Post on 15-Aug-2015
Written by:
Paul Irby Market Analyst www.onvia.com
Market Analysis: ERP Procurement in Federal, State and Local Government
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2©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
After Gartner first introduced the acronym back in 19901, ERP or Enterprise Resource Planning has become not only a top IT market segment for software firms and consulting/implementation government contractors, but a key driver of transformation for the public organizations they serve.
Over the past three years, Onvia’s database tracked nearly $900 million in ERP awards
and almost 1,000 projects in the federal, state and local markets that were identified
with terminology specifically mentioning “ERP” or “Enterprise Resource Planning” in
their project title or core description. The actual volume of ERP-related projects in the
government market is likely much larger, but our market analyst team aimed to capture
projects where the primary focus of the work was on the ERP system installation itself.
Also, because contracts with published award values are generally only a small segment of
total contracting activity, the $900 million award number understates total contract value
of ERP projects in this market.
A recent survey2 of IT decision-makers at state and local agencies suggests that a full 81%
of state and local agencies either already have an ERP solution, are currently contracting
for it or implementing it, or are planning for it. Industry-wide in IT, the typical lifecycle of
an ERP system involves replacement every 7-10 years3, however in the case of budget-
constrained government agencies, there may be a greater lifespan of these systems in
order to maximize the previous investment. In addition to adding more standard ERP
modules in a phased long-term rollout, public agencies may be able to expand their older
ERP systems to add things like BI capabilities or CRM without a complete and expensive
replacement. We looked for a few instances of large scale ERP systems in state and local
governments and found three examples highlighting their longevity. Finished in 1977,
New York City had one of the earliest ERP-type systems in existence. It went through a
partial upgrade in the late 1990’s, more about Y2K-ready client-server technology than
functionality. The first full functional upgrade was not completed until 2009 – 32 years
after the initial implementation4. Los Angeles County’s first major phase of its core $160
million system is now around 9 years old5 and Chicago’s is around 12 years old6. While
additional customizations, maintenance and consulting services are possible for these
systems in the near term, the examples from New York and Chicago show ERP systems can
have a long life in state and local agencies.
1 www.netsuite.com/portal/resource/articles/erp/what-is-erp.shtml2 The Evolution of Human Resources and Finance Solutions in State and Local Government, Center for Digital Government, September 20123 Is the ERP Life Cycle Changing? ERP Focus website, blog by Tom Miller, posted 7/19/13 www.erpfocus.com/is-the-erp-life-cycle-changing-1635.html4 Modernizing New York City’s Financial Management, CGI white paper, 20105 Los Angeles County Upgrades to New Payroll System, Russell Nichols, Public CIO, July 27, 20106 Referenced in a public planning document comparing various ERP implementations nationwide: RO866301R2 Evaluation Matrix; Centralized Enterprise Resource Planning (ERP) Solution, Broward County, Florida
3©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
Over the last three years mentions of “ERP” and “Enterprise Resource Planning” in
procurement documents grew by an average of 22% according to the Onvia dataset. The
continued strong demand for ERP can be traced to several key factors. According to the
Center for Digital Government7, the top motivations for an agency moving to a new ERP
platform include improved productivity (58%), integration of data and business information
(51%), better decision-making (41%), addressing aging legacy systems (41%), improving
business processes (35%), and supporting greater government compliance (32%). The
combination of achieving all of these worthy objectives in one initiative helps justify the
large expense and extensive staff time involved.
Our research team examined ERP project data for the past three years with the goal of
understanding trends in vendors, award volume and size, importance of implementation
vs. consulting services, procurement differences by agency level and the size and impact
of project uncertainty. Our analysis deconstructs the market opportunity and provides
intelligence to help vendors win more government business in the growing and important
ERP market.
Top Successful ERP Vendors Include Both Services Firms and Software Companies
In this market, major software companies directly compete alongside the IT services/
solutions firms. In the case of the larger platform companies like Oracle and SAP, the
software company’s enterprise sales and service team can be competing against their
own partner network–IT consultants that are highly skilled at planning, implementation
and good customer support. Oracle and SAP were the most commonly used software
platform companies for implementations, listed in a majority of project documents where
the platform name or a subsidiary company/platform was mentioned. Other top makers
in the government space include CGI, Ellucian, Harris, IBM, Infor, Microsoft, Sage and Tyler
Technologies.
We examined our database of publicly available ERP awards reported by state and local as
well as federal government agencies and identified vendors who were selling directly to this
market. Among the top 10 competitors for ERP contracts who sold directly, the first three
also happened to be major ERP software makers. The remaining seven are a mix of solution
providers, VARs and two other software firms.
ANALYSIS: Dynamics of ERP Contracting
8 The Evolution of Human Resources and Finance Solutions in State and Local Government, Center for Digital Government, September 2012
4©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
ERP Awards and Award Size by Tier of Vendor
The more experienced and successful vendors tend to win much larger awards, with the
top 10% of vendors averaging awards of $12 million each and representing one out of
four contracts. A review of ERP awards since 2011 shows that the bottom 90% of vendors
win 75% of the awards and can expect an average project size of nearly a million dollars
($910,500).
0%
20%
30%
40%
50%
60%
70%
80%
0
$2M
$4M
$6M
$8M
$10M
$12M
$14M75%
Share of ERP Awards and Average Award Size
Bottom 90% of Vendors Top 10% of Vendors
AVERAGE AWARDSSHARE OF AWARDS
$12,235,699
25%
$910,532
Top ERP Vendors Ranked by Total Awards
ERP VendorRank by # of Awards Primary Business Category
Tyler Technologies1 ERP software maker
Oracle2 ERP software maker
SunGard ERP software maker3
ERP Analysts4 Solution provider
SAP5 ERP software maker
Ciber6 Solution provider
Plante Moran7 Solution provider
DLT Solutions8 Solution provider
Infor (Lawson)9 ERP software maker
AST Corp10 VAR
Note: Based on a sample of publicly available records of awards by government agencies
5©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
Unrealistic for Newer Government Contractors to Expect Multiple Awards
ERP is generally not a market where newcomers to IT government contracting can enter and start winning multiple awards per year. The 10 most successful firms measured by number of awards average just over three per year. All other vendors averaged less than one-half (0.4) per year since 2011.
Level of Government: Cities have the highest volume of ERP opportunities but the smallest awards
Onvia examined all bids and RFP documents from U.S. cities with a minimum population of 4,000, along with counties, states and federal agencies.
The single largest source of demand for project opportunities in ERP appears to come from cities, which generated 270 bids, RFPs and awards over the past 3 years in our database. Next in line was state government, with 188 projects. Federal projects were fewer, at 104 – though award values were much higher.
Award size generally follows organization size and complexity, as illustrated in the chart below, with federal agencies having the largest contract values ($16 million average) and cities having the most contract and awards (270).
0
50
100
150
200
250
300
350
0
$3M
$6M
$9M
$12M
$15M
$18M
$21M
Bid/RFP/Awards and Average Award Size
City County State Federal
AVERAGE AWARDSBIDS/RFPS/AWARDS
270
142
188
104
$1,651,427
$4,364,131$6,040,860
$15,623,422
6©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
Consulting Helps Drive Higher Federal Project Costs
Onvia’s data revealed that federal ERP projects were more likely to be categorized as
“consulting-oriented” (47% of federal projects) rather than mainly software-oriented (38%).
In contrast, smaller state/local government ERP projects tended to be more about software
(53%) and much less about planning and consulting (27%). With the federal government’s
much larger and more complex silos of data and systems, effective consulting becomes
more important because the potential costs of widespread disruption and the need for
sufficient cross-department coordination rises at the same time.
Since incrementally higher software costs would not be expected to impact the budget as
much as incrementally higher consulting hours in large implementations, the consulting
share would generally increase as a percentage of large agency budgets. While this
expenditure can’t be completely avoided, the situation does suggest a demand in the
market for ways to reduce uncertainties and cut back on additional setup and unnecessary
customization time for larger agencies. ERP software that comes already configured for
typical governmental uses and “best practices” may help reduce some of the front-end
consulting time.
Adoption Curve Visible by Size of Government: Opportunities Skewed Toward Smaller Agencies
Compared to normal or expected patterns of IT purchasing, recent ERP bids and RFPs
have skewed strongly toward cities (nearly twice the normal share) compared to counties
0
10%
20%
30%
40%
50%
60%
% of ERP Projects That Are Mainly Software vs Mainly Consulting Oriented
Software Focus Consulting Focus
STATE & LOCALFEDERAL
27%
47%
53%
38%
7©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
and statewide (about normal) and federal agencies (around half as strong as normal). This
suggests, as Onvia noted with cloud computing in our recent “Tactics to Win in the State
and Local Cloud Market” white paper, ERP implementation has not happened randomly but
according to a typical technology adoption curve where the largest agencies (i.e. the “early
adopters”) have invested first with the smaller agencies lagging behind in order.
The adoption curve can also be witnessed in the skew toward smaller or mid-sized – rather
than large - cities. We assembled a top 10 list of U.S. cities based on ERP procurement
activity and readers will notice none are in the top 10 list of U.S. cities by population, instead
focusing on cities generally between 200,000 and 900,000 residents. The top 10 list of cities
generally reflects agencies spending between $2 million and $16 million in total for ERP-
related project phases or follow-up work since 2011. Missing from this list are larger cities
such as New York, Chicago, Atlanta or Los Angeles – who had already funded or completed
major implementations (see pg 2). Atlanta, interestingly, did have a smaller project for less
than $2 million that was ranked lower on this list, which was titled “post-production ERP
planning support” and was a follow-up activity as opposed to the initial major system install
done in 20088, Based on this, vendors should keep in mind that ERP opportunities within
large cities will most likely be relatively modest in size due to the fact that they typically
have already made their large initial investment. There should be a relatively larger market
for full implementations among smaller to mid-size agencies that have not yet put into
place a full-scale ERP platform.
Top 10 Cities in Total Spending for ERP-related Work Since 2011
CityRank Sum of Awarded Contract Value
Tampa, FL1 $34M
Ft. Worth, TX2 $26M
Anchorage, AK $16M3
Corpus Christi, TX4 $7M
Mesa, AZ5 $6M
Roswell, NM6 $5M
Jacksonville / Duval County, FL7 $3M
Hayward, CA8 $2.5M
Richmond, VA9 $2.4M
Mesquite, TX10 $2.2M
8 https://oracleus.activeevents.com/2013/connect/fileDownload/session/ECDAE5978122CBF57FDD32567DF73A5B/CON5909_Kumar-City%20of%20Atlanta%20OOW2013%20Session%20Deck.pptx
8©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
Use of Term Contracts for ERP
ERP contracts can often take the form of a fixed term contract, however this varies greatly
depending on the level of government. In the case of cities, only 19% of projects use this
approach with a standard fixed term length of between one and five years (sometimes
longer). Federal agency projects were similar, with only 29% being term contracts. However,
at the county and state levels, fixed term awards for ERP were much more common. More
than 60% of these ERP projects were on a fixed term contract.
One explanation for county and state term contract use is that at the larger scale of state
and local government, these agencies have more of a need for ongoing assistance and
troubleshooting after the initial implementation takes place. While federal agencies are
also large, they may have enough internal or general IT resources available to handle the
ongoing component. The most common contract term length for counties and states was
four years while for cities and federal agencies a shorter one-year term was preferred. Many
of Onvia’s IT clients use a tool called Term Contract Center to track when these contracts
will be expiring or renewing and help vendors prepare to win clients who may not be fully
satisfied with the initial vendor’s performance.
Forecasting Future State & Local Agency ERP Projects
State and local governments are planning on a fairly large number of ERP projects in their
CIP plans and budgets over the next 3-5 years. As a point of reference, the number of
actual bids/RFPs/awards in 2013 in the state and local universe where ERP was mentioned
was 270. Using Onvia’s Spending Forecast Center tool, the total count for mentions of ERP
in budget documents of state and local agencies for 2014 came to 1,514. It’s important to
note that this total includes both confirmed spending as well as possible spending that
is being considered, but may not end up being included in a final approved plan. Some
of these instances may also only indirectly list ERP. Vendors that use this intelligence are
able to follow-up on these mentions to establish influential relationships with agency
decision makers well before the projects come up for public bid. Another 2,792 ERP-related
document mentions fell in the later 2015 to 2018 period.
The Realities of Projects: Unpredictable with Longer Timelines and Uncertain Outcomes
Successfully completing an ERP initiative is not a guaranteed outcome, even with large
budgets. Industry observers have generally described them as more likely to be challenging
9©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
than smooth or predictable. Gartner9 noted that budgets normally allocate about half the
total project cost (47%) to system integration and consulting and only 22% to the ERP
software itself. In a recent study from the Center for Digital Government10, nearly half (49%)
of state and local IT leaders report experiencing problems with integration, 38% reported
higher-than-expected costs and 36% indicated scope modification/change orders. A total
of 20% mentioned delays in delivery, while another 18% mentioned a “postponed go-live
date.” Even without delays, on-premise ERP requires longer timeframes than normal for IT
projects. Nearly one out of three (28%) respondents reported taking longer than two years
and 43% cited a length of at least 18 months. As the survey included both small and large
agencies, timeframes for state agencies and large counties would generally skew toward
the multi-year model. Experienced vendors are more likely to be able to propose realistic
schedules and budgets, but relatively new entrants to the ERP government space should
understand that timelines can be hard to predict and these types of projects often take
longer than originally estimated.
Many agencies separate large ERP projects into phases over multiple years. For example,
Onvia calculates in our Spending Forecast Center that Hawaii’s large statewide $85 million
ERP implementation will allocate a maximum of $24 million per year. In 2014 the agency
is expected to allocate around $2 million to planning/consulting, $5 million for specific
technical designs and $17 million for implementation. Spending should fall to $14 million by
the last year of 2017.
ERP vendors in the government market are up against technical, business culture and
staff challenges of various magnitudes. According to Gartner11, organizational change
management (i.e. “mobilizing and preparing the workforce for business process,
organizational and job changes”) was the single biggest success factor for ERP in their
survey of state agencies. Vendors can add tremendous value before beginning the
implementation by helping their contracting agency prepare for and anticipate human
complications and roadblocks. Consultation in pre-bid and planning stages can be an
effective tactic to build strong relationships with agency decision makers.
ERP project uncertainties and risks are well known in the industry. Perhaps before its
time, a 14-year-old IBM-sponsored conference presentation about ERP implementation
in government12, recommended that agencies “pad” their budgets, include a 10-20%
contingency fund and “protect it with your life.” While “padding” may be less necessary
now due to vendors having more experience in government ERP and the improvements
in implementation and usability in ERP systems over the last decade, the suggestion to
9 Trends in Statewide ERP Implementations, Gartner Industry Research, Massimiliano Claps and Ivy Anderson, October 200910 The Evolution of Human Resources and Finance Solutions in State and Local Government, Center for Digital Government, September 201211 Trends in Statewide ERP Implementations, Gartner Industry Research, Massimiliano Claps and Ivy Anderson, October 2009
10©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
understand and expect cost overruns is still sound advice for both vendors and agencies
in today’s market. The expectation of complexity is often overtly addressed in project
documents themselves. One recent ERP project description in Onvia’s database for a federal
award began by explaining how difficult it was for the agency to estimate cost:
One last recommendation for vendors in regards to project budgets and award values is
that vendors need to keep in mind award values are sometimes “maximum spend” numbers
reflecting the highest possible level that the agency is willing to spend on a “worst case”
basis. In one extreme case, the U.S. Army awarded three different “maximum spend”
contracts for the same ERP initiative to three different contractors. The sum of the three
maximum spend amounts was $518 million, but in the description the contracts cautioned
that the agency would not spend more than $240 million in total. Logically, the odds that
any one vendor would end up with most of their maximum amount were slim.
This contract action was not awarded as a fixed price type because it was not possible to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.
“”
12 ERP Implementation in Government, IPMA Executive Conference sponsored by IBM, September 13, 2000
11©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
By the numbers, the ERP market looks very strong in terms of volume of opportunities as
well as healthy project budgets for awards. Due to the adoption curve of ERP, the largest
opportunity for vendors focusing on first-time or brand new system implementation is in
the small to midsize city and county segments. While the larger agency market will typically
be about upgrading older ERP systems or making incremental improvements, budgets
can still be sizable due to the consulting, customization and larger organization software
licensing fees involved.
Compared to typical IT contracts, ERP projects typically are longer in length, highly labor-
intensive, business process-oriented and people-focused as opposed to simply technical
in nature. Successful ERP implementations drive significant organizational changes and
efficiencies and agencies are seeking vendors who can be trusted partners to help guide
them through the maze of project complexity, help them engage with affected teams and
ultimately live up to the high expectations associated with a successful ERP implementation.
To summarize, the following key takeaways and recommendations are provided to assist
vendors in winning more ERP business from government agencies:
Engage with agencies early to become a valued consultant and help them craft a
sound RFP
Anticipate typical roadblocks during the planning stage: prepare for surprises and
delays in schedules and avoid creating unrealistic budgets that can destroy profit-
ability
Align with top platforms to accelerate platform buy-in
Consider software options that are already pre-configured for government agency
use to reduce configuration and customization time. There is evidence that some
of the top ERP software makers are creating solutions focused specifically at the
government market
Consider subcontracting or teaming with successful vendors in the government
ERP market to build experience and a portfolio of successful projects prior to
competing as a prime yourself
CONCLUSIONS & RECOMMENDATIONS
12©2014 Onvia, Inc. All rights reserved.
Market Analysis: ERP Procurement in Federal, State and Local Government
About Onvia:
Onvia specializes in providing business intelligence solutions to vendors to grow their
government business, helping them get ahead of the bid and RFP process. Active vendors
in the government market that need timely, comprehensive and unique insights in their
industry vertical, key buyers and competitive landscape should visit www.onvia.com and
request a demo to speak with a Business Development Manager in their industry. Onvia
helps clients strategically grow their government business with solutions for project
intelligence, agency intelligence and vendor intelligence in the public sector.
Disclaimer:
The information contained in this Onvia publication has been obtained from publicly available
federal, state and local and government data sources. Onvia disclaims all warranties as to the
accuracy, completeness or adequacy of such information. The views and opinions expressed in
this publication are those of Onvia’s research organization and are subject to change.