More Government Agencies Using Challenge Prizes to Tackle Tough Technology Problems (UPDATED)

By Stew Magnuson
Most know that aviator Charles Lindbergh was the first to fly solo across the Atlantic in his aircraft, the Spirit of St. Louis, in May 1927.

Fewer remember that he earned $25,000 in prize money accomplishing the feat.
Lindbergh and his team were competing for the Orteig Prize, one of several offered to pilots and engineers in order to spur innovation and public interest in the then-nascent aviation industry.

The idea of using challenge prizes to tackle tough technological problems lay dormant for decades but has come back into vogue with government agencies, including those in the Defense Department, using them as an acquisition tool.

The Obama administration, with bipartisan support from Congress, has accelerated prize offerings, setting up the website as a one-stop clearinghouse for all the prizes being offered by the federal government. Administered by the General Services Administration, it also offers technical advice to agencies wanting to set up their own competitions.

From its inception in 2010 to the end of fiscal year 2014, the website listed 370 competitions being sponsored by 69 different federal agencies. Together, they have offered some $72 million in prize money, said Tammi Marcoullier, program manager of

“When you have a prize competition, you are capturing the imagination of the public and you are tapping into the wisdom of the crowd,” she said in an interview.

The 370 competitions have attracted about 44,000 teams from around the world, she added.
Challenge prizes are not substitutes for traditional acquisition or procurement programs, but can be a tool for agencies seeking to bridge a technology gap, she said.

“If you can buy it, if it exists, if you can procure it, you should do that. It’s not meant to get something cheaper that already exists out in the marketplace,” she said.

Prizes must be well designed and look for a “sweet spot” between the “achievable” and “audacious.” The prize must drive innovation, she said.

Chris Frangione, vice president of prize development at the XPrize Foundation, noted that the idea to spark innovation goes back further than the 1920s. It was the British government, not private individuals, that awarded the Longitude Prize to John Harrison in 1765 for discovering a simple and practical way to measure a ship’s longitude. He earned 15,000 British pounds for inventing the chronometer.  

“They are really only one tool in your innovation toolbox, but they complement traditional research and development resources very well,” he said.

The Ansari XPrize rekindled the challenge prize idea in 1996 when it offered $10 million to any nongovernmental agency that could launch a reusable manned spacecraft twice in the span of two weeks. The foundation has five active prizes now, including $35 million for anyone who can land a robot on the moon.

The Defense Advanced Research Projects Agency took up the idea in 2004-2005 when it held two competitions for self-driving vehicles.

The advantage of such prizes for the government is a wealth of brainpower being invested in solving a problem, Marcoullier said. If a prize attracts 100 participants, who each spend about four hours a week working on it, that comes to about 4,000 hours devoted to solving a problem over the course of a typical 10-week competition.

“You have to think about how much that would cost you to contract that out,” Marcoullier said. “And the benefit is that you’re making it interesting. You’re making it fun for them. You’re developing a community around this area of interest.”

An agency may end up with three teams each with its own piece of the puzzle, and their results can be put together for a product.

“I say that is still a huge win because you have accelerated the timeline to development exponentially,” she added.

Frangione said the advantage for government agencies such as those in the national security realm is the ability to tap into a pool of problem solvers they may not know exists.

“If you use a traditional grant or contract, you’re going to go to your known solver community,” he said. “Why find a needle in a haystack if the needle can find you?”

Small groups of individuals or even large companies, which would otherwise be seen as too risky to award a contract to, will come forward and start working to solve the problem, he said.

The value for the solvers often goes beyond the cash prize. The $72 million in prize money posted so far is misleading, Marcoullier said. Three of the challenges were more than $10 million each. Most are more modest. Some have no cash prize at all.

The prize should be enough of an incentive for a team or solver to want to invest their time. In the case of one Environmental Protection Agency prize, there was no cash reward. The winner was given the opportunity to present its idea at a major conference and have an in-person meeting with the head of the agency. That was enough motivation to spark interest.

Other teams see a much larger payoff with a potential business spinning off afterwards. Some are motivated to join a competition when the judges are noted experts in their field or venture capitalists.

NASA, which has conducted several prizes, tends to buy intellectual property and bring it in house, which can also add up to a much larger payoff than the initial prize money. Marcoullier knows of a military robotics competition where the ultimate winner was the one who came in third place. Even though the team didn’t win, the participants decided that they had invested enough time and energy to start a company. It was the one that eventually garnered the government contract. 

“If someone meets all the criteria, we want to pick a winner. But overall the goal is to … stimulate the economy, and stimulate the marketplace,” Marcoullier said.

With college, and even high school teams competing, it is also a great way to promote science, technology, engineering and math education, she added.

“We’re not out there asking people to do work for free, for cheap,” she added. “We are asking them to solve an audacious problem that is mission-centric so they can wrap their imagination around it and say, ‘I can do that.’”

“This isn’t a trick. We really want to give everybody all the tools, all the information we know, so they can all be successful,” she said.

DARPA and the Air Force Research Laboratory have been at the forefront in the military for using prize challenges. There were about five pages of prizes listed for Defense Department agencies on the website at the beginning of December. The Department of Homeland Security is beginning to take an interest, and is working with the Transportation Security Administration to design a prize for 2015, she said.

Gill Pratt, program manager for the DARPA Robotics Challenge, is leading a competition that is putting humanoid-shaped search-and-rescue robots through an obstacle course. The first live round of competitions took place in Miami in December 2013 and attracted 16 teams from all over the world. The final round with a similar number of teams will take place June 2015 in Pomona, California.

DARPA could have gone the traditional route and awarded a contract after seeking requests for information and then requests for proposals, but in this case a challenge prize was seen as garnering better results.

“DARPA determined that the prize-challenge model of driving innovation would be beneficial in this case because pockets of robotics research were taking place around the world, and a lot of interesting ideas were being pursued, but the field lacked a cohesive organizing focus,” Pratt said in an email.

The challenge spelled out a mission and a set of objectives but did so without restricting the approaches teams could take, he said. It “led to greater non-traditional domestic and international participation than we usually get from a broad agency announcement,” he added.

A typical contract will list the milestones and the expected results. Prizes leave the milestones and how to achieve the end result up to the competitors, Pratt said.

“DARPA may choose to create a challenge when a need is clear, but not necessarily the path to arrive at a solution,” he said.

Pratt and Marcoullier said another major advantage of a prize for a government agency is that they only have to pay if there is a winner.

Frangione said if an agency awards a $5 million contract, it will receive $5 million worth of work. “If you put out a $5 million prize, you could see …  $75 million in aggregate R&D.”

The government can in turn offer teams the ability to test at its labs as part of the incentive to win, he added. Awards also don’t have to be “winner takes all.” A new DARPA challenge to track diseases will give out a total of $410,000 in prize money to first- and second-place winners as well as four runners-up.

Pratt said because of their high visibility and public relations value to competing teams, challenges tend to attract external investment that meets or exceeds the government resources that go into them.

“Challenges can attract participation from a much broader pool of innovators than the government traditionally reaches,” he added.

Frangione said: “We like to say we democratize innovation.” 

But prizes must be well thought out and planned, he said. The XPrize Foundation takes up to nine months to design a competition. Many ideas are rejected. Some are a bridge too far. They can’t ask that teams “break the laws of physics,” he noted.

The best prizes will define a problem but not a solution, he added.

“If you define a solution, you really hinder innovation,” he added. “Where we see most prizes fail is they pre-suppose a solution. The end goal really has to be on the right place on the spectrum from audacious to achievable.”

Some prizes make the mistake of going for a silver bullet or “whole shebang” solution, Frangione said. For example, the Ansari XPrize’s ultimate goal was to spark space tourism. Initially, the objective was to launch a vehicle 100 miles into space.

At that distance, either no one would have competed, or it would have taken a long time for a winner, he said. Changing it to 100 kilometers was more achievable and a step toward commercial spaceflight.

A prize also can’t be subjective. It must have clear objectives: “I need to know, if I do A, B and C, I win,” Frangione said.

The real payoff should come after the prize is awarded. In the case of the Ansari XPrize, a nascent space tourism industry was left in its wake.

Correction: A previous version of the chart misstated the amount of the Google Lunar XPRIZE. 

Topics: Business Trends, Doing Business with the Government, Defense Department

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