Written by Hendrick Townley with help from Sarah Evans, Art Chang and the rest of the Tech Mayor Project.
ajay_suresh, CC BY 2.0 https://creativecommons.org/licenses/by/2.0, via Wikimedia Commons
Do you have additional examples of vendor capture in NYC to share? Use this form or send us a note at [email protected]. We’ll keep this page updated as we receive submissions.
“Vendor capture…happens when a government agency becomes functionally dependent on a contractor or set of contractors to accomplish its mission. The dependencies go beyond basic support and extend into what are considered “inherently governmental” domains of knowledge, execution, continuity, and decision-making. The vendor uses its influence in the agency to make itself even more indispensable, which allows it to command higher rates, safe in the knowledge that the agency would rather pay too much than face the risks associated with switching vendors.”
Matthew Burton, one of our Tech Mayor Project contributors, recently wrote an important article: Vendor capture and the limits of fast government reform (Niskanen). Matt has spent decades building and advising on government technology at the Consumer Financial Protection Bureau, U.S. Treasury, U.S. Department of Education, and more.
In Matt’s words:
“Why should government agencies continue to spend billions on contractors who don’t deliver billions in value? Why not reclaim control, rebuild internal capacity, and force agencies to be leaner and more accountable?
The answer is that after decades of dependence on outside firms to do their work for them, many government agencies can no longer even function without them. They are suffering from something called ‘vendor capture,’”
There are three forms.
1. Technological capture: “When a vendor has complete control of a government IT system, and the government lacks the technical, or sometimes even legal, ability to manage the very system that was purchased with taxpayer dollars.”
2. Intellectual capture: “If an agency lacks in-house technical staff who know how to manage the system, the agency has been intellectually captured. All of the institutional knowledge of the system’s architecture and day-to-day maintenance lies with the vendor, and even if the government wanted to manage the system itself, it wouldn’t know how.”
3. Psychological capture: “Government staff talk about a vendor with great reverence … creat[ing] a general belief that vendors inherently perform superior work to in-house staff, simply by virtue of the vendors’ apparent commercial success at selling their ideas and products.”
Vendor Capture in NYC
Vendor capture is highly relevant to NYC. For example, the city’s DOB NOW platform is a critical cog in addressing the city’s generational housing crisis. The Department of Buildings uses this digital system to accept, review and process applications for the construction of all housing across New York City.
The city does not build or maintain DOB NOW itself, despite its importance. Instead, the city has paid a little-known government IT vendor, Spruce Technology, $232.3 million over the last eight years alone to develop this platform and others ($110 million spent on DOB NOW).
The city’s dependence on Spruce for the system means that even small edits to the software may require $10,000s in additional funding and have to be routed through a private entity that does not share the same sense of urgency as the city.
If NYC’s civil servants were empowered to build and maintain DOB NOW themselves — as government digital service teams have been elsewhere — these changes could be accomplished faster and for less. DOB NOW hosts complicated workflows, but the technology itself is basic. A small team could build, maintain, and regularly improve the portal as it exists today. (To estimate wildly, $110 million is enough to fund 70(!) engineers continuously for 8 years, assuming a generous $200,000 average salary).
With an in-house team the city would be able to act decisively on its own agency to adapt the most important digital system for managing one of the city’s most important policy challenges.
As Matt writes: “I’ve long been an advocate for reversing the tide of government outsourcing. I believe it’s critical for government agencies to be proficient in the design and creation of their own digital tools — a skill that has become essential to an agency’s ability to carry out its mission.”
To read more of Matt’s thoughts on how to build great technology in the public sector, read his ongoing series here, here and here.
Do you have additional examples of vendor capture in NYC to share? Use this form or send us a note at [email protected]. We’ll keep this page updated as we receive submissions.
Updates:
PASSPort, the city's digital procurement platform managed by the Mayor's Office of Contract Services (MOCS), suffers from similar dynamics. In 2016, the city awarded a $30.5 million contract to French technology company Ivalua to develop the system. Between fiscal years 2017-2025 Ivalua was paid $90.2 million by the city. Reportedly the software is poorly suited to NYC's complex procurement workflows. Even minor changes, like moving a checkbox, require costly change orders to the vendor. The very system the city uses to manage its vendor relationships is itself an example of vendor capture.
