Executive Summary: Contracting Guidance to Support Modular Development

The Office of Management and Budget recently released Contracting Guidance to Support Modular Development. The purpose of this guidance was to “provide agencies with contracting guidance to support modular development, as required by Information Technology (IT) Reform Action 15: Issue Contracting Guidance and Templates to Support Modular Development, 25 Point Implementation Plan to Reform Federal Information Technology Management. This guidance presents a variety of factors that contracting officers, in support of IT managers, will need to consider as they plan for modular development efforts…”

Following are highlights of the above-referenced document.


Federal agencies have typically taken a “grand design” approach when developing IT investments. This methodology is based on the belief that requirements should be clearly detailed before work can start. However, this approach can take years, and by the time the investment is implemented, there is a high risk that the chosen IT solution is already outdated.

A modular approach, on the other hand, refers to the division of an investment into parts or modules. This division allows the Government to reduce investment risk and to adopt and deploy newer technologies within months. An Integrated Project Team (IPT) is highly recommended to make the modular approach a success.


Modular Development – The Top View

Modular development of an IT investment contract consists of three primary levels, irrespective of the complexity and capital of the contract:

The Investment

The guidance document indicates: “It is at the investment level that a modular development approach should be carefully considered for IT investments, or other larger or more complex investments with longer development durations.” During development of the business case, consider whether the investment should be split into smaller components that will deliver useful functionality and capability to users.


Each investment will consist of multiple projects. “Each project should have its own development lifecycle (e.g., planning, acquisition, development, and deployment) and should be scoped in a way that it can be acquired independently.” Each project should produce a measureable functionality or capability as defined in the business case. Functional value creation from a project should be completed in 6 months or less.


Projects comprise activities, which outline the granular steps towards need fulfillment. Ideally, activities are completed in 90 days or less.


Modular Contracting for IT – The Details

In order for modular development to realize useable capabilities, the contracting cycle must be able to support the varying timeframes of technology development.

Contracting approaches

Modular development lends itself to considerable flexibility in contracting approaches. The most popular form of contracting is the “indefinite-delivery indefinite-quantity (IDIQ) task and delivery order,” wherein agencies can place orders for goods or services from selected contractor(s) as and when needs arise. A single contract with options, successive contracts, and performance-based work statements are other contracting approaches.

Payment strategies

“Agencies should select a payment strategy that effectively incentivizes the contractor to provide the best value for a given project or activity. To do so, agencies must give careful consideration to the level of uncertainty regarding their requirements. The greater the certainty, the more likely an agency can successfully use a fixed-price arrangement where payment is tied to the delivery of a completed product or service.”

Use of competition

Agencies can take advantage of marketplace competition to choose contractors for each module of the contract. “When awarding a modular contract, agencies should include provisions in their solicitations and clauses in their contracts that reinforce modular principles, such as a requirement to provide specific functionality that delivers value to the customer within a specified period of time after a work order is issued, and a requirement that ties subsequent work to the acceptable delivery of prior releases.”


For more detailed information, including checklists, IPT responsibilities, IT investment structure recommendations and a sample Performance Work Statement, reference the original document, Contracting Guidance to Support Modular Development.



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