This is the fourth of a five-part blog series is derived from a recent article in Public Administration Review, Balancing Digital Transformation and Modernization: Pathways for Public Managers, by Marc Picavet, Kevin Desouza, Greg Dawson, Jim Denford, and Dan Chenok. Read the first, second, and third blog.
Government has a real opportunity when it comes to working with industry. Contractors are, in most cases, strong performers — the meaningful work lies in updating the structures through which government engages them, many of which were built for a different era and a different kind of technology. Modernizing those structures can help government foster innovation at scale, adaptability alongside reliability, and emerging capability based on established track records.
A procurement paradox exists: the processes designed to protect public value can, in practice, work against innovation to increase that value. The opportunity for reform lies in resolving this paradox.
Engaging with Established Vendors
Government often relies on large technology vendors. These companies understand government procurement processes. They have the scale to handle enterprise-level contracts. They offer solutions that have proven effective in government environments.
These advantages come with trade-offs. Established vendors have strong incentives to sustain existing systems, since revenue models often focus on what government already has rather than what comes next. Government architectures also tends toward the monolithic — complex, integrated solutions that favor stability over flexibility.
“Public organizations have that modular, fit-for-purpose technology they want to bring on. But that sort of does not actually play out easily with the big platforms.” — Government CIO, interviewed for the study
What Smaller, Innovative Vendors Offer
Start-ups and providers new to government operate from a different logic. They often bring emerging AI, machine learning, and analytics capabilities. They can generally move faster, experiment more readily, and bring new thinking to old problems.
On the other hand, government procurement is often unfamiliar territory for new industry providers, who are still building experience with the scale and complexity of government systems. Startup lifecycle volatility can also make is difficult to sustain multi-year contracts through to completion.
One interviewee described a recurring frustration: “We hire a smaller contractor, they do some work. Maybe they don’t get it all done in that contract, and now we’re bringing in another contractor and starting from scratch.” This pattern carries a real and avoidable cost, in lost institutional knowledge and project continuity — one that better contract design can help solve.
Contracts as Levers for Transformation
Contract structure can provide a central, underappreciated lever for digital transformation — one government is well positioned to adjust.
Fixed-price contracts with rigid deliverables and hard deadlines often push vendors toward the path of least resistance: delivering a technically compliant solution rather than an organizationally transformative one.
“With a fixed-price contract, the systems integrator has to deliver by a certain date. Because of that, they are not going to be flexible and are not going to support your organization’s goal to transform.” — Government CIO, interviewed for the study.
More open, outcomes-based contracts — where vendors perform against service outcomes rather than feature delivery — create space for the adaptive, iterative outcomes that complex digital initiatives thrive on.
Building an Ecosystem Instead of Managing a Vendor List
The most effective approach to acquisition strategy moves beyond choosing between established and emerging vendors. Rather, government can create conditions where both can contribute. Several factors can enable this approach:
One Virginia CIO described the model: “I view them as an extension of my team. We rely on them to bring in expertise and run the infrastructure. We have 300 core employees but around a thousand contractors. We follow the contractual processes and requirements, but once they are inside, we treat them like team members.”
Key Takeaways