15 Procurement Models Used by the US Government

A paradigm shift is underway in government contracting, which could usher in a brilliant new era of efficiency to benefit both agencies and contractors. The White House recently introduced the Better Contracting Initiative, a four-pronged approach to ensure the Federal Government obtains better terms and prices for goods and services. This initiative is expected to generate over $10 billion annually in savings and cost avoidance for government agencies. 

This article explores 15 recent developments in government contracting methods, highlighting the benefits they offer to both contracting firms and government agencies.

In This Article:

• Governmentwide Acquisition Contracts (GWACs)
• GSA MAS Contracts
• Best In Class Contracts
• Hybrid Contracts
• Staged Contracts
• Challenge-Based Acquisition
• Share-in-Savings Contract
• Modular Contracts
• Strategic Partnerships
• Innovation Partnership Contracts
• The Agile Procurement Model
• Performance-Based Contracting
• Outcome-Based Incentives
• Commercial Item Contracts
• Value-Based Contracts

GWACs have recently become a powerful tool for government agencies seeking innovative IT solutions. These contracts are gaining traction due to their ability to streamline the acquisition process and provide access to a diverse pool of pre-vetted vendors.

GWACs offer a unique blend of flexibility and cost-effectiveness, allowing agencies to tap into cutting-edge technologies without the burden of lengthy procurement cycles. For instance, the 8(a) STARS III GWAC, with its impressive $50 billion program ceiling, has opened doors for certified 8(a) small disadvantaged businesses to compete on a level playing field—right along with huge technology enterprises. This contract method has not only fostered innovation but also promoted economic growth within underrepresented communities.

Another example is the VETS 2 GWAC, a $5 billion program dedicated to Service-Disabled, Veteran-Owned Small Businesses (SDVOSB). This initiative has empowered veterans to leverage their unique skills and experiences in the IT sector, contributing to both technological advancement and social impact.

The Alliant 2 GWAC stands out for its comprehensive approach to IT solutions. Contractors offer customizable packages that include hardware, software and services, enabling agencies to address complex challenges with tailored solutions. This flexibility has proven invaluable in scenarios ranging from cybersecurity enhancements to cloud migration projects.

As agencies face evolving IT requirements, GWACs are poised to play an increasingly vital role in government procurement strategies. They allow agencies to modernize their IT infrastructure while adhering to budgetary constraints and helping contractors level the contract playing field.

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A General Services Administration (GSA) Multiple Award Schedule (MAS) contract is a long-term governmentwide contract that allows commercial companies to sell products and services to federal, state and local government buyers at pre-negotiated prices. These contracts are also known as Federal Supply Schedules (FSS) or simply "Schedules."

Key Features of GSA MAS Contracts

1. Duration: GSA MAS contracts typically have an initial period of five years and three additional five-year option periods, potentially lasting up to 20 years.
2. Contract Type: They are Indefinite Delivery, Indefinite Quantity (IDIQ) contracts.
3. Pricing: The contracts contain predetermined prices, delivery terms and warranties that are fair and reasonable by government standards.
4. Scope: Most products or services that are Trade Agreements Act (TAA) compliant and offered commercially can be sold through the GSA MAS—with some exceptions, such as weapons, ammunition, construction and architecture services.

Benefits of GSA MAS Contracts

1. Efficiency: The program streamlines the procurement process for both government buyers and contractors.
2. Marketing Opportunities: Contract holders can list their offerings on GSA Advantage!, an online shopping tool for government buyers.
3. Long-term Partnership: The extended contract duration allows for an extended engagement with federal agencies.
4. Competitive Advantage: Having a GSA Schedule can make it easier to win government business due to pre-negotiated rates and streamlined purchasing procedures.

GSA MAS Structure

The GSA MAS is organized into 12 large categories, each containing subcategories and Special Item Numbers (SINs) for specific product or service classifications. This structure allows contractors to offer diverse products and services under a single contract.

To obtain a GSA MAS contract, companies must meet specific qualifications, including financial stability, at least two years in business and compliance with various regulations. The proposal process involves administrative, technical and pricing sections, which GSA contracting officers evaluate.

Best-in-class (BIC) contracts have become prevalent throughout federal procurement in recent years. These contracts, pre-approved by the Office of Management and Budget (OMB), meet specific criteria designed to shorten the acquisition process and deliver superior value to government agencies.

BIC contracts offer numerous advantages to both government buyers and contractors. For agencies, they provide access to vetted, high-quality vendors and pre-negotiated terms, often resulting in cost savings and reduced administrative burden. Contractors gain the prestige of a BIC designation and potential increased visibility among federal buyers. 

One notable example of a BIC contract is the GSA Alliant 3, an unrestricted GWAC for IT solutions. With an estimated value of $75 billion, Alliant 3 exemplifies the scale of BIC contracts in the federal marketplace.

BIC contracts seek to optimize government spending and support small and disadvantaged businesses, fostering a more diverse and resilient federal marketplace.

Hybrid contracts allow for multiple payment types within a single contract, enabling agencies to tailor their approach based on each project phase's unique risks and requirements. For instance, a large-scale software development project might employ a cost-reimbursement model during the initial research and design stages, transitioning to a fixed-price structure for the implementation phase.

This flexibility is particularly valuable in complex, long-term projects that undoubtedly involve uncertainties. For example, the U.S. Department of Defense (DoD) has successfully used hybrid contracts in procuring advanced weapon systems, allowing for adjustments as technologies mature and requirements become more defined. Similarly, NASA has employed hybrid contracting strategies for space exploration missions, balancing the need for innovation with fiscal responsibility.

Hybrid contracts also align with the government's broader goals of promoting efficiency while supporting small businesses. By incorporating different payment methods, agencies can optimize resource allocation and encourage participation from diverse vendors. This approach has shown promise in areas such as IT modernization efforts. In these, the GSA leverages hybrid models to negotiate more favorable terms with software providers while maintaining flexibility for future needs.

The staged contract method uses short concept papers to identify vendors most likely to receive an award, helping those less likely to succeed avoid the cost of developing detailed proposals. This approach is particularly practical at rapidly funneling many private sector technology firms into specific agency requirements. 

The Department of Veterans Affairs Innovation Initiative (VAi2) Industry Innovation Competition is an excellent example of staged contracts in action. The competition sought innovative solutions to well-documented problems while minimizing cost and liability.

VAi2 used a multi-stage process, beginning with brief submissions. Promising concepts were then invited to submit more detailed proposals, and finally, selected vendors were awarded contracts to develop and implement their solutions. This staged approach allowed the VA to efficiently evaluate a wide range of innovative ideas while reducing the burden on both the agency and potential vendors.

Challenge-based contracts are designed to incentivize private-sector entities to demonstrate solutions in real-world conditions—often those proposed in a contract. This approach allows agencies to explore the market and pay only for successful outcomes, making it particularly suitable for projects where solutions likely already exist.

In practice, challenge-based contracts involve agencies releasing broad solicitations for contractors to compete through a series of milestones. Each milestone has a defined problem statement and monetary value. Agencies then select a pool of competing contractors and announce which milestones are under competition.

One example of this approach is NASA's Innovative Lunar Demonstrations Data (ILDD) program. This initiative seeks to purchase specific data related to lunar exploration resulting from the commercial development of small, robotic lunar landers. NASA awarded multiple small, firm-fixed-price contracts over five years, with a total value of up to $30.1 million.

Challenge-based contracts offer several benefits. They help agencies reach beyond traditional contractors, increase the number of entities working on a problem and ensure government flexibility in financing when resources are limited. This model also strengthens small businesses by offering more accessible funding. 

Share-in-savings (SIS) contracts are innovative performance-based agreements in which contractors invest upfront costs, and then share in the savings or increased revenues generated by their efforts. This approach incentivizes contractors to control costs, as their compensation is directly tied to the project's success. 

In practice, SIS contracts can take various forms. Some employ a basic approach where the contractor's entire compensation comes from sharing a portion of the client's savings. Others use a tailored model, providing some payment for time and materials even if savings aren't realized.

The real-world application of SIS contracts has shown promising results. For instance, the U.S. Department of Energy (DOE) implemented an SIS contract with a medical device manufacturer to develop a new type of coronary stent. This collaboration led to the creation of a leading stent technology introduced in the early 2010s.

While SIS contracts offer potential benefits, they also come with challenges. Contractors assume more risk and accurate savings measurement can be complex. However, when implemented effectively, these contracts can foster cooperation between parties and lead to mutually beneficial outcomes.

Modular contracting offers an alternative to monolithic contracts by breaking complex projects into smaller components. This approach reduces dependency on a single vendor, enhances scalability and allows agencies to take advantage of evolving market innovations. 

A recent healthcare initiative in a rapidly growing city exemplifies the benefits of modular contracting. Instead of awarding a single, large contract to one entity, the government agency divided the project into distinct modules, each addressing a specific aspect of the healthcare system.

One module, awarded to a specialized technology firm, focused on developing a robust electronic medical records (EMR) system. Another module, awarded to a consortium of local healthcare providers, concentrated on establishing a network of community clinics. This modular approach enabled the agency to tap into a wide range of specialized expertise, promoting healthy competition among vendors.

The strategic partnership model represents a shift from transactional relationships between contracting firms and government agencies to long-term collaborations. The approach enables both parties to pool resources and leverage specialized expertise, creating a robust ecosystem for growth.

A compelling illustration of this model is the partnership between the DoD and aerospace conglomerate General Dynamics. Recognizing the rapidly evolving nature of the space domain, the DoD entered into a 10-year strategic alliance with General Dynamics to enhance national security and bolster communication capabilities through a new ground system that will monitor space satellites. 

This partnership granted General Dynamics extensive access to the DoD's satellite infrastructure and sensitive data, enabling a deep understanding of the agency's operational challenges. In return, General Dynamics committed to an ambitious research and development program, investing significant resources to create novel satellite ground systems that surpassed current technological thresholds.

The result was a constellation of highly advanced satellites that revolutionized military communications and surveillance capabilities. Specifically, the union's continuous feedback loop enabled swift adaptations, setting new standards in satellite monitoring and optimization technology.

Innovation partnerships are procurement procedures enabling government agencies to collaborate with suppliers to develop progressive solutions for complex challenges. The EU Directive body introduced this approach, allowing public entities to work closely with private sector partners throughout new initiatives' research, development and implementation phases. 

The U.S. National Science Foundation's Partnerships for Innovation (PFI) program is an excellent example of this concept. It helps researchers translate basic research into marketable technologies. Academic innovators can develop prototypes through PFI and even launch university spinoff companies.

In practice, innovation partnerships have yielded tangible results. For instance, the Defense Innovation Unit (DIU) and General Services Administration (GSA) partnership has successfully integrated cutting-edge commercial technologies into federal operations. A recent milestone was the award of a multimillion-dollar contract to advance an AI-driven social media analysis tool for the U.S. Army.

Offering a refreshing alternative to bureaucratic procurement processes, The Agile procurement model has gained significant traction in recent years. The Agile approach emphasizes flexibility, adaptability and collaboration, fostering closer cooperation between contractors and government agencies through iterative cycles and incremental delivery.

A prime example of Agile procurement can be seen in this hypothetical example: 

The U.S. Department of Transportation (DOT) could collaborate with innovative software developers to tackle traffic congestion in New York City. The DOT could embrace an Agile approach, emphasizing adaptability and rapid prototyping. They could partner with TechTrack Solutions, a dynamic startup known for its forward-thinking methodologies.

The project starts with an intensive discovery phase, during which TechTrack Solutions works closely with transportation experts, urban planners and data scientists from the DOT. Together, they identify key pain points and outline initial as well as long-term objectives. Rather than following a rigid roadmap, the team delivers tangible results in short sprints, leveraging Agile methodologies such as Scrum and Kanban.

This iterative approach allows for constant adaptation based on real-time feedback and emerging insights. The result? A suite of cutting-edge systems that significantly enhances traffic flow, improving the transportation experience for millions of New York City residents and visitors.

Performance-based contracting (PBC) toggles the focus from inputs to outcomes, aligning the interests of contracting firms and government agencies. This model emphasizes measurable performance metrics and persuades contractors to deliver tangible results.

A notable example of PBC's effectiveness is a Railroad Retirement Board (RRB) contract for data entry services, which resulted in significant cost savings and improved efficiency.

First, the RRB converted an existing contract for data entry services to include a performance-based statement of work, which enabled the agency to identify and eliminate unnecessary requirements. 

The volume of source documents to be converted decreased by 14%, resulting in approximately 30% cost savings for the agency, as vendor pricing reflected a more realistic profile of the work to be performed.

By focusing on desired outcomes rather than prescribing specific processes, the Railroad Retirement Board streamlined requirements and achieved better results. 

Outcome-based incentives have emerged as a powerful mechanism for driving results in government contracts. This model motivates contracting firms to explore creative solutions by linking financial rewards to achieving defined outcomes.

The Denver Social Impact Bond implemented a Pay for Success (PFS) contract to support permanent supportive housing. The project compensates service providers based on two key outcomes: housing stability (the number of days a person remains housed) and reduced time spent in jail.

The contract pays $15.12 per person per day for housing stability. The jail time reduction outcome is measured against a control group, with payments based on the percentage difference between the two groups. This approach not only incentivizes providers to achieve meaningful outcomes but also ensures that public funds are spent efficiently on interventions that demonstrably improve lives.

Commercial item contracts, pursued under Federal Acquisition Regulation (FAR) Part 12, open doors to a broader array of vendors by employing commercial terms and conditions. This approach streamlines the procurement process for products and services already available in the commercial marketplace, allowing government agencies to benefit from market efficiencies and competitive pricing.

For instance, when the Department of Defense needed to procure off-the-shelf software for cybersecurity purposes, they utilized FAR Part 12 procedures to quickly acquire a solution from a leading commercial vendor. The process ensured the government received the latest technology at a competitive price.

FAR Part 12 simplifies the acquisition process by reducing the required clauses and allowing for more flexible negotiation terms. It also permits the use of simplified procedures for acquisitions of up to $7.5 million, with higher thresholds for certain contingency operations or emergency responses. This flexibility was particularly beneficial during the COVID-19 pandemic, enabling agencies to swiftly procure essential medical supplies and services from commercial sources.

Commercial item contracts also often result in shorter procurement cycles. A study by the Government Accountability Office found that commercial item contracts awarded, on average, 40% faster than traditional procurement methods.

Value-based contracts (VBCs) are revolutionizing the healthcare landscape, shifting the focus from quantity to quality of care. These innovative agreements between healthcare providers and payers, including government programs like Medicare, are designed to enhance patient outcomes while reducing healthcare costs. Unlike traditional fee-for-service models, VBCs tie payment to the quality of care delivered based on predetermined metrics that measure service effectiveness and patient results.

The implementation of VBCs has shown promising results. For instance, Geisinger Health System's ProvenHealth Navigator model, which emphasizes preventive care in an at-home model, achieved a 7.9% reduction in total medical costs and an 18% reduction in hospital admissions. Similarly, Blue Cross Blue Shield of Massachusetts' Alternative Quality Contract resulted in 10% lower medical spending growth compared to control groups, along with improved chronic disease management.

VBCs are not limited to hospital systems; they're also making waves in the pharmaceutical industry. UPMC Health Plan, for example, has entered into value-based contracts for medications treating diabetes and opioid addiction, aligning manufacturer incentives with positive clinical outcomes. These contracts change the paradigm of drug payment, encouraging shared accountability between insurers and manufacturers.

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