Child Care Administrator’s Improper Payments Information Technology Guide

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E. Driving Up the Cost of Bids

This section outlines different factors that can drive up the cost of bids. With careful planning, States can avoid each of the following factors:

• Unclear business needs or unclear deliverables – Vendors build greater contingency into their bids to mitigate the risk associated with unclear business needs and/or unclear deliverables.
• Unlimited liability terms – The industry standard for liability of IT services is shared liability. Language requiring unlimited liability drives up the cost of the bid because the vendor must cover their risk.
• Deliverable-based payment schedules – If payment schedules are not based on a good estimate of the costs associated with deliverables, then vendors may end up fronting costs, and the cost of this “loan” to States is accounted for in the bid.
• Hiring a separate Independent Verification and Validation (IV&V) vendor – For contracts requiring development, many States hire independent vendors to do verification and validation to ensure quality. In addition, most sophisticated vendors have their own V&V process as part of their normal course of doing business. If a State does not hire an independent vendor, the IV & V needs to be included in the contract with the development vendor. Although there is additional cost, use of an IV&V vendor offers an additional level of independence.
• Unnecessary constraints – Unnecessary constraints can increase costs, precluding vendors from using innovative approaches to meeting the business need. Unless the service or product purchased is narrow in scope, it is better to state the business/service need and see how the vendor responds than presume a solution and place multiple constraints on the bid.
• Cost-plus contracts – Cost-plus contracts do not offer vendors an incentive to hold down their costs, and they require substantial auditing by the government. Fixed-price performance contracts shift risk to the vendor.