It’s no secret that the federal government has many wasteful practices—like inflated procurements, frivolous lawsuits and unconstitutional power grabs. But there’s also a little-known, wickedly wasteful practice in federal contracting among software providers.
In a new report by Garland Consulting, sponsored by NetChoice, expert Michael Garland reveals the pernicious practice of “vendor-lock” by an oligarchy of massive software providers, and how it costs taxpayers hundreds of millions of dollars annually.
Since 1994, the federal government has spent $2 trillion on software and information technology (IT) services. About $300 billion of that was for “commercial off the shelf” (COTS) software, which works out to $10 – $15 billion in federal government spending every year.
Vendor-lock is a practice where software vendors rig the system with restrictive licenses, punitive audits, and other shady tactics to suppress competition and choice. This effectively locks their government customers into a cycle of renewals and up-charges. Customers are then discouraged and often penalized for seeking competitive offers from alternative providers. This allows the incumbent vendor to extract higher prices for services and software that are inferior to newer technology options available.
Garland highlights notable cases in his report to show just how expensive vendor-lock can be. First, the U.S. Department of Agriculture had to spend $112 million more for Microsoft Office than Google Workspace, just to avoid the perceived switching costs Microsoft imposed through its contract. Garland also explains how IBM allegedly coerced the Internal Revenue Service (IRS) into a five-year, $265 million contract by wildly inflating noncompliance costs by a stipulation that it would conduct a predatory audit into the IRS’ use of IBM’s software.
Garland’s account of the Department of Veterans Affairs (VA) experience with Microsoft contracting practices is similarly jarring. Last year Microsoft pressured the VA to renew an enterprise software license at a cost of $1.6 billion over three years. To explain why they could not consider alternatives to Microsoft, the VA claimed they would lose access to Azure cloud services if they did not renew with Redmond.
And these are just a few examples of the pernicious effects of vendor-lock. According to an article by FedScoop, “The Government Accountability Office found agencies obligated more than $15 billion, or 30%, of annual IT contract spending on a noncompetitive basis between 2013 and 2017.”
We need more competition in the government software contracting marketplace to bring down prices, but anticompetitive practices like vendor-lock are blocking the way.
To shine a light on vendor-lock practices, a bipartisan group of lawmakers in the last Congress introduced the Strengthening Agency Management and Oversight of Software Assets Act (SAMOSA). The SAMOSA Act would improve interagency coordination on IT contracts, increase competition in federal contracting, increase federal IT security, and ensure better returns on IT investments made with taxpayer dollars.
According to Garland, reducing vendor-lock by just 5% through improved procurement competition, could produce $750 million in taxpayer savings every year.
Vendor-lock has cost significant taxpayer dollars to be wasted, to the benefit of the world’s largest software vendors. It’s well past time that Congress acted to unlock competition in the federal IT market.
Read the report, “Vendor-Lock and Lack of Competition In the Government’s Software Estate” by Michael Garland, here.