Since agencies began to talk about moving to the cloud in 2010, public and private sector advocates played up the idea that programs could “pay by the drink” or buy services on a consumption basis.

The fact is, few if any agencies truly achieved this model.

After almost two-and-a-half years of work, the General Services Administration is about ready to unleash a new way to buy cloud services.

GSA released its second draft policy to industry in May that would let agencies buy cloud services “by the drink” through the schedule contract.

A second draft policy created by Jeff Koses, GSA’s senior procurement executive, outlines how this buying approach would work under the schedule contract, including not requiring the Price Reduction Clause, which mandates vendors give the government their lowest price at all times, and what type of contract and how the funding would work.

“GSA anticipates purchasing cloud computing on a consumption basis will increase competition, as the move towards commercial practices will encourage new entrants to the FSS program,” Koses wrote in the draft policy, which Federal news Network obtained. “With a contract structure more closely tied to real time demand, this approach also provides greater flexibility to take advantage of technology improvements and better support cyber security. Tying cloud computing procurements to commercial market prices will also provide cost transparency without burdening contractors with additional transactional price reporting requirements. Plus, this approach promotes cost efficiency as it reduces the need to lock into long term contracts in markets where falling prices are reasonably anticipated.”

“We hope the policy lays out a clear way to execute the pay by the drink execution strategy using the schedules,” said Nick West, GSA’s deputy director of the Office of Policy, Integrity and Workforce, during a panel at the recent Coalition for Government Procurement spring conference. “We hope to have some sort of language in the schedule contracts by the fall or maybe earlier, hopefully. We really are looking to build something that the CIOs will use and [industry] will offer solutions for them to use.”

Continued work to improve cloud buying SIN

GSA gave industry its first look at how it wanted to change this policy in January 2020.

West said the pandemic delayed the work on the final policy, but GSA did incorporate comments into this second draft policy.

Keith Nakasone, who recently retired after 32 years in government, including the last four-plus as the deputy assistant commissioner for acquisition in GSA’s Office of IT Category, said adding the pay-by-the-drink model to the schedules is another way the  Federal Acquisition Service is evolving the cloud special item number (518210C — previously 132-40).

The second draft memo offers more specifics than the first one. For instance, agencies would buy off of cloud service provider pricelists and receive any discounts as prices change. Agencies can incrementally fund task orders for cloud services instead of putting all of the money on contract at one time.

“The ordering activity contracting officer will use a requirements task order. This task order type provides for filling all actual purchase requirements of an ordering activity for cloud computing services during a specified contract period, with performance by the contractor being scheduled by activating and funding individual contract line items (CLINs) and sub-CLINs under this task order,” the draft policy states. “The ordering activity contracting officer must state a realistic estimated total quantity in the task order solicitation and the resulting task order. All CLINs within the task order must include a defined scope with all items priced at time of award. The ordering activity may obligate funds as the bona fide need arises for predefined and established fixed-priced procurement requirements on individual CLINs and sub-CLINs.”

GSA also says it will analyze metrics such as cost transparency, increase competition and better cybersecurity, on how this pay-by-the-drink model is working.

7% of all IT schedule spending

Agency customers haven’t exactly been beating down the door to use the schedules to buy cloud services. Of the $6.8 billion agencies spent on cloud services in fiscal 2020, according to Bloomberg Government, about $400 million of that came through the schedules. Cloud buys accounted for about 7% of all spending on the IT schedule last year.

The new policy would meet two of GSA’s goals: Making it easier to buy cloud services—a common call from industry and agency customers—and driving more business to its vehicle.

“GSA should be applauded for trying to make governmentwide policy in this vitally important area for federal IT modernization and service delivery. The hope is that they spend even more time consulting with industry leaders in this space, as well as key agencies who are leveraging the cloud most effectively, and only adopt guidance that is necessary for the bulk of government — and not simply trying to nibble around edge use cases,” said one industry expert, who requested anonymity in order to speak about the draft policy. “The scope and focus of the memo take a very ‘government-centric’ view of a very common issue in the commercial market, which is how to price the consumption of cloud services. Rather than complicate the federal buying guidance on this, GSA should require agencies to adopt commercial pricing that cloud providers offer to their non-government clients. These prices can be made transparent and be updated in real time through standard cloud service provider tools that can make data available on a GSA catalog.”

One way the draft policy takes this “government-centric” view of cloud buying is the requirement for task orders to have ceilings and for vendors to alert the customer if the total amount will reach 85% of the cap within the next 30 days.

Industry experts would argue these requirements still do not match how the private sector buys, which is based on demand and not funding.

“GSA seems to acknowledge that the cost per unit of usage for cloud generally goes down over time, but they feel the need to orient the memo to solve for the fact that there might be some random need for a spike in usage at a certain instance,” the industry expert said. “It seems difficult to understand how GSA will constantly monitor for this across all agency cloud contracts and there is worry that they are trying to solve for a problem that is already being addressed. Think of how agencies operated with increased compute needs during the coronavirus response.”

Commercial parity is difficult

To GSA’s defense, it may never be able to achieve pure commercial parity, but the draft policy takes an important step.

“[C]onsumption purchasing may not be the best fit for every requirement. Cloud service providers offer multiple pricing models, including pay-as-you-go (e.g. on-demand and spot instances) and paying upfront (e.g. reserved instances, subscriptions). The pay-as-you-go models are the most popular in the private sector because of their efficiency and flexibility.  However, other models may be more appropriate in certain circumstances,” Koses wrote. “For example, upfront payment plans, while inflexible, are often highly discounted and may offer the best value for users with predictable needs. As such, the private sector routinely leverages combinations of these pricing models and the government should replicate this approach as appropriate.”

This isn’t the first time GSA has tried to make it easier for agencies to buy cloud services. In 2016, the agency began work to change the Federal Acquisition Regulations and even considered legislative remedies, but it’s unclear if anything came from those initiatives. A year later, an interagency working group developed a best practices guide for buying cloud services.

Let’s hope after five years of fits and starts, GSA completes the promise made more than a decade ago that agencies will be able to buy cloud services like they buy electricity.

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