A Department of Health and Human Services pilot program that uses blockchain and machine learning to streamline the way it buys products and services is yielding positive initial results, according to HHS Associate Deputy Assistant Secretary Jose L. Arrieta.
Speaking at an Oct. 12 government technology conference organized by the General Services Administration’s Emerging Citizen Technology Office, Arrieta told attendees he predicts the tool, known as Accelerate, will receive authority to operate by Thanksgiving. If Accelerate gets the go-ahead from HHS’s risk management team, it could become the first-ever fully operational blockchain project fielded by a U.S. federal agency.
Arrieta said Accelerate has received positive feedback from hundreds of HHS users, and in six months has achieved all the objectives outlined in its business plan with only $3 million invested in the program.
“Conservatively, we’re estimating a [return on investment] of over 800 percent over four years based on direct savings at the point of purchase,” he said. “We’re also expecting to see indirect savings through simplifying the acquisition process and modernizing using cloud capabilities.”
Build Smarter, Buy Smarter
Accelerate is essentially a decentralized data platform that enables acquisition officials to automate the process of comparing the prices of everyday items listed on tens of thousands of HHS contracts. That way, officials can better leverage the department’s combined buying power to save money on the roughly $24 billion it spends on products and services annually.
Until now, HHS’s highly decentralized organizational structure has made these types of cost comparisons extremely difficult, said panelist Lori Ruderman, who leads HHS’s BuySmarter program management office.
Each of HHS’s components, such as the Centers for Medicare and Medicaid Services and the Food and Drug Administration, uses its own contracting system with its own unique requirements. This inevitably leads to disparities in pricing for similar items. According to Ruderman, a pair of common nitrile gloves might cost 4 cents on one acquisition portal, but 49 cents on another. Buying at the lowest prices listed across dozens of product and service categories could save HHS as much as $720 million each year, she said.
What HHS officials needed was a way to standardize the data listed on the department’s five contracting systems, but without having to build – and forcing contracting officers to learn to use – a new, centralized system. That’s where blockchain comes in.
As part of BuySmarter, Ruderman and her team turned to IBM Watson to analyze 18 months of HHS spending data, clean the data, organize it hierarchically, and feed it into Accelerate’s decentralized data platform. By putting transactional data on a blockchain, HHS gained the ability to disseminate pricing changes to all users on the network without the need for centralized management.
The blockchain also stores a permanent record of all changes to the system, a feature that could improve security by preventing data tampering, HHS Acquisitions Chief Product Officer Oki Mek told attendees.
Mek was central to designing a prototype for Accelerate, which he and his team built on a blockchain framework called Hyperledger Fabric for less than $200,000. In April 2018, HHS awarded a $2.5 million contract to Rockville, Maryland-based United Solutions LLC to build a scalable version of Mek’s prototype.
Using Fabric as a foundation, Mek’s team was able to build a series of simple microservice applications to automate aspects of the contracting process. For instance, one microservice might automatically pull in all the documentation required for a certain contract type, while another might pre-populate contract fields based on data already stored in the system.
“By sitting down with our contracting workforce to understand and actually diagram out their workflows, we’ve been able to find ways to create value by saving them time and effort,” said Arrieta. “That’s been essential in getting them to buy into the system.”
HHS’s Accelerate project helps to answer two outstanding questions about government blockchain. First, how soon will federal blockchain projects be operational? The answer: soon, apparently. Arrieta expects that Accelerate will receive authority to operate by Thanksgiving, and the ability to feed live spending data into the tool shortly thereafter.
Although most federal blockchain projects are still in the prototype stage, agencies are starting to spend resources to bring in contractors to help scale their projects. In fiscal 2018, federal agencies obligated $11.2 million on blockchain-related contracts, according to Bloomberg Government’s market definition, compared with only $4.2 million in fiscal 2017 and $812,000 in fiscal 2016.
The second question is, how will federal agencies contract for blockchain projects? Although the sample size is admittedly small, some of the largest blockchain awards to date have been issued using existing multiple-award indefinite delivery/indefinite quantity vehicles. United Solutions LLC’s $2.5 million award for Accelerate was issued through 8(a) Stars II, as was a subsequent $2 million award to help the Federal Acquisition Service integrate blockchain into its own procurement process. It’s perhaps also significant that $8.8 million of the $11.2 million awarded in fiscal 2018 went to small businesses.
Although Accelerate hasn’t yet received full authority to operate, its early successes may inform future federal blockchain initiatives. The Accelerate model — microservices built atop a Fabric data layer — has wider applicability for optimizing and consolidating administrative functions.