IT Solutions for Health & Human Services Finding the Balance: Opportunities to Innovate in Structure, Strategy & Process

Transcription

1 IT Solutions for Health & Human Services Finding the Balance: Opportunities to Innovate in Structure, Strategy & Process ISM/APHSA Robert S. Metzger Pillsbury Winthrop Shaw Pittman LLP August 2008 San Francisco, CA Pillsbury Winthrop Shaw Pittman LLP

2 Rising Spending for State & Local IT IT services and supplies are increasingly important to state and local government ( SLG ) delivery of services. State and local IT spending is expected to grow to $72 billion by FY 2011 Many SLGs now seek to centralize IT resources, consolidate IT operations and outsource non-essential government functions INPUT predicts that professional services will continue to be the leading market segment, followed by telecommunications and networks and services associated with tax and revenue and health care. State & local governments are replacing legacy systems and require best in class solutions and providers Internal S&LG resources may not be available or sufficient 2 IT Solutions for Health & Human Services

3 So Many Problems, so Little Time Increasing number of federal and state mandates with complex requirements Demographic trends in the composition and needs of the population indicate rising demand for services and benefits Competition for federal (and state) dollars suggests the rate of funding available will not grow at a rate proportional to the demand Client (beneficiaries) and citizen service expectations are increasing, e.g., as a function of "commercial" experience with web-driven applications Public workforce is aging with implications for maintenance of legacy systems Hiring and retention of caseworkers is very difficult if their jobs are burdened by frustrating IT stovepipes Satisfying both "public trust" and "public law" requirements that are overlaid on HHS-purposed spending seems to demand ever more "paperwork" Fraudulent conduct by unscrupulous "operators" requires constant vigilance to avoid public dollars being lost to waste, fraud and abuse 3 IT Solutions for Health & Human Services

4 Easier Said than Done: Solution Concepts Consolidation of related functions for solution-based response: contrast "single task" assembly line to "multi-task" productivity Automation of rule-driven requirements as necessary to satisfy mandates and assure compliance: background employment of policy-driven screens and controls 4 IT Solutions for Health & Human Services

5 Transformational Strategies Use IT systems to increase the productivity of the state/local worker and to assure limited dollars are "better spent that funds are "legally spent" delivery of more dollars to clients lower recurring recurring costs of process and operation Transfer more of the task to the clients and beneficiaries not more of the work, but more of the responsibility via "friendly" sites and by "one-stop solutions using integrated, web-based systems that are accessible and responsive enable "self-provision" of essential information to reduce public employee processing of predicate data Respond to client expectations by offering one-stop, web-based systems integrated into the range of potentially applicable services and benefits 5 IT Solutions for Health & Human Services

6 Internal Benefits of Succession Use next-generation integrated data storage, retrieval and processing systems and "virtual gateways" to consolidate and integrate information-processing, eliminate or reduce dependencies on legacy systems Make the public employee's job more satisfying and her or his performance more successful by transfer of responsibilities to the client or beneficiary, where possible, and by eliminating pipe-driven: drudgery 6 IT Solutions for Health & Human Services

7 Devils that Beset Implementation Buy-Side: Importance of Self-Assessment Realistic assessment of the conditions and assets Open approach to disclosure of information Seek informed solutions rather than "miracles" Budget may dictate less than ideal solutions What are the "local" strictures e.g., statutory restraints, AG opinions Vs "past practices" (habits) or " policies" (which can evolve) Are the resources (financial, personnel, oversight) sufficient? 7 IT Solutions for Health & Human Services

8 (More Devils) The Government-Vendor Relationship Choices define the acquisition process and the contract that results Adversarial or "Mutually Fulfilling"? Importance of Flexibility Goal-Driven vs Rule-Based Administration Change Administration What is the "SOTR" Sum of the Relationship? Positive: State and Vendor Success? Negative: Either succeeds to the detriment of the other 8 IT Solutions for Health & Human Services

9 Points of Influence : Acquisition Process Defining the Requirement Understanding the "mandates" and their necessary consequences Differentiation between "requirements" and "goals" Vendor role in "trades" among goals Testing the realism of requirements and encourage innovation and best value solutions -- through NOI, RFI and other pre-rfp process Permitting alternative Ts&Cs and negotiation 9 IT Solutions for Health & Human Services

10 Points of Influence : Strategy & Specifications Strategy of the Acquisition Maximizing competition vs. discouraging competitors Encouraging "best value" solutions rather than orthodoxy Preserving opportunities for future competition Anticipating risks and liabilities from the contractor perspective Specifications and the Statement of Work IT is not a commodity IT services contracts rarely suitable for "design" (specification-driven) contracts better to state objectives Providers have different experience and expertise 10 IT Solutions for Health & Human Services

11 Innovative Implementation Techniques SLGs should encourage innovative solutions to their "business problem" Unduly restrictive requirements suppress innovation and prevent suppliers from offering their best solution Permitting alternatives to meet goals may work better than requiring conformity to satisfy requirements Avoid structure (in SOW or Evaluation) that precludes the "best offer" of the vendor to solve the articulated business problem Structuring the Competition Disclosure and weight of evaluation criteria Importance of price in selection The relationship of price to value: important, but not dispositive Measure IT success at the client Lowest price does not necessarily equate to the best client service or to the most effective public administration of those services 11 IT Solutions for Health & Human Services

12 Challenge: State & Local Procurements Are Beset With Barriers to Effective Competition & Best Value Solutions Viewed nationally, there are many barriers and constraints: Great variation among the states in process, practices & policies no norms or best practices... procedures often informal Out-of-market terms & conditions most capable firms deterred or added risk produces NVA price Often no industry involvement in definition of requirements or best solution providers are excluded by follow-on limitations Competitive process may be opaque and subjective absence of objective selection methods deter would-be bidders Protest process may not provide any practical form of remedy disappointed bidders may have no relief however egregious Collectively: limitations of public procurement practices cost taxpayers money and retard access to needed next generation improvements in key public services 12 IT Solutions for Health & Human Services

13 Recurring Problems: Terms & Conditions S&LGs often use terms and conditions to procure IT that (a) differ greatly from commercial norms and (b) vary from job to job Exception or objection to standard terms risks disqualification S&LG contract terms and contracting practices pose these risks Excessive, even unlimited financial exposure to contractor Jeopardy to enterprise-critical intellectual property Unpredictable, even irrational procurement process Results are unintended and undesirable: excess or unbounded risk produces no bid, high bid procurements are gamed, slow and contentious public buyers are denied commercial technologies & skill 13 IT Solutions for Health & Human Services

14 The Case For Change The basic propositions: It is mutually advantageous for S&LGs and Industry to employ T&Cs that converge on commercial norms Reducing vendor risk and cost will produce true best value Using terms aligned with commercial experience will open S&L procurement to more and better firms S&L procurement will go faster, be less frustrating and produce fewer protests and post-award disputes Aligning the practices of different state and local govts with best practices will improve competition & value 14 IT Solutions for Health & Human Services

15 Terms & Conditions: Areas of Greatest Concern Limitation of Liability: exposure far greater than contract value some states unwilling to accept any LoL Indemnity: obligations unrelated to contractor fault Intellectual Property: demands for ownership of contractor IP Warranty: continuing obligations of unreasonable duration OCI: preclusion of downstream program involvement Termination: problems reconciling T4C with SOX rev. reporting Consistency: unpredictable, frustrating process Performance Bonds: expensive (if available) may limit competition and impose a cost far in excess of value S&LGs often are unable or unwilling to negotiate key terms & conditions S&LGs sometimes insist on variation from standard terms if in the state s interest 15 IT Solutions for Health & Human Services

16 Limitation of Liability:The principles of the issue Large and small companies must balance financial risk with potential gains of public companies. Unlimited LoL is difficult to reconcile with expected gain on any S&LG contract. Some S&LGs insist upon contracts with no LoL or with LoL that potentially is confiscatory of enterprise and shareholder value Some S&LGs even refuse to agree not to assert claims for consequential, punitive or other special damages A few states (e.g., Oklahoma) assert a constitutional mandate. Others base their position on supposed policy considerations. Industry believes a commercial approach linking liability risk to performance value will enhance competition and lower prices Best value is not obtained by insisting on confiscatory LoL 16 IT Solutions for Health & Human Services

17 Terms and Conditions: the Basic Questions Do they serve or defeat the public's objectives? What is their effect on competitors and competition? Are the risks imposed on the vendor reasonable? Will vendors price those risks in their bid? Is the "premium" worthwhile? Is the risk real? Does the contract term reduce the risk? Is the advantage real? In the worst case, what does the buyer gain? What other choices are available to manage risk? 17 IT Solutions for Health & Human Services

18 Conclusion Industry should work to establish best practices for state and local procurement of information technology supplies, services and consulting advice This should be accomplished with the involvement of state and local government organizations so that the concerns and requirements of the public purchasers can be fully understood and accommodated A statement of best practices can be a useful resource for state and local governments across the country even if there can be no national or standard practice 18 IT Solutions for Health & Human Services

19 IT Solutions for Health & Human Services Finding the Balance: Opportunities to Innovate in Structure, Strategy & Process Robert S. Metzger Pillsbury Winthrop Shaw Pittman LLP 725 S. Figueroa Street, Suite 2800 Los Angeles, CA Pillsbury Winthrop Shaw Pittman LLP