President Kennedy's sentiment often is shared by many commercial IT manufacturers that negotiate with state and local governments. Needless to say, any company that has worked in the public sector understands that government customers face unique challenges and have different requirements than commercial customers. Yet it should come as no surprise to government customers that manufacturers are able to offer their products and services at competitive prices primarily because of the way they structure their commercial businesses. This dichotomy often engenders a struggle to reach consensus on contract terms.

In these tight fiscal times, state and local governments can ill-afford to continue in this manner. They must realize economies of scale, but without incurring much in the way of additional risk. The federal government reached this conclusion over a decade ago when it enacted the Federal Acquisition Streamlining Act of 1994 (FASA) and the Federal Acquisition Reform Act of 1996 (FARA).

The ensuing regulatory reforms of the mid-1990s led the federal government to adopt some commercial practices in its procurement procedures, and encouraged the purchase of “commercial-off-the-shelf” (COTS) products and services, rather than acquisitions tailored to unique government specifications. As a result, the federal government reduced the costs of major systems, improved the overall quality of contractor performance and reduced the time required to purchase goods and services supporting agency missions.

Many manufacturers accustomed to dealing with commercial customers and the federal government have found that their contracting policies and procedures do not translate well with state and local governments. Indeed, numerous contracting issues often arise that create unnecessary impediments to efficient acquisition of COTS products and services, including: objection to manufacturers' channel partners; limited protection for confidential information; ambiguous and changing IT policies; inspection and acceptance periods; ownership of intellectual property; modification and creation of derivative works; lengthy and nonstandard warranties; no limitations on liability or nonstandard limitations of liability; and constitutional prohibitions against indemnification and control of litigation.

For publicly traded manufacturers, these contracting issues often require deferral of revenue recognition, or preclude doing so altogether, and create unquantifiable risks. Both of these results are poorly received by both shareholders and Wall Street. Their resolution may require state and local governments to consider whether acquiescing to more commercial contracting practices would be acceptable in light of their ultimate goal: the procurement of the highest-quality IT solutions for the best value.

Channel Partners

Because there is no one-size-fits-all channel partner, manufacturers typically have large distribution and reseller networks comprised of multiple channels based on various criteria. Likewise, channel partners save customers the hassle of contracting individually with hundreds of manufacturers. In most cases, channel partners simply pass through the “shrink-wrap” commercial terms and conditions used by manufacturers.

Although some state and local governments generally agree to deal with channel partners, many still refuse to do so. One reason is the perceived need for direct recourse to manufacturers in case of warranty, indemnity or support claims, based on the belief that channel partners will not be around to handle them. But like their commercial counterparts, state and local governments have an obligation to scrutinize their vendors. In fact, they are in a better position to do so because of their broad investigatory and enforcement powers. Another reason is that they want manufacturers to sign noncommercial terms and conditions. Yet it is because of the inherent risks of such terms and conditions that many manufacturers choose to use channel partners.

Confidential information

The largest value component of IT manufacturers is their intellectual property. In addition to patents, trademarks and copyrights, intellectual property includes trade secrets, confidential information, business methodologies and general know-how. Manufacturers often insist on nondisclosure agreements (NDAs) prior to submitting proposals to their commercial customers, and in many cases, the commercial customers themselves insist on NDAs prior to releasing their RFPs. Although the federal government will not sign manufacturers' NDAs, it can protect confidential information in proposals under broad exceptions to the Freedom of Information Act (FOIA).

State- and local-government policies relating to the protection of confidential information in proposals often are more restrictive than FOIA. Some require that companies submitting proposals cull out all allegedly confidential information and place it into a separate and self-contained section. While this requirement makes it easier on procurement officials to know what they can and cannot disclose to the public, it has the unintended effect of destroying the integrity of such proposals and creates an awkward situation involving the review of dozens, if not hundreds, of cross references to confidential appendices.

Some state and local governments require that all culled-out confidential information must qualify as trade secrets. This requirement is imposed through an affidavit signed by counsel under penalty of perjury that he or she is familiar with the trade secret law of the jurisdiction, and that the information qualifies as trade secrets under such law. This affidavit requirement creates a twofold problem. Legal counsel in the vast majority of cases does not have first-hand knowledge of the confidential information at issue, and could be subject to sanctions for the unauthorized practice of law by the state bar where the proposal is submitted.

IT policies

Most state and local governments have IT policies that regulate issues such as strategic planning, enterprise/system architectures, Web site accessibility by the disabled, data privacy, identity management, network security and technology procurement. They often flow these policies down through their RFPs, and require bidders to certify that their products and services are compliant with such policies. Yet because such policies are neither statutes nor agency regulations, they typically are not subject to public scrutiny before being adopted, leading to discrepancies with current or future industry standards.

Additionally, government IT policies often lack objective compliance standards. Indeed, some policies are only single-page documents written in goal-oriented language, leaving it up to contracting officers to determine whether proffered products or services are compliant. The fact that such policies are constantly being updated also is problematic for bidders, because if they certify their continued compliance, they must monitor such policies for any updates. If they are unable to comply with the updated policies, their contracts may be terminated for noncompliance.