DoD ESI's successful new approach for enterprise resource planning

CHIPS,  Fall, 2004  by Chris Panaro

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The concept of "commoditizing" a service so that future DoD programs can order services using a best practices contract structure and not just a menu of discounted labor rates is timely--and at the leading edge of acquisition excellence.

Developing a process in accordance with a proven implementation methodology brings discipline to scope management of COTS implementations and ties payment firmly to the achievement of desired results. Each vendor provided a fixed-price table describing services aligned to methodology for a standard project scenario, including a baseline of user quantities, modules, locations and other key factors involved in a typical ERP project. Figure 2 is an example of a fixed price table.

Where a future DoD program deviates from the standard scenario, fixed prices are provided for variances in scope (e.g., additional number of users, locations, interfaces, etc.). To accommodate these variances, a fixed-pricing menu, shown in Figure 3, was developed and reflects the extensive experience of the integration firms selected and the maturity of their respective methodologies.

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In addition, contractors are required by the Enterprise Agreements to follow procedures to ensure that the government is not paying for services or products that have been purchased in an existing DoD program using similar COTS products. Objects referred to as reports, interfaces, conversions, extensions (RICE) permit the reuse of technology assets and eliminate redundant purchases. This practice is enforced by the Enterprise Agreements and is expected to result in considerable savings. RICE objects are priced as commodities in the Enterprise Agreements. Figure 4 shows an example of a commoditized RICE pricing table for software objects.

Performance-Based Payment

The ESI and PIG joint effort focused on contracting practices that reward contractors for achieving stated government objectives--not just for time and effort spent. The Enterprise Agreement process incorporates a performance-based approach to tie contract payments to the achievement of an organization's goals and objectives. The Enterprise Agreements incorporate an incentive structure using baseline variables, acceptance criteria, performance metrics and a payment approach.

Outcomes are defined by project, phase or deliverable to best fit the goals of the customer. Figure 5 depicts one of the performance-based approaches.

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The Enterprise Agreements provide flexibility in ordering based on specific scenarios. For example, the selected approach may use incentives to reward on-time performance, high customer satisfaction or quality of post-implementation support. A share-in-savings incentive is also provided to better align government and vendor interests in reaching targeted improvements in operational metrics.

The key to entering a performance-based payment structure is having a clear and objective baseline which you can measure against the desired improvement. Think of it as needing a clear understanding of your current body weight before you would pay someone to help you lose weight. Without knowing where you are (your baseline) and where you want to be (your target), performance-based payment structures are difficult to nail down.