Rates and Markup Percentages for these Job Titles. Only Bidders that received a Financial score and were deemed susceptible to Award moved forward to the Technical Evaluation Technical Evaluation: Qualitative review of each Bidder’s Technical Proposal by a committee of evaluators. Only Bidders that received a Technical score moved forward to receive a Total Score Administrative Evaluation (Pass/Fail) Financial Evaluation (Maximum 60 Points) Technical Evaluation (Maximum 40 Points) Total Score (Maximum 100 Points) We picked 24 titles and bid them across the three regions We used traditional RFP process = elimination of non responsive bidders in the initial Administrative review Then score the remaining based on relative weight of financial and technical And remember the collaborative agency data gathering and results sharing exercise – we also identified key agency personnel with the knowledge and skills to assist us as an extended RFP team member. They worked with the knowledge of their agency CIO or CFO.

16 The HBITS RFP- Evaluation Summary
Scoring Overview 101 proposals were received by NYS in response to the HBITS RFP. A summary of the evaluation process is below. Administrative Evaluation (Pass/Fail) Financial Evaluation (60 Points) Technical Evaluation (40 Points) 101 Bidders 94 Bidders 88 Bidders 78 Bidders Advancement of Bidders through Evaluation -7 DQ’d Bidders -6 DQ’d Bidders -10 DQ’d Bidders 3 proposals were not accepted or opened because they were received after Bid Opening (January 24, 2012 – 11AM) 78 Bidders received Technical Scores and were sent for score compilation to the Financial Evaluation Committee The Financial Evaluation Committee Chair combined Technical and Financial scores to create Total Scores for the 78 Bidders The Bidders were ranked from 1 to 78 according to Total Score; the top 25 Bidders have been recommended and notified of they are a tentative awardee Here is overview of the bids we received

17 The HBITS RFP- Results Several positive outcomes were delivered to New York State as a result of this competitive exercise. HBITS awardees included several Minority and Women-Owned Business Enterprises (M/WBE) and Small Business Enterprises (SBE) HBITS awardees are a mixture of historically large-spend vendors and new players, thus introducing much needed competition to the marketplace. The Vendor Performance Criteria will ensure only the 20 best vendors (out of 25 total) will be on contract in any given year. A streamlined process was developed for obtaining HBITS in NYS. This included implementation and administration of the resultant HBITS contracts NYS was able to identify tens of millions in savings. As I indicated – awards are at our State Comptroller’s Office for final approval. There are recent law change as a result of NY’s Budget including: As of April 1, 2012 centralized contracts which will no longer require OSC pre-contract approval. Past agency engagements from the IT Services award required prior OSC approval Important to the administration of this contract area which will be State Managed Service (In-house). OGS now has the capability and has been provided the financial resources to not only centrally manage, but also centrally bill agencies for the engagements We are well on our way to finalize and train the state’s managed services team who will work on behalf of the agencies to bid and award Hourly Based IT Services, track spend and savings, and actively ensure contract compliance. Other users not under the control of the central contracting agency may use the contracts and we have included directions which will assist them in doing so.

18 IT Service Procurements – Best Practices**
Engage IT commodity strategy teams - integrate purchasing Engage vendors to understand technology roadmaps Create strategy - propose requirements and standards Ensure enterprise adherance to requirements and standards Risks – initial IT costs are significant – reduce risk when standards are set to design for the future Why: Cost savings occur from proper architectural decisions/standards IT investments are long-term and switching costs are sometimes prohibitive **Read NASCIO’s - Leveraging Enterprise Architecture for Improved IT Procurement State of Idaho

19 Idaho and the PIPS (BV) Process
Performance Information Planning System CONCEPT: Hire smart people, and allow them to demonstrate their expertise Preplan projects from beginning to end while identifying potential risks and their solutions Measure performance as well as any deviation from the plan RESULTS IN: Quicker time to supplier selection Greater emphasis on project planning – project success Reduction of client management requirements Motivation towards continuous improvement Creation of accountability, through measurement State of Idaho

20 Idaho and the PIPS (BV) Process
Performance Information Planning System Filter 6 Weekly Report & Post-Rating Filter 1 Past Performance Information Filter 2 Project Capability Filter 3 Interview Filter 4 Prioritize (Identify Best Value) Filter 5 Pre-Award Phase (Pre-Plan) High Old method – 300 pages per supplier p Point Method Of Award Including cost Negotiate – clear issues Detail planning with the state and the Vendor 10 pages 5 pages Panel -Risk Assessment (RA) -Value Added (VA) Schedule Cost - Supplier Quality Assurance RFP – Current Conditions/Expected Outcomes Quality of Vendors Intent to Award Award The process can be explained in the following diagram. This diagram illustrates the different steps that are involved in assisting a client in identifying the potential best-valued contractor. As we go through the process, the lower performers will drop out, and we should be left with the higher performing vendors The first filter is the process is Past Performance Information (click) Assumes: one vendor is the expert Client Quality Control Evaluation Team Blind Low Appeals Dominant Information (1, 5, 10) 20 20

21 Idaho and the PIPS (BV) Process
Pros: Greater time spent planning project prior to award – service project success BV partner identified quicker Ease for evaluator Less bias due to blind process Control shift to the supplier expert – weekly reporting Supplier uses best processes at lower cost, increases profit, assumes risk Client lowers cost through monitoring, not controlling Dominant information focus for BV selection – less time Significant value in pre-planning prior to award—clarifies risk ownership and project details for both vendor and client prior to award Blind selection prevents Bias Limits scope creep – forces decisions for cost, schedule – customer expectation Pushes risk back to the vendor expert Cons Change in control – supplier does all planning and reporting – overcoming resistance is significant Need to train both vendor and client Blind process sometimes selects vendors folks don’t like State laws on selecting best value vs. cost State of Idaho

22 Idaho and the PIPS (BV) Process
Cons: Requires vendor and client training – breaking the Paradigm Suppliers have hard time taking the lead as expert and creating dominant information around risk and minimization -”you’re the customer – tell us what you want us to do” –Suppliers have a difficult time planning - reactive versus proactive not BV Evaluators have a hard time grasping dominant information for RFP scoring differentiation Problem with client control shift to the supplier expert Client says-- “we like controlling and directing the supplier – we are the experts” Purchasing’s job becomes more difficult – internal resistance State of Idaho

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