- By Thomas R. Temin
- May 20, 2003
Thomas R. Temin
During a recent luncheon talk, I noted that agencies create far fewer big indefinite-delivery/indefinite-quantity contracts than 10 years ago. Instead, I joked, vendors now lose money on big performance-based contracts.
Then, the next days' papers brought the news: Navy-Marine Corps Intranet contractor EDS Corp. announced with its dismal quarterly report that the company never expects to realize a profit from the seven-year, multibillion-dollar project.
In retrospect, it isn't hard, from a vendor's perspective, to see where NMCI went sour. In dealing with the entire Navy and Marine Corps all at once, EDS faced resistance and, occasionally, outright hostility. Each base has its own history and culture, regardless of what headquarters says.
EDS also plowed into a thicket of legacy applications. Neither the Navy nor the vendor apparently had any idea how many apps would have to be dealt with. But it turned out to be thousands upon thousands. It was like swatting at a bee and finding out you'd smashed a hive.
Finally, EDS may have underestimated Navy and Marine Corps network configurations and therefore order sizes, in dollars. EDS wouldn't be the first company to price products on a large project at a loss, counting on customers to load up on expensive options. Anyone remember Desktop III or the K-car?
The manager of one company, which bid on but lost the NMCI contract, speculated that EDS didn't put enough conditions on the Navy. His company, he said, wrote its bid in such a way as to lower its own risk. But the NMCI bid evaluators weren't fools. For its money, the service got a truly transforming project that forced what the brass believed were necessary changes'at a great price.
Perhaps EDS will find a way to salvage a decent return on its investment'rather than merely put lipstick on the pig, as the current expression goes. Whatever NMCI's ultimate outcome, there's a lesson here: Both vendors and agencies must be realistic in pursuing outsourcing and performance contracts. Winning only to lose isn't a formula for sustained success on either side.