Cloud-Computing Contracts for U.S. Should Avoid ‘IT Cartel’

The U.S. government should write cloud-computing contracts so that agencies can easily move from one provider to another, increasing competition and keeping costs low, the former federal chief information officer said.

“We’ve got to make sure that as you construct these contracts, the way they’re written and the way the agencies manage these contracts, you have the flexibility to pull away and move to the next platform,” Vivek Kundra said in an interview in San Francisco last week. “So it’s not like you have a single player over any of these spaces.”

While serving as U.S. CIO from March 2009 until he resigned last month, Kundra pushed agencies to shift computer systems and functions such as financial management, e-mail and websites to the cloud. One of Kundra’s goals in the initiative was to replace contracts that have locked agencies into proprietary systems developed and operated by a few contractors, a situation that he said keeps the government’s technology costs high.

Kundra estimated that $20 billion the government spends on federal technology systems can be moved to the cloud, in which networks of computing resources are shared by multiple users. That would account for 25 percent of the $80 billion that the U.S. government spends annually on information technology.

Kundra’s replacement, former Microsoft Corp. (MSFT) executive Steven VanRoekel, has said he will continue Kundra’s cloud initiative. Kundra is now a joint fellow at the John F. Kennedy School of Government and the Berkman Center for Internet and Society, both at Harvard University.

‘Healthy Ecosystem’

Companies that offer government cloud services include Salesforce.com Inc. (CRM), Amazon.com Inc. (AMZN), Google Inc. (GOOG), International Business Machines Corp. (IBM) and Microsoft, contractors that make up “a very vibrant and healthy ecosystem,” said Kundra, who attended last week’s Dreamforce cloud-computing conference in San Francisco. The event is Salesforce.com’s annual conference.

Agencies should write contracts that allow them to easily shift data from one vendor’s storage space to another, creating competition and keeping contractors’ pricing transparent, Kundra said. Data transfer should be as simple as transferring contacts from one e-mail system to another, he said.

If agencies can switch cloud providers, it will create “healthy market pressure” that will keep the cost for a cloud service low, David Bonnette, president of closely held BigMachines Inc., a Deerfield, Illinois-based product and service configuration company that uses a cloud platform, said in an interview.

‘IT Cartel’

That will avoid the creation of a cloud-based version of what Kundra calls the “IT cartel,” a small number of traditional technology contractors that make billions of dollars a year by operating federal networks. Agencies cannot shut down those systems or shift to other systems, including the cloud, because the networks run on outdated technology that makes it difficult and costly to transfer the data.

These companies “are billing around the year hundreds of dollars an hour,” Kundra said. “It’s crazy.”

More than 5,000 vendors sell information-technology products and services, such as desktop and laptop computers, and software licenses, to federal agencies through the General Services Administration’s Schedule 70 contracts. The GSA manages federal buildings and contracts that agencies use to buy goods and services.

Agencies bought about $16 billion off the GSA schedule in 2010, with Round Rock, Texas-based Dell Inc. (DELL) and Armonk, New York-based IBM leading the list. Ten technology contractors accounted for 24 percent of the $7.66 billion in sales in the first half of fiscal 2011 ending March 31, according to GSA data.

“The shift from hardware and software” that the government buys and maintains itself “to low-cost, maintenance- free services that are based on the Internet and run by private companies” will increase productivity and reduce costs, Kundra wrote last week in a New York Times opinion piece.

To contact the reporter on this story: Juliann Francis in Washington at jfrancis31@bloomberg.net

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.