Management of Major Programs
Assignment : Automating the Patent Office
Until the mid-1980s, patent files in the U.S. Patent and Trademark Office (USPTO) were processed much the same way they were handled in the late 18th century, when Thomas Jefferson served as America's first patent administrator.
The patent documents handled by USPTO patent examiners were all paperbased. When examiners wanted to examine the contents of a patent, they needed to get hold of a paper copy of the patent. By the mid-1980s, the USPTO had search files of more than 25 million patents - all printed on paper. In 1983, the USPTO was ready to automate.
After a competitive bidding process, they awarded a $289 million, 18-year cost plus fixed fee contract to Planning Research Corporation (PRC). Strangely, only two companies bid on the award. This was unusual, because large high tech projects like this generally involve many bidders. PRC proposed to develop a state-of-art data storage system, where patent text and images would be stored on optical disks and indexed by two large mainframe computers. Patent examiners could retrieve patent data at work stations equipped with high resolution screens. A matter of concern to some observers was the fact that this project was by far the largest and most complex that PRC had ever managed.
From the outset of the contract, things went badly. Almost immediately, when work had just begun, the USPTO asked PRC to stop work and carry out an extensive review and evaluation of the system they had proposed. This action added a year to the development effort. Another problem was that at this time, optical storage technology was in its infancy, so there were many technical uncertainties that the PRC project team had to contend with. These problems were compounded by a government requirement that all procurement of supplies, equipment, and subcontractor services be conducted competitively.
This made it impossible for PRC to create a reasonable estimate of the cost of developing the system because PRC was not sure what technology would be available to incorporate into the system one or two years down the line, and what price vendors would charge to supply the undefined technology.
By 1988, the development effort was in serious trouble. It was estimated that cost overruns on the $289 million project would reach $159 million. Furthermore, no key milestones had been reached and it was not clear when the USPTO would find itself in possession of a usable system.
The contract had caught the attention of the Congressional watchdog agency, the Government Accounting Office (GAO), as well as the House Government Operations Committee. These two players strongly criticized how the contract was structured, pointing out that with an 18-year cost plus fixed fee contract, PRC had no incentive to save money.
Ultimately, PRC was willing to renegotiate the terms of the contract, agreeing to break the contract into shorter segments and accepting a cost plus incentive fee contract structure (with incentive fees, they would only make bonuses if they performed as planned or better than planned).
In retrospect, one of the ironies of this venture is that at the very time that the USPTO was willing to spend hundreds of millions of dollars launching this new optical storage technology, SONY and Phillips jointly introduced compact disk (CD) storage technology into the market.
By the end of the 1980s, CD storage was cheap, reliable, and used throughout the world to store audio, text, and video images files.
Questions
1. This story illustrates many traits of the US government's approach to major systems acquisition in the "old days." (Many of these traits still endure, even after acquisition reform!). Identify predictable problems that illustrated in the case that reflect poor acquisition management practice.
2. How could this program have been implemented more effectively? Responses should be two pages long, typed single spaced.