Contract models help the push toward performance

Rear Adm. Charles L. Munns

Olivier Douliery

Government agencies are buying more services. In fact, you could say agencies are on a services spending spree.

A recent report by research company Input of Chantilly, Va., projected that federal spending on IT outsourcing services will rise at a rate of 18 percent annually over the next five years, to almost $15 billion in fiscal 2007 from $6.6 billion in fiscal 2002.

Helping to propel that growth are two major initiatives, the $8.8 billion Navy-Marine Corps Intranet program with EDS Corp., now in its third year, and the Transportation Security Administration's $1 billion IT Managed Services contract awarded last year to Unisys Corp.

Both initiatives, Input said, are bellwethers for future performance-based services contracting in government. They also embody a new global approach to outsourcing, called managed services, in which agencies acquire multiple services integrated by a single prime contractor.

It's part and parcel of a new way of thinking about the enterprise and services.

'There is more centralized buying in government as CIOs try to grab hold of the money and as their ability increases to look across the entire enterprise instead of at pockets of the enterprise,' said Bob Suda, assistant commissioner for the General Services Administration's Federal Technology Service. 'There is more headquarter-level buying.'

In concept, managed services liberates agencies from running various components of their IT infrastructures so they can concentrate on their core missions.

Without it, the Navy's makeover of its 20-year-old jumble of disparate systems into an intranet would not only have been daunting but impossible, officials said.

'Doing a large-scale hardware-software procurement and buying the support to run the whole thing would have required an incredible amount of up-front capital, which we don't have,' said Steve Ehrler, the Navy's program executive for IT. 'The service-contract construct eliminates the need for that. We are buying a service. It's like buying a utility.'

For Navy officials, NMCI was the only answer, even if the rollout proved much more difficult than expected'as it has.

Contracting for end-to-end services also was the only way to go for the new TSA, which had to get its operations up and running quickly.

'Many people have asked if TSA's managed-services approach is the model for future government IT needs of this type,' CIO Patrick Schambach told the House Government Reform Subcommittee on Technology and Procurement Policy a few months ago. 'I can only say that, given our unique circumstances, I see this as the only way to get our agency established in the time frame that we have to operate.'

Large or small, agencies are increasingly moving to service contracting in noncore mission areas.
Few agencies, for example, host their Internet sites. They've turned to government or private-sector server farms.

It also makes sense for many agencies to outsource at least portions of their human resources work. A trend in that area is business process outsourcing, or contracting for specific HR services. But outsourcing of end-to-end HR services could be next up for agencies. Watch this space.

Meanwhile, performance-based services contracting is continuing to grow across government.

'There still is a place for time and materials contracts, but agencies want to control the outcomes of the contract, not run a body shop,' Suda said.

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