Micropurchase auctions: Is 18F getting big value on small buys?

Innovation comes with risks — any new venture has the potential for failure. General Services Administration’s David Zvenyach, director of acquisition management for 18F, knew this when his team decided to try buying programming work using an innovative micropurchase auction.

“It’s true; this might be a terrible idea,” he wrote in October 2015, introducing the idea of using the agency’s credit card to pay for small jobs — under $3,500, by the federal acquisition regulation — and using a reverse auction to secure the best price.

Less than a year and 26 auctions later, the micropurchase platform seems to be a success, with only one job going undone, at no charge to the government. What was unclear was whether the government was getting good value for its money.

To find out, Federal Times conducted an independent analysis of the first 20 micropurchase auctions, determining the market value of the work done on each and comparing the value to the price paid by 18F, the team created to help agencies on digital projects.

Two experienced programmers went through each project as described in the auction and figured out how many hours each would take to complete. Those estimates were compared against hourly rates in the private sector, from low — $80 — to high-end — $150.

At the low end — using the average of each coder’s estimates at $80 an hour — the first 20 jobs would have cost 18F $35,600. At the high end — average hours at $150 an hour — the jobs would have cost $66,750.

Crunching the data using an average rate of $110 applied to each coder’s estimates separately gives a total cost of either $41,580 or $56,320.

18F actually paid $22,097.

This means, at the most conservative market valuation — $35,600 — the micropurchase auction method saved $13,503. At the high end, the auctions saved $44,653, two times what 18F paid for the work.

Here’s another way to break down the numbers: How much would it have cost 18F to do the work in-house?

As an intra-governmental consultancy, 18F is funded by billing agencies and programs for the work they perform. 18F coders bill out based on their seniority on the general schedule. At the low end, GS-7s bill out at $146 an hour, according to an internal GSA memo obtained by Federal Times through the Freedom of Information Act; GS-15s, the highest level, bill out at $205 an hour.

At those rates, the first 20 projects would have cost between $64,970 and $91,225, more than three times what was paid.

“I love that we’re saving [at least] $1,000 per auction,” Zvenyach said after reviewing the analysis. But the key to success is finding the right projects for the platform.

The market value range for the first 20 micropurchase projects based on several factors, such as hourly rate and coder estimates. No matter how you cut the data, 18F got a good deal on the code. (Federal Times staff)
The market value range for the first 20 micropurchase projects based on several factors, such as hourly rate and coder estimates. No matter how you cut the data, 18F got a good deal on the code. (Federal Times staff)

What Makes a Micropurchase

“They’re all open source; they’re all typically either development or some light design work; a couple of data projects,” Zvenyach explained, looking through the auctions on “They’re specific, discrete features that people have a need for in the government. You could build it in-house, to a certain extent, but we also wanted to supplement our workforce and work with industry and provide opportunities for people to contribute to these products.”

The best projects for micropurchases are open source — with a strong library behind them — and have a minimum viable product team shepherding the larger project as a whole, according to Michael Torres, 18F innovation specialist and product manager for the micropurchase platform.

In fact, having a dedicated team for the main project is key.

“This is not a replacement for a product team,” Torres said. “It’s something that enhances a product team that already exists.”

Those teams will typically have a larger product goal in mind and a team of developers to get there.

“But they can’t do as much as they want to,” Torres explained.

Since 18F’s teams work in an agile framework anyway, projects are broken into smaller chunks. When appropriate, teams can break off one of those segments and shop it out through the micropurchase platform.

The other area where the platform has proved useful is what Zvenyach called “modular contracting.” He pointed to the work on the public dashboard for the Federal Risk and Authorization Management Program (FedRAMP).

That project was awarded through 18F’s agile blanket purchase agreement — another innovate contracting program — but a portion of the work was done through a micropurchase auction.

“We converted a Google sheet … into an open data format,” he explained. “That got our data out from behind a GSA firewall and into a public dataset but without having to change any workflow from the FedRAMP team perspective.”

This freed up the winning vendor on the agile BPA to do the swift-moving work needed to get the dashboard up and running without worrying about having limited access to the data.

“For basically $250 we were able to save downstream costs on the BPA buy and ensure that they could use that data from day one,” Zvenyach said.

But $250 isn’t much money for the vendor, either. So what kind of vendor would participate in a micropurchase auction?

The Value for Vendors

As a rule, at an average hourly rate of $110, any job expected to take more than 32 hours wouldn’t be worth the coder’s time, as bidding starts at $3,499.

However, there is an additional value proposition for the coders outside of monetary compensation: Civics. This was clear from the start, when the first auction was won with a bid of just $1.

“I figured it would be cool to be a part of this first micropurchase experiment and demonstrate that there are people — at least one but I think a lot more — willing and excited to help out on meaningful, civic-minded initiatives,” the bidder, Brendan Sudol, told Federal Times after winning the first auction last November. “I use open source technologies on a daily basis and this seemed like a great opportunity to give back a little.”

That bid was “a plot twist that no one here at 18F expected,” Zvenyach said at the time.

Single-dollar bids did not become the norm, though there were two more on the first 20 jobs. The first of these would have cost $880 on the open market, according to Federal Times’ analysis; the second would have gone for between $55 and $330.

“There are a lot of motivations for different types of vendors to participate,” Zvenyach said. “Individuals looked at this and said, ‘Hey, I can make a few extra dollars delivering code to the government with low risk.’”

Other vendors are using the platform to supplement their workflow during downtimes on other, larger contracts, he said.

“They have developers waiting for another project to kick off, here’s a short thing where they can make a few extra dollars and not have them sitting around.”

Still others have used the platform to get their foot in the door.

“Some vendors used it as an opportunity for business development,” Zvenyach said. “There’s at least one vendor who bid on a project and said, ‘Yeah, this was an opportunity to get in front of 18F.’”

“We spent a lot of time talking to vendors about why they contribute, what they expect of the platform and making sure it’s a positive experience to work with the government throughout the whole process,” Torres said. “They are super excited to work with the government and they have historically had a hard time doing that because the barriers are so high. With this platform, they can actually get work from the government. And it’s in small chunks, which is a positive for them.”

Torres noted the risks on larger contracts come from all the unknowns, which smart vendors have to build into their proposals. When projects are broken into small pieces, the unknowns are lower and there is far less risk.

And when 18F uses the terms vendors in this case, it’s not always in the traditional sense. The winning bidders are doing work for the government and getting paid in kind; and they have to register with the System for Award Management — or — in order to bid. But most of the bidding is being done by individuals, rather than established government contractors — though there are some of those, too.

“We have a variety of different types of vendors. Some of them are just individuals who are working out of their homes — I’ve talked with three or four of them,” Torres said. “Some of them are small businesses, who have some employees … We get small businesses that are larger, small businesses that are smaller and just individuals who want to do this.”

Growing the Micropurchase Methodology

While there is still work to be done to improve the platform, 18F is calling the micropurchase experiment a success. For now, that means continuing to expand the auctions outside of the team’s purview to help other programs within GSA, as they did with the FedRAMP dashboard.

From there, Zvenyach and Torres hope the idea will catch on with other agencies, who can build their own platforms and continue to move the method forward.

“We’re getting closer to that stage,” Zvenyach said. “We’ve had conversations with other agencies about potentially doing micropurchases on our platform,” including GSA.

“Vendors are hungry and vendors are showing up,” he said. “As somebody who approached this with some trepidation — concerned that there might not be anybody who showed up — I was concerned over time we’d see significant drop-offs in competition. But we’ve seen the opposite. People are excited.”

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