State and local government agencies have largely overcome their initial skepticism of cloud computing. But they still face hurdles on their journey to greater cloud adoption. Chief among them are budgeting and procurement procedures that were designed in an era when most government purchases involved physical equipment and services provided by local contractors.
“The transition is still in midstream,” says Dugan Petty, senior fellow with the Center for Digital Government (CDG) and former CIO and chief procurement official for the state of Oregon. “It looks a lot different than it did six or seven years ago, but I’m sure in 5 to 10 years, it will look different again.”
The shift from dedicated hardware and software to cloud and everything-as-a-service models has upended traditional models of government procurement. The initial challenge was shifting expenditures from capital to operating budgets as technology options rapidly moved away from physical hardware and discrete software to cloud-based solutions operating on ongoing subscription models. But moving to these new models involved more than switching cells on a spreadsheet, says Petty. It also challenged the mindset of IT leaders and budget officials.
“In state budgeting, we were always oriented to keeping our operating budgets down,” he says. “We had to get over the idea of keeping operating expenditures to the bare bones and start looking at the total cash outlay over time.”
Cloud migration also has challenged larger governments which have historically capitalized large IT projects as part of bond offerings.
“Typically, when you capitalize something, you need something that’s tangible, and when you used to capitalize IT, you had infrastructure — systems, server racks,” says CDG Senior Fellow Sergio Paneque, who has held senior procurement positions for the city and state of New York. ”IT is changing so rapidly, but the rules that govern procurement and budgeting are still stuck in the mud.”
But there have been significant benefits to the shift as well.
“The buying model has in some ways become easier,” Petty says, with performance requirements replacing multi-step processes involved in selecting software and hardware before hiring integrators. And centralized IT departments with chargeback systems for participating agencies have benefitted from greater clarity on overall operating expenses, he adds.
Governments also found ways to use cloud services to connect different pieces of larger capital projects. Paneque points to examples such as a cloud-based elevator management system that brings together under one umbrella purchases of hardware and other services.
“All of the sudden, it can be the piece that joins the various pieces together to become a solution,” he says.
Most importantly, the shift to cloud reduced risk for governments and agencies, Petty says. “The risk of spending 18 months building out a system and not getting it to do what you need it to do is much lower."
Among strategies to make the procurement process work better for cloud:
Collaborate with cloud stakeholders: Work with procurement officials, auditors, and budget officials to make sure the shift to cloud models is understood and conforms to existing policies or laws. Stress that there’s not a single cloud model, but many — infrastructure-as-a-service, platform-as-a-service, software-as-a-service, and more. “The ownership of the technology and responsibilities for actions vary depending on the model,” Petty says. “All of the policy owners that have a stake in this really need to understand how the particular cloud model works — and they have to understand it in the same way.”
Define solutions, not systems: When making budget proposals, it’s important to identify how cloud solutions fit into the broader systems you're improving or modernizing. “The biggest problem is when people go to the budget office and say they’re going to buy software without looking at the framework or process flow,” Paneque says. For example, a cloud-based marriage licensing system may not be a discrete piece of software, but part of larger efforts to modernize manual processes, improve recordkeeping and speed the printing and distribution of licenses.
Provide cost transparency: The pricing transparency of most cloud and as-a-service models makes it relatively easy to compare costs with in-house solutions. Cloud models also tend simplify cost breakouts around usage and pricing — and those simplified models should be shared with agency customers in chargeback models.
Rethink contract terms and conditions: Too often, agencies try to purchase cloud using contracts that were designed for buying computer hardware and software — and they simply don’t make sense for as-a-service solutions, Petty says. “We’re taking terms from integrator contracts — which probably originally came from construction contracts — and trying to tweak them.”
To address this challenge, technology and procurement staff can collaborate on creating cloud-friendly terms and conditions. Another tip is to focus on performance and configurability in your solution requirements.
Be clear on cloud security: Contracts should stipulate what level of security controls are required in cloud solutions — and how those may vary depending on the type of data included in a proposed solution. It’s important to note that security standards such as FedRAMP (and its emerging StateRAMP counterpart) require third-party certification and continuous monitoring of security controls over the life of contracts. Also consider whether potential partners have supply chain risk management practices in place; after several recent attacks, the National Institute of Standards and Technology (NIST) is revising cyber supply chain guidelines for federal projects.
Plan for rate increases: With traditional capital projects, governments could defer upgrades when finances dictated the need to hold the line on spending. But cloud providers may pass along regular rate increases which IT departments and budget officials must be prepared to address. “You get it all baked into the annual budget, and you can anticipate annual rate increases,” says CDG Co-Director Teri Takai. “You have to manage cloud services in a different way than the equipment you own.”
Account for overhead costs during your transition: Covering overhead costs as in-house services migrate to the cloud is another area IT leaders must develop plans to address. “If you’re moving out of your brick-and-mortar data center, you still have to pay for it until you close the entire facility down,” Takai cautions. In shared services environments, that entails changing charge-back structures so the remaining overhead of in-house facilities is fairly distributed among the departments or agencies using them.
Focus on reusability in procurement: Some governments are creating cohorts of prequalified contractors from which agencies can choose when seeking solutions. Others are including refresh cycles in contracts to ensure that upgrades to services don’t require a new procurement process. “New applications and refinements happen daily,” Petty says. “Having these kinds of systems in place can expedite them as quickly as you need them.”
Anticipate new models: To ensure they can respond to changing needs, CIOs should work with budget officials to prepare procurement procedures for the next wave of emerging services and technologies. Governments often fall back on emergency funding protocols to rapidly implement new solutions, but standard processes must be developed to make adoption more routine, Paneque says.
“We have to create vehicles for emerging technologies which lend themselves to a whole other bucket of procurement that’s not addressed in the law right now,” he says.
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