Can sole-source and innovation go hand-in-hand?

The VA is awarding a sole source contract worth billions to Cerner for a new electronic health record system but can a contract with no competition also bring innovation?

When President Trump announced the creation of the Office of American Innovation March 17, we were expecting…well, innovation. Interestingly, one of the first major recommendations coming out of the this newly formed office was to urge the Department of Veterans Affairs (VA) to issue a sole source contract, likely worth billions of dollars, for the VA’s electronic health records system.

Sole source and innovation in the same sentence? It is certainly surprising. In his June 5 press release, Secretary Dr. David J. Shulkin announced his decision that the VA would adopt the Defense Department Military Health System GENESIS as its next-generation electronic health record system. To accomplish this innovation, Shulkin signed a Determination and Findings (D&F) that “there is a public interest exception to the requirement for full and open competition… the VA may issue a solicitation directly to Cerner Corporation for the acquisition of the EHR system currently being deployed by DoD...”

A so-called public interest D&F is rarely issued, so it raises some important questions.

Will the Sole Source Approach Save Time?

Sole source procurements do save time for the procuring office. However, saving time also depends whether other interested parties decide to protest the action. If history is any guide, they may, as the contract is worth billions of dollars (the DoD contract is valued at up to $9 billion). There have been only two such protests, and the Government Accounting Office (GAO) dismissed one in 2010 and upheld another in 2013. With a contract so large, we can place our bets on a protest.

Will the Sole Source Approach Save Money?

One of the major arguments against a sole source action is that it will not save money, as the winning vendor will perceive a seller’s market and charge the buyer more. On the other hand, the VA has already wasted $1.5 billion on the now abandoned Veterans Health Information Systems and Technology Architecture, or VistA. Whether the contract saves money will also depend on how the government distributes risk. The VA may decide to issue a performance-based contract to include incentives and disincentives, and/or ensure the new contract includes an award fee for specified progress. They could decide on a modular approach, where they issue a contract that requires that the vendor prove themselves with the first deliverable before proceeding. The VA has a lot of options to structure the contract in a way that limits their risk.

Will the Sole Source Approach Encourage Innovation?

The Office of American Innovation recommended a sole source contract, so some form of innovation should be involved. The VA is seeking IT modernization as well as interoperability with DoD systems and partners. At the same time, they do not want to sacrifice the clinical innovations they have achieved in existing systems, and they want to make further cybersecurity enhancements. Still, Shulkin admits this venture will require “cooperation and involvement of many companies and thought leaders” to achieve desired innovations. Again, designing the contract to include modular milestones to assess performance towards desired goals will be critical to achieving innovation, sole source or not.

What’s Next?

Typically, when the government is spending such a large amount of money, sole source is not the preferred approach. However, in this case, the VA may be making a last-ditch effort to make progress on its EHR. How they structure the awarded contract will play a large role in determining whether they end up saving time and money as well as achieving innovation.