The General Services Administration (GSA) is experimenting with blockchain technology to streamline the contracting process. In this post, we’ll look at what blockchain is, why GSA is using it, and what it means for contractors.
What is Blockchain?
It seems everyone is talking about blockchain. From stories on “what every government leader should know” about it to mildly irritated warnings not to get caught up in the blockchain “hype cycle” to news of the Seoul Metropolitan Government’s new blockchain contract with Samsung, the technology behind cryptocurrencies like Bitcoin is getting plenty of buzz. But what exactly is blockchain?
Overviews of the technology, such as this one from Wikipedia, tend to get bogged down in jargon rather quickly:
A blockchain…is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data…A blockchain can serve as an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.
Despite the jargon, though, the central concept is pretty straightforward. Deloitte gives a helpful analogy:
You (a “node”) have a file of transactions on your computer (a “ledger”). Two government accountants (let’s call them “miners”) have the same file on theirs (so it’s “distributed”). As you make a transaction, your computer sends an e-mail to each accountant to inform them.
Each accountant rushes to be the first to check whether you can afford it (and be paid their salary “Bitcoins”). The first to check and validate hits “REPLY ALL”, attaching their logic for verifying the transaction (“Proof of Work”). If the other accountant agrees, everyone updates their file…
This concept is enabled by “Blockchain” technology.
So why all the hype? Deloitte goes on to explain (emphasis added):
In a traditional environment, trusted third parties act as intermediaries for financial transactions. If you have ever sent money overseas, it will pass through an intermediary (usually a bank). It will usually not be instantaneous (taking up to 3 days) and the intermediary will take a commission for doing this either in the form of exchange rate conversion or other charges.
The original Blockchain is open-source technology which offers an alternative to the traditional intermediary for transfers of the crypto-currency Bitcoin. The intermediary is replaced by the collective verification of the ecosystem offering a huge degree of traceability, security and speed…[Blockchain] can be applied to any multi-step transaction where traceability and visibility is required.
GSA’s Blockchain Experiment.
GSA is experimenting with using blockchain to streamline/automate the mundane tasks involved in setting up a contract IT Schedule 70. As Federal News Radio reports:
[Jose Arrieta, director of contract operations for GSA’s Schedule 70 IT program, and his team] studied the business process of Schedule 70 contracts — what vendors had to go through to get the contracts established — and identified the two longest processes in what Arrieta called the “optimal path” — financial analysis of the company and the prenegotiation memorandum. They then instituted blockchain by putting everything in a distributed ledger and redesigned the user interfaces so that industry only has to enter the information once instead of logging into multiple systems, and ran microservices to automate the processes.
“So rather than take a number of days to do financial analysis and a number of days to develop a negotiation position, rather than have to log into a bunch of different systems to find that information and organize it, we are able to do that now in one second…And that lessens the burden on the industry partner, and it allows the contracting professional to focus more on critical thinking tasks rather than the process tasks associated with interacting with multiple systems,” [Arrieta said].
Why did GSA choose to use blockchain instead of some other method of automation? The idea was to take advantage of blockchain’s real-time record-keeping functionality:
…Blockchain provides a record of all the interactions that both parties can access in real-time, allowing the microservices to be more accurate without having to take the time to reconcile two separate versions of the same document.
“This is the hardest part about understanding blockchain: it is true that everybody has a copy. Everybody has a view of the original copy. And that’s the interesting thing,” Arrieta said. “So rather than recreate the copy multiple times, you have a data layer that all stakeholders have a view into. From a GSA perspective, we control what our market participants have a view into, because there are certain rules associated with what an industry partner can see. We’re not going to share multiple industry partners’ information with each other. But it’s not actually multiple databases with copies. It’s one transparent view that multiple stakeholders can see in real time, and is a record of all interactions with one another.”
What Does It Mean for Contractors?
Although it took approximately seven weeks to set up the system with a single small business, GSA’s hope is that implementing blockchain will ultimately lead to an 80% reduction in the direct costs of analyzing a proposal. More importantly from the contractor’s perspective, GSA’s goal “is actually to get the onboarding time from scheduled contractors from 110 days through our normal process and 40 days through our fast-lane process to less than 10 days.”
If GSA achieves this goal, it would have a major impact on prospective Schedule-holders, slashing the wait time that frustrates so many applicants and instead allowing them to start using their contracts in a matter of days rather than months. GSA is still evaluating next steps, but Arrieta emphasizes GSA’s hope to quickly implement a blockchain system: “We’re really trying to live in the present on this before we get too far in the future because we realize this is going to touch a number of stakeholders.”
Still, it’s important to remember that the system is still very much in the experimental stage. In the meantime, wait times for Schedules remain high, so it’s important for would-be Schedule holders to get in line as soon as possible. For more information on how to get on Schedule, contact Global Services today!