‘Startup in Residence’ Program Offers a Needed Innovation in Government Technology Procurement
© Dreamstime.com

Commentary

‘Startup in Residence’ Program Offers a Needed Innovation in Government Technology Procurement

Exposing state and local leaders to technological innovation, without their governments risking large amounts of taxpayer dollars.

Formalized government purchasing procedures have evolved to contain the risk of corruption and favoritism, but they can also restrict the public sector’s ability to take advantage of emerging technologies. Fortunately, a new “StartUp in Residence” nonprofit program is aiming to expose state and local leaders to technological innovation, without their governments risking large amounts of taxpayer dollars.

In the United States, contracting reform dates all the way back to the Revolutionary War. Efforts to supply George Washington’s army were hampered by war profiteering, with nepotism and favoritism often governing contract awards. Corruption and inefficiency contributed to a fiscal crisis in the new nation, marked by high rates of inflation. Then in 1781, Congress chose a wealthy financier, Robert Morris, as superintendent of finance and he introduced the reform of sealed bidding. Procurements would be publicly advertised, competing suppliers would submit sealed bids, and these bids would be evaluated on their merits.

Congress codified Morris’ practices into law in the early 19th century, and they have largely prevailed at the federal level ever since. An exception was the Civil War period when the sheer volume of supplies required by the Union government caused officials to ignore procedures—ushering in a new wave of corrupt procurement practices and war profiteering.

State and local governments have also embraced sealed bidding, formalizing procedures via statute. For example, Chapter 287.057 of the Florida Statutes states:

Any competitive solicitation shall be made available simultaneously to all vendors, must include the time and date for the receipt of bids, proposals, or replies and of the public opening, and must include all contractual terms and conditions applicable to the procurement, including the criteria to be used in determining acceptability and relative merit of the bid, proposal, or reply.

Because all vendors must be notified of the procurement opportunity simultaneously, state employees may be dissuaded from discussing the details of future procurements with individual vendors. In 2012, the National Association of State Purchasing Officers (NASPO) reported that “some state officials will decline requests for [one-on-one vendor] meetings citing the concern about perceptions of unfair bias or conflicts-of-interest that may arise from such meetings.”

When governments procure commoditized goods and services, pre-solicitation vendor meetings are unusually unnecessary. Procurement officers can leverage their own experience of that of peers to construct appropriate bid packages.

But this is often not the case when states or cities are purchasing emerging technologies. Knowledge of these new technologies may only reside with a small number of vendors or consultants, who may be prospective bidders. Ideally, officials should be able to glean information from these players to ensure that they write well-informed request for proposals (RFPs) and evaluate responses effectively.

NASPO recognized the need for purchasing officers to conduct market research but contended that “communications should always be open to all possible vendors. A good rule is that if the procurement officer calls one vendor, he or she calls them all. Calling one the officer already knows, particularly for help in writing specifications, leads to inside information leaking out, and an unfair advantage of competitors. All communications should avoid the appearance of favoritism.” NASPO researchers recognized that “these concerns can have a chilling effect on communication with vendors.”

Governments might balance the need to share information with vendors with the imperative to treat them equally by holding interactive workshops. The purchasing agency could arrange a web-based call or in-person meeting to share its needs with the supplier community and gather feedback in a public setting. But for new or highly specialized technologies, such a workshop might not attract enough attendance to make it worthwhile. For such situations, a new option is now available.

A New Way for Governments to Learn About Emerging Technologies

In 2014, a Bay Area nonprofit, City Innovate, introduced a Startup in Residence (STIR) program. The initiative pairs governments with government technology (“govtech”) startups to work on specific challenges. As of 2019, 30 governments were participating in the program.

STIR matches governments with startups for a 16-week collaboration. Participating startups don’t charge the partner government for their work, but they do get the opportunity to learn about customer requirements and develop a relationship with a potential client.  If the collaboration goes well, governments can then enter into a formal contract with the startup.

One example of a successful collaboration cited by City Innovate involved San Francisco’s Human Services Agency and Binti, a company focused on improving the foster care system. During the collaboration, Binti developed a mobile-friendly web app that makes it easier for prospective foster parents to complete the application process. The collaboration’s website, which also provides information for prospective adoptive parents is here.

Binti CEO Felicia Curcuru told me that the residency was “incredibly helpful” to her company’s development. STIR provided a crucial “foot-in-the-door” at an initial prospect, allowing Binti to learn more about a foster agency’s requirement and enabling the startup to win a paid contract.  Because Binti’s pricing was below the agency’s $100,000 threshold for competitive sourcing, it did not have to do through a bidding process to receive a contract award. San Francisco’s Human Services Agency was so pleased with Binti’s deliverable that they acted as a reference for other foster agencies; Binti has now been implemented by over half of the counties in California.

The opportunity for governments and startups to learn from one another during a 16-week collaboration would seem to be a win/win for both the public sector and emerging vendors. Hundreds of billions of dollars are awarded in government contracts, so the opportunities for private companies are clear. Meanwhile, governments can benefit from the program’s management services and the willingness of venture capital-funded govtech startups to invest some of their capital in the collaboration process. Ideally, having private partners examine their processes would result in tailored solutions for a government’s problems in ways that save and maximize taxpayer dollars.

It remains to be seen how far this idea can scale, however.  If the program grows to hundreds or thousands of governments, might the quality of the engagements begin to suffer?

If the level of program management declines, and less well-intentioned startups and government officials team up, there is a greater risk that projects could provide fewer taxpayer benefits while paving the way for biased and possibly corrupt contract awards. Thus, protecting taxpayers and the public interest must remain at the forefront of the efforts to improve and modernize governments.

While this risk is worth keeping in mind, the STIR program seems to be a creative way of addressing and improving government procurement of emerging technologies.

Marc Joffe is a senior policy analyst at Reason Foundation.