Title of the Paper: ACQUISITION OF VIRTUAL INFRASTRUCTURE FOR EGOVERNANCE. Theme: TECHNOLOGIES FOR REDEFINING INDIA. Keywords:

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1 Title of the Paper: ACQUISITION OF VIRTUAL INFRASTRUCTURE FOR EGOVERNANCE Theme: TECHNOLOGIES FOR REDEFINING INDIA Keywords: 5 R's of Procurement, IaaS PaaS &SaaS, Digital India, NeGP Abstract: Government of India has launched Digital India program primarily with focus on bridging the digital divide and to give a push to egovernance. IT infrastructure is also proposed to be created as part of this Program. It would be prudent not to repeat mistakes of National egovernance Plan (NeGP) conceptualized in year , where each project was undertaken as a silo resulting in redundant IT infrastructure. Adoption of new technologies like Cloud and Virtualization has potential to move away creation of redundant infrastructure and to optimize usage of resources. New approach was introduced for managing IT Infrastructure in few projects of Haryana Government. As part of this approach, IT infrastructure service catalogue was prepared and published as part of RFP. Each item in catalogue carried a number mentioned as Cost Indicative Value (CIV). Each bidder was required to select items from the catalogue as part of bid to manage the egovernance application for period of operations, normally five years. Total CIV for five years was considered as part of bid evaluation along with technical and financial score. Adoption of this approach brought in huge benefits as Infrastructure was deployed only when required and scaled up or down as per utilization. This helped a lot in reducing the cost of project, staggering infrastructure costs along the project life-cycle and in consolidation of IT Infrastructure.

2 Introduction: In India, majority of government IT projects are still aligned to principles of procurement of goods and works. This is in contrast to private sector where IT procurement is treated as procurement of services. With the advent of disruptive cloud technologies, focus is on procuring infrastructure components as services. Infrastructure as Service (IaaS), Platform as Service (PaaS) and Software as Service (SaaS) concepts are being leveraged by organizations for cost optimization and other benefits. Public procurement process in India is not geared up to handle this paradigm shift towards procuring services. Further, in-house capability to manage procurement of services is insufficient. This has put brakes on adoption of new technologies in Government space. It is well recognized that procurement management is a complex endeavor, which if not handled well, may lead to diminishing quality resulting in organization not being able to meet desired objectives. Public Procurement in particular comes with added complexity because of involvement of public money. There are stringent requirements of transparency, fairness and equality. In this paper, Cost Indicative Value (CIV) based procurement model is described which has been successfully used as part of procurement for IT projects utilizing latest technologies. The model is based on current framework of public procurement and does not require any change in the public procurement acts and rules applicable in India. Adoption of model has helped government agencies to reduce risk and to ensure effective utilization of funds to effectively reduce wastage. Money saved due to effective procurement is key as it leaves more money in hands of Government to be utilized elsewhere.

3 Main body of the paper: 1. Principles of Procurement: Procurement Management is one of the key knowledge area of project management and has been clearly identified and emphasized in Project Management Body Of Knowledge. There are five principles of right procurement known as 5 R's: Right Price (Total cost of Value); Right Quantity; Right Source; Right Quality; Right Time & Place; All 5 Rights (5 R's) need to be met for efficient and effective procurement to enable meeting organizational objectives in right earnest. The 5 R s principle is highly relevant to public procurement.

4 2. Technology procurement in Government Analysis of procurement under National egovernance Plan (NeGP): Under National egovernance Plan (NeGP), around 31 projects were conceptualized. This was done to enable various Government departments at central and state level to undertake projects targeting on-line service delivery to citizens backed by computerization of government processes and digitization of information/ data. These projects were executed as Mission Mode Projects mostly through outsourcing arrangements. All NeGP projects include infrastructure (Server, storage, networking etc), software and services. Infrastructure components are a big chunk of purchasing process which need to be repeated across departments. These projects are not agile enough to adopt latest technologies. Usage of latest technologies like Cloud / Virtualization open opportunities for consolidation of infrastructure. These disruptive technologies can be used for standardization/ commoditization of IT infrastructure, optimize utilization and to move towards just-in-time infrastructure procurement. Let's analyze Government procurement process for acquisition of technology, particularly infrastructure components against 5 R s of procurement: i) Right Price (Total cost of Value) Definition of Right price is complex in technology projects as the lowest priced product or service isn't necessarily the one with the lowest total cost of ownership or highest value for money. The Price should be just right for the right quality and quantity. Procurement decisions for multi-year high value complex projects need to be based on total cost of ownership, life cycle costing or value for money and not price, which is only one component of total cost. Because of requirement of Government projects to be awarded on Firm Fixed Price (FFP), lots of inefficiencies are introduced. Vendors need to make a lot of assumptions for a long period of 5+ years related to introduction of new technologies, change in pricing, variations in currency rates etc. This means solution being purchased at the time of purchase is not priced right. ii) Right Quantity Typically, in the NeGP projects there has been requirement of no single point of failure in IT infrastructure and the project is sized for 5 years. This results in creating a Bill of material which is double of peak requirement for 5+ years. Further, it is also required that Disaster recovery site shall be 100% of primary Data centre. so it

5 becomes four times. of actual requirement. So if we need one server for any activity what is actually procured is four servers. It has also been analyzed that the utilization of IT infrastructure is in single digits for majority of duration of project. All this adds to project cost. In-case of a failed project, all investment in infrastructure goes down the drain as it gets locked and is never utilized in other project. It can be easily understood as to what is the extent of oversizing done in these projects. All NeGP projects failed miserably on this account. iii) Right Source Rigidness of Government procurement processes requires everything to be frozen for coming 5+ years even before start of project. Vendors needs to specify make, model, quantity of hardware. Thus, they need to get into contracts with their vendors for long periods. This means infrastructure components being supplied to Government are not necessarily from right source as stakeholders are not able to exploit opportunities arising because of new technologies and change in external environment factors including price variations, currency variations etc. iv) Right Quality Choosing best quality in Government process is anyways difficult because of L1 or lowest price based selection process. There is some focus on quality using quality cum cost based selection (QCBS) methods. As explained earlier, freezing procurement requirements years before execution means there are no opportunities to leverage opportunities for improvement in quality because of new technologies. v) Right Time & Place All procurement decisions need to be made up-front for very long period and delivery of IT infrastructure is generally done very early when solution is not in place resulting in inefficiencies. Time taken for provisioning IT infrastructure required for project is 6-9 months. By the time infrastructure is provisioned and put to use, technology is already obsolete. Due to security reasons, egovernance application are hosted in Government data centers. Typically, egovernance applications are co-located here-in for each project where servers, storage, networking and other equipment need to be brought in by executing department. There are dependencies because of this

6 need to host in a particular data center, and sometimes it creates unnecessary tying of infrastructure procurement to a place. It is well evident from above analysis that Government procurement of technology specially infrastructure components is completely flawed and is thus not helping get optimal benefits as desired. There is lots of waste being generated in system, inefficiencies are prevalent and there is urgent requirement to take corrective actions. There are more than 100 departments / boards / corporations and other entities under Haryana Government and each project goes through same process and spends same effort again and again and over provisions infrastructure as explained. There is urgent need to solve this problem to enable stakeholders to reap optimal benefits. Many of the above problems can be handled through use of latest technologies like Cloud. For example DR strategy changes completely due to cloud and the cost of implementation of DR also reduces considerably. The benefits are huge and is beyound the scope of current paper. Here, benefits of new technologies are not being discussed. This paper limits to CIV model for procurement of latest technologies which is service based and not ownership based. 3. CIV (Cost Indicative Value) based evaluation method for projects leveraging cloud technologies / virtualization: To overcome the limitations in current procurement process analyzed using 5 R s of Procurement, Cost Indicative Value (CIV) based procurement model was proposed. The same was used in one 100+ Crore project and various smaller projects. Considerable saving in IT Infrastructure cost component has been observed by adoption of this model. To explain it further, Hospital Information System (HIS) project of Government of Haryana is taken as a case study and referred in subsequent section. 4. Case Study - HIS project & methodology adopted (CIV based procurement Model): The CIV based procurement model is being explained below under various processes of procurement management knowledge area:

7 4.1 Plan Procurement Management: At procurement planning stage, depending on the need assessment and technologies to be used, a catalogue of items/services is prepared containing all items under IT Infrastructure management. Each item/service in the catalogue is assigned a Cost Indicative Value (CIV). A sample catalogue is provided as List 1 below. List 1. Sample IT Infrastructure catalogue Managed Compute and storage / Virtual Server Hosting Service Packages EXPRESS STANDARD GROWTH POWER Processor 2vCPU 4vCPU 6vCPU 8vCPU RAM 4GB 8GB 12 GB 24 GB Local Storage 200GB 300GB 500GB 500GB Support Services Included Included Included Included CIV (Cost Implication Value) Managed Storage Services 1 Local Storage 100GB (Available only with virtual compute) External SAN Storage 1TB (Available for both Virtual and Physical Compute) 1 30 The sample only denotes server components but in actual, the exhaustive catalogue was created covering compute, storage, backup, disaster recovery, common system software like operating systems, load balancer etc. The catalogue was made part of Request for Proposal (RFP) where CIV was derived on basis of current

8 actual cost of these items as available in the market. In addition to providing the catalogue, a Bill of Quantity table as shown in Table 1 (extract of the original )was provided as part of RFP. Table 1: Bill Of Quantity for catalogue items (CIV QUOTE) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Q Q Q Q 1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1 Q2 Q3 Q4 1 Q2 Q3 Q4 1 Q2 Q3 Q4 1 VIRTUAL Server Hosting 1.1 Express 2 Physical Server Hosting 2.1 Express 3 STORAGE 3.1 Local Storage 4 Operating System 4.1 Windows Standard 5 OPTIONAL Managed 5.1 Express 6 Managed Load Balancer Bidders were asked to fill in the quantities they require for the duration of project. Quantity of each item of the catalogue is to be provided on quarter basis. This sheet was required to be submitted along with financial quote. Thus, this filled sheet submitted along with financial quote is identified as CIV quote. Items listed in the

9 catalogue were proposed to be provided through State data center or through BSNL data center. A MOU in this regard was already in place between Govt. of Haryana and the IaaS provider which we called as Cloud service provider. It was essential that the selection of agency was to be done as two part bid i.e. technical & commercial evaluation and Financial evaluation. Selection of the most responsive bidder was done through Quality and Cost based System i.e QCBS. It is always advisable to use QCBS for selection of vendors for technology project. Generally, for QCBS evaluation a ratio of 70 / 30 or 60/40 between Technical and Financial score is used to arrive at most responsive bidder. The QCBS was sightly modified to incorporate the CIV score as also part of bid evaluation. The modified QCBS taken for HIS project was 70% for technical score, 5 % for CIV score and 25% for financial score. CIV score was calculated as financial score i.e. bidder with lowest CIV given as 5 and rest bidders get proportionate to that. As part of another initiative in Government of Haryana, for IaaS is available from State data centre and from BSNL data center. SDC is capable to handle small size project whereas BSNL data centre can handle medium and large projects. MOU has been signed with BSNL and rate card is published which is to be revived at regular intervals. SDC IaaS service comes to department free of cost and is proposed to be available only at operational cost as initial capital cost is to be borne by IT department of state. This gives benefits to department to choose from two service provider as per their need Conduct Procurement: Under this process, the first important step was the pre-bid meeting. During pre-bid meeting the concept of CIV and its impact on overall assessment was emphasized as this was a new concept and it was likely that bidders may not have understand this. During the pre-bid of HIS solution, the concept of CIV was explained and queries were invited prior to and during pre-bid. It was also important to ascertain during the pre-bid that the catalogue for IT Infrastructure is complete. In case there was some missing item the same, it was to be provided along with CIV in corrigendum to the RFP. In case of HIS project, the catalogue was found to be complete and the response of the bidders was quite encouraging. One common question which was raised by various prospective bidder was why CIV was being taken and not actual Cost. CIV was done purposefully as the procurement of IaaS was for five years. It was anticipated that technology will change and so will the cost. Hence, to prevent impact of such changes, CIV

10 was devised. Another reason was that the IaaS could be availed from any one the Data center/service provider and hence back end cost may vary. During evaluation process, technical score was awarded based on the technical parameters as specified in the RFP. Financial bids for technically qualified bids were opened. In financial bid two quotes were present one financial quote for the application part other CIV quote for IT infra part. CIV score and financial score was calculated in same way i.e. one with lowest quote was given maximum score i.e CIV score as 5 and financial score as 25. Evaluation was based on following formula: CIV/Financial score out of 100 = (Lowest CIV or Financial quote amongst all bidder/ CIV or financial quote of the bidder)* 100 Final score = 0.70* technical score * financial score * CIV score The bidder getting highest score was selected. In HIS project, huge variation in CIV quotation was observed. The L1 bidder lost the bid due to very high CIV quote even though the technical scores were very close. In the contract it was mentioned that any additional item required which is not part of CIV quotation is to be borne by the bidder. This helped the department to fix the maximum cost of the project. 4.3 Control Procurement: With the start of the project, credit of CIV quote was provided to bidder. As the department was interested in the total CIV quote, bidders were free to modify the IaaS items as quoted i.e if they quoted 1 TB of storage they can reduce to 500 GB as the requirement was not there. Once the project execution started and application was ready for testing, items as listed in the CIV quotation were provided from the data center for the duration for which it was required. The CIV value for which the items/service was provide was deducted from the CIV credit given to the bidder. As the project progressed, the selected bidder had better understanding of the requirement and it was interesting to observe that during initial launch of project the CIV utilized was much less than the quoted one. In traditional model of procurement the selected bidder even knowing that Infrastructure is over-sized would have procured all as it could not have been reduced. But in this model it was possible as department was interested in CIV and not on individual infrastructure services. Annual requirements were provided to Data centre service provider or IaaS provider with a rider that services can be increased or decreased as per load

11 requirement. Payment shall be made only for resource utilized per quarter. All payments were directly made by the department for CIV related services based on the usage. 5. CIV Model benefits to business i. The CIV model was better tuned towards 5 Rs of procurement in comparison to traditional approach; ii. The financial saving on IT infrastructure was observed to be around 50% of the traditional approach just as 5Rs are better met in CIV model; iii. There was slight delay in HIS project and as procurement was done at right time there was no wastage of resource due to delay thus reducing risk of cost overrun; iv. As infrastructure was taken as service, failure of project to scale or otherwise will not have any financial impact as payment to CSP is made only for services availed; v. No cost overrun for department as CIV credits are fixed and any usage beyond CIV quoted was on account of selected bidder; vi. No upfront investment in IT infrastructure from bidder hence no risk and financing cost thus reducing overall project cost; vii. As infrastructure is taken as service, the project has agility to avail benefits of technology changes. As CIV credit is given to selected bidder there is no impact towards bidder costs. viii. With proper utilization monitoring infrastructure resources availed can be reduced if not used thus giving further saving; ix. No silos created as Infrastructure is used as Service. x. The total cost of ownership can be calculated by multiplying CIV with CIV conversion ratio (calculated periodically and is based on service provider, for HIS project calculated as Rs. 1700/- ) 6. Lessons learnt / challenges Faced: i. Understanding of model itself took some time for the bidders; ii. iii. In project execution an additional stakeholder i.e CSP or Data center service provider also gets added. So, conflict resolution becomes challenging; PMU is essential for the department which has to manage CIV in addition to other Project related activities;

12 iv. End to end SLA definition and management has been challenging. Conclusion: The CIV model satisfies the Government procurement norms and enables procurement of virtualized infrastructure. This model also complies to 5 R's principles of procurement and provides huge benefits on account of all areas. In current scenario, all savings due to optimization of Infrastructure goes to department whereas the same is done by selected bidder. There needs to be a mechanism to reward bidder if there is saving on CIV as the cost of CIV overrun is to be borne by selected bidder. The department is required to setup a PMU to manage CIVs and to keep the selected bidder informed and updated about it. The PMU needs good conflict management skills as there is always a conflict between application and Infrastructure team. The CIV model brings in immense benefit to the project by enabling to procure services which based on latest technologies. As infrastructure technologies keep on changing the project team really need not bother as the same is taken care by the Infrastructure service provider. The CIV model also facilitates paradigm shift from infrastructure ownership model to services model. In countries like United Kingdom and United states, service providers has been empaneled and rates has been fixed. The services are categorized as IaaS, PaaS and SaaS. The project teams are free to use any of the service listed but the challenge is how to evaluate these services and procure the right services. CIV model can also be applicable to such scenario. This model if adopted in Digital India program can bring in at least 10-20% saving in addition to other benefits. References: ****************************************End of Document ***********************************************