Cloud Procurement Recommendations from DOD’s Section 809 Panel Report

In January 2019 the Department of Defense’s Section 809 panel, created in accordance with Section 809 of the Fiscal Year 2016 National Defense Authorization Act, released volume 3 of its two year effort to streamline and economize defense acquisition processes. The roughly 1,100 page report, divided into two parts, examines every aspect of defense acquisitions and puts forward a large number of recommendations that could shape defense acquisitions for years to come. This post looks at the 809 panel’s recommendations for improving cloud procurement and discusses the potential implications of these recommendations at the DOD.

Size of the Defense Cloud Market

Determining the potential size of the defense cloud market is daunting given the vastness of the DOD and the complexity of its information technology ecosystem. The Section 809 panel made an attempt anyway, claiming “the DoD already spends nearly $10 billion annually on services that could potentially be purchased on a consumption basis, so the need to improve the buying process is long overdue.” The key words here are “on a consumption basis.” Thanks to the complexity of the federal budgeting process, agency funding is divided into different “colors of money” governed by regulations and guidelines. This system, concludes the panel, needs to be reworked to eliminate inefficiencies and to enable the purchase of commercial IT capabilities as needed (i.e., “on a consumption basis”).

The panel went one step further, however, providing an analysis by Product Service Code of defense spending potentially eligible for purchase on a “consumption basis.” The result is shown below:

The 809 panel clearly considers telecommunications services (including IT infrastructure), on which DOD spent nearly $8B in FY 2017, to be the largest of the big rocks for which department could leverage cloud computing. IT hardware also rates highly, with FY 2017 spending coming in at about $1.1B.

Recommendations

After determining the range of eligible cloud services, the panel concludes “the government will be unable to effectively acquire modern consumption-based solutions until it implements a new set of procurement rules that address the unique attributes of these solutions and  provide flexibility to effectively buy future solutions that do not fit into existing categories.” To achieve that goal, the panel recommends the following:

• Update the current supplies and services model to provide more flexible purchasing categories that address current and anticipated delivery models, including consumption-based solutions.
• Develop a new contract type for consumption-based solutions that functions more like a time-and-materials than a firm-fixed-price contract, and will automatically capture price reductions in contractors’ commercial pricing. It is also essential that this new contract type be permitted for use on contracts for commercial items (i.e., FAR Part 12) as most consumption-based solutions are commercial offerings.
• Provide authority in contracts that allows for the consumption of services not available at the time of initial contract award, but which are developed later.
• Make funding flexible so acquisition professionals can confidently procure consumption-based solutions without fear of running afoul of the Anti-Deficiency Act or Impoundment Act.
• Develop and provide ongoing training, including a specialized certification, for IT acquisition professionals.

Implications

Addressing these recommendations will require legislation (which could be a long time coming) as well as changes to Federal Acquisition Regulations and the DFAR supplement that governs DOD procurements. Some required changes called out by the panel include:

• Creating “a new subcategory of services called consumption-based solutions in FAR Part 37, Service Contracting, and adding a reference in FAR Part 39, Acquisition of Information Technology.”
• Updating Product Service Codes to include consumption-based solutions.
• Adding “a new contract type called fixed-price resource units to FAR Subpart 16.2 that establishes a fixed price per unit of measure (e.g., one hour of computing resource), which sets an overall contract ceiling for flexible consumption, and is the preferred contract type for consumption-based solutions.
• Refine IT acquisition training for defense contracting personnel.

Summing up, DOD’s Section 809 panel addresses the long-standing elephant in the room as far as cloud procurement is concerned – the fact that current funding structures and acquisition methods hinder the use of utility computing like cloud. If a new type of flexible contract is developed and approved for use at the DOD then spending on cloud-based capabilities could skyrocket.