NMCI goes for the save

NMCI by the numbers

Contract size: $8.8 billion


Contract length: Seven years with one 3-year option


Legacy systems inherited: 100,000-plus


Number of seats: 360,000-plus, predominately in the continental United States


Number of seats cut over to NMCI so far: 247,000


Number of locations: 300


Projected number of users: About 400,000

'Seat management is a viable alternative for an organization, and any viable alternative can work if you do it right.'

'GAO's Randolph Hite

Rick Steele

'There is a difference between good decisions and good outcomes. I think NMCI was a good decision with a mixed outcome.'

'Warren Suss

The Navy and prime contractor EDS have shown signs of getting the intranet project on course. The question is whether the partnership can survive.

When the Navy awarded Electronic Data Systems Corp. the groundbreaking Navy-Marine Corps Intranet contract in October 2000, the two parties struck up a partnership that quickly came to resemble a difficult marriage. Some have called the union loveless; others characterize it as challenging. But most agree that ever since the Navy and EDS embarked on the largest seat management contract in government history, the relationship has been stormy. Now, despite recent progress, the Navy appears to be pondering whether to remain committed to its partner or flee EDS for someone new.

The Navy-Marine Corps Intranet is an enterprisewide voice, video and data network designed to link 400,000 sailors, Marines and Navy Department civilians at more than 300 bases in the United States and several overseas.

'The Navy was a pioneer,' said Warren Suss, president of Suss Consulting Inc., based in Jenkintown, Pa. 'I think the Navy took extraordinarily bold action, for many of the right reasons'they had an old and crumbling infrastructure, they needed to redirect resources from ashore to afloat, and they knew they needed more consistency across the board to ensure operability.'

Nearly five years into the contract, once seen as a gutsy and historic match, the deal has had its share of rainy days.

On the Navy's side, there are ongoing complaints that seat cutover has been anything but smooth; that the help desk often takes days instead of hours to answer routine requests; that seat transition is behind schedule; that costs have been escalating; and that computer systems and services are inferior to what many had before NMCI.

'I have to ask myself how, under the circumstances, another company would have performed. We have no one to compare EDS to,' said a senior Navy official, who declined to be named for this story.

We didn't know ...

From the company's perspective, current and previous EDS employees and subcontractors say they didn't know the scope of the Navy's IT infrastructure challenges. They were blindsided by the size of the legacy-applications iceberg they would soon encounter, and caught off guard by resistance and resentment from Navy personnel, including some officers in senior-level positions.

They say they didn't realize the Defense Department would insist on rigorous test standards normally applied to weapons systems, not commercial off-the-shelf computers and software. They never realized EDS would take such a deep financial hit from NMCI that the company would see its stock price plummet, its chairman ousted and possible bankruptcy loom.

The picture might not be so dire from the Navy's perspective.

'The Navy really got a hell of a deal,' said one EDS executive. The service has a better, more robust network, with better security than most government agencies have, he said.

Many outside the partnership agree with that assessment.

'One way to look at NMCI is to say the government got a great deal, that the Navy got an incredible bargain,' Suss said. 'From the government's point of view, despite all the challenges and ups and downs of the contract, [the Navy] ended up making out like a bandit in a lot of ways.'

He pointed out that the Navy got a complete overhaul of its IT infrastructure, including a solution to the hugely difficult legacy-applications problem.

When the contract was initially let, the Navy estimated that it had fewer than 5,000 legacy applications riding on disparate networks across the enterprise. But when EDS pulled the rug back, they found more than 100,000 apps'many of them homegrown, many of them redundant'posing monumental security risks unlike any EDS had ever experienced or even imagined.

EDS is struggling to implement a program that many Navy users don't want, said a former EDS executive who declined to be named. 'The Navy got what they asked for. EDS did have some technical issues, but the Navy really hasn't kept up their end of the bargain.'

The Navy asked for an enterprisewide solution, he said, but discovered that what the department'or at least, many of its commanders'wanted was a base-centric, command-centric system.

That desire shows in the way the Navy expected EDS to roll out seats, he said. Rather than taking a geographic, regional approach, the Navy directed the company to install NMCI command by command. That meant EDS had to roll out handfuls of seats at a time at bases all over the country, then return to the same locales later to bring other offices into the network, a very costly proposition.

For its part, the Navy expected a contractor with loads of experience working seat management contracts in the private sector. Instead, Navy sources say, the service got the federal division of EDS, which had never worked on a project anywhere near the scope of NMCI, rather than the seat management experts from the corporate side of the company.

Hot potato

To this day, the blame is passed back and forth, depending on whom you ask.

Now, the future of NMCI lies in the Navy's hands. Should the contract continue on its current path, or should the Navy opt for a new direction?

Mark Lavoie, director for government systems at Telkonet, who previously worked in the NMCI director's office, said NMCI has propelled the Navy even further into the IT leadership role among the other military services.

'The Navy has always led the way when it comes to IT,' Lavoie said.

Lavoie recommended that the Navy re-compete the contract in 2007 to foster competition and to lower the cost for the service. Still, he feels a single, enterprisewide network managed by a single contractor under the seat management structure is the right way.

'Nothing that EDS has done on the contract to date would say, 'Do away with it,' ' Lavoie said. 'It was a big project, and we never had something of this scope before. I think it's on the right track.'

The Navy is conducting a business case analysis to examine future contracting options for the now $8.8 billion NMCI program. The outcome of that analysis will determine whether the Navy sticks with EDS through three additional option years when the original contract expires in 2007, whether it recompetes the contract, or opts to restructure it.

No comment

Neither Rear Adm. James B. Godwin III, the direct-reporting program manager for NMCI, or EDS executives will discuss 2007 and the decisions that the Navy is pondering.

'It is inappropriate to discuss information concerning the BCA at this time,' according to Denise Deon, who provided responses to questions e-mailed to the NMCI Direct Reporting Program Office.

Kevin Clarke, an EDS spokesman, added: 'We're focused on keeping the Navy as our customer. We don't want to get into speculation.'

But Godwin's office said the Navy's IT environment today is a vast improvement over what the service had years ago, when none of its divisions could account for the IT dollars it spent each year or how many applications and systems they had.

'Prior to NMCI, the [Department of the Navy] had little to no central control, accountability or visibility with its legacy systems still in place. The DON lacked an objective mechanism to ensure compliance with security or other requirements, because each command was both the provider and the oversight authority. There were no costing mechanisms due to the limited number of dedicated IT budgets and resources that were considered free,' according to the DRPM office's e-mailed response.

The service has deployed 247,000 computer seats out of a projected total of more than 360,000, and by the end of this year it expects to have 90 percent of all ordered seats deployed, NMCI officials said.

This year, Godwin said, the Navy plans to roll out high-speed broadband for laptop users, Windows XP and a new online catalog to users. On Jan. 31, the Navy rolled out a solution for spam protection.

Godwin was given additional oversight responsibilities last month, when he was named NMCI's direct-reporting program manager. His previous title was program director.

Under the new structure, he is to work with the Space and Naval Warfare Command and the Marine Corps Systems Command to 'propose appropriate restructuring of the two current NMCI program offices,' according to a memo signed by John Young, the Navy's assistant secretary for research, development and acquisition.

Breaking up is hard to do

Despite the many successes of NMCI, including virus protection and centralized management, many industry analysts and retired Navy and Marine Corps officials who have worked either in the NMCI program office or for the Program Executive Office for IT, say the Navy should move to recompete the contract in 2007'but not as it currently exists. They recommend the Navy break up the nodes of the contract and conduct competitions in search of multiple contractors.
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'I would choose a different approach. I think the seat management contract is a bit of an anachronism,' said a former PEO IT official who declined to be named. 'If you go back to 1998, when GSA let their big seat management contract, there was a lot of buzz and hype around seat management contracts at the time. It was going to solve a whole bunch of problems for us. We were at the height of the dot-com irrational exuberance, and I think there was a little bit of that irrational exuberance built into seat management contacts. They have not lived up to the promise.'

But first the Navy and EDS need to finish rolling out computer seats and get to a steady state before they consider unbundling the services and going with a regional approach with multiple contractors, he added.

'One of the things I think was a mistake on the NMCI contract was the original RFP. There was an option you could bid if anything happened to the prime. The Navy had an option. Either no one bid that option or no one bid an acceptable option to the Navy,' the official said. 'What that did was leave them with a single source of supply for critical functions, and that's not an enviable position to be in. At that point, the contractor's problems became the Navy's problems.'

Right and wrong

He added that he still believes NMCI is the correct strategy, but not the right approach: 'What we wanted to do was right. That didn't turn out to be the best way to get there.'

'There is a difference between good decisions and good outcomes,' Suss said. 'I think NMCI was a good decision with a mixed outcome.'

Debbie Walbert, who concentrates on Navy programs as a federal analyst at Input of Reston, Va., said the loudest complaints she still hears regarding NMCI pertain to network performance, e-mail service and Internet access.

'I think for NMCI, since it was such a large requirement, it's probably better that it be broken out,' Walbert said. 'I'm sure EDS is still going to be a big component, but some of the requirements should be broken out into smaller components. Depending on what EDS is really lacking in their skills, maybe some of those components, like help desk support and maintenance, could be pulled out and procured separately.'

That was the idea at least one high-ranking sailor always agreed with.

'I never believed in going with a single contractor, because it makes you vulnerable to something happening to that contractor,' said a retired Navy officer who is familiar with the contract. 'There are certain companies who are better at wireless or Internet routers or voice over IP than desktop management. Why not pick the best in each of the areas?'

The other military services are striving to do just that. Having intently watched the Navy and EDS work through some of the complicated issues with NMCI, the Army and Air Force both chose to procure their IT voice, video and data systems using multiple contractors across multibillion-dollar contract vehicles.

Army Col. Tom Hogan, deputy program executive officer for enterprise information systems, said the Army shares the Navy's goal of moving to a single, enterprise focus for its systems, policies and procedures. But the Army differs on the strategy for getting there.

'We're doing it with multiple contract vehicles,' Hogan said. 'When we did the ITES [Information Technology Enterprise Services] contract, that was part of our thought process, to break it up. It's more management on our side, of course, but it's more flexible and a little more agile.'

Outdated structure?

Some of the controversy that has plagued NMCI has grown out of the Navy's choice to go with a seat management structure. Many feel it is outdated and ineffective for a large organization like the Navy.

But Randolph Hite, the director of IT architecture and systems issues for the Government Accountability Office, said seat management, as well as other acquisition strategies, are viable contract mechanisms if they are carried out correctly.

'Seat management is a viable alternative for an organization and any viable alternative can work if you do it right,' Hite said. 'The question is, are you doing it right? I'm not in a position to answer that question on NMCI.'

Hite said GAO is in the design phase of an upcoming report on NMCI, which will look at performance issues, goals, user satisfaction and outcome. Generally, Hite said, GAO reports take a year to be completed.

'GAO has been watching NMCI since its beginning. We've had a continuous presence in it because it's an important program. We have this ongoing review which was really prompted by congressional interest,' Hite said.

In the beginning, the Navy attempted to circumvent congressional oversight of the program by planning to reapportion funds already allocated. But Congress included a provision in the 2001 Defense authorization bill withholding money from NMCI for several months until the Navy presented studies showing the program was feasible, and officials agreed to attend meetings explaining NMCI.

Over the years, Navy and EDS leadership have kept legislators abreast of any new developments with the program, according to a House Armed Services Committee staff member who is knowledgeable on the issue. As a result of those discussions and congressional concern, the Navy set up an NMCI program office, separate from its Program Executive Office for IT, and named Vice Adm. Charles L. Munns as the first NMCI director.

Munns left in September 2004 to take the helm of the Submarine Allied Command and serve as commander of the Atlantic Fleet Submarine Force in Norfolk, Va.

Falling in line

Godwin was promoted to NMCI director, hailing from the Naval Air Systems Command'where, sources said, he once stood, along with several NAVAIR IT leaders, in strong opposition to NMCI.

'I thought it was interesting [when Godwin was named director],' said a former EDS executive. 'Typically, industry will take the loudest complainer and put them in charge. Now, [the Navy] puts Godwin in a position where, instead of throwing stones ... 'I can't trash this program anymore; I have to improve it.' '

And that, the HASC staff member said, is what Godwin has done. From meetings with the program office and EDS, Congress has learned that the NMCI network has carried more than 4 million e-mails, with an average delivery time of two minutes. NMCI also has trapped, quarantined and disinfected more than 60,000 viruses.

'Adm. Godwin is the right person for the contract,' the staff member said. 'He's an aviator and he's saying, you're going have to fall in line.'

EDS also has made significant gains in managing the contract, the staff member added. 'EDS, good for them, have gotten their ducks in a row in terms of following through on what they've promised the Navy.'

Still, the program has had growing pains and is behind schedule and over costs.

'NMCI should have already been at full operating capability now, five years into a seven-year contract. There have been some problems, some claims, some service level agreement issues,' the staff member said. 'We're not saying this is the best program running on the books. But, it is better now under the management of the Navy and EDS than it ever has been. So, things are looking up.'

Likewise, Stan Soloway, president of the Professional Services Council, said it is easy to second-guess the Navy on its seat management choice now, without taking into consideration that several years ago seat management was widely considered to be the state of the art.

'It's easy enough to look back five to six years and say, 'Oh, that was the wrong idea.' But you can only make that accusation if you knew then what you know now,' Soloway said. 'That doesn't make the decision made five or six years ago the wrong decision. Do you change now? That's not fair to EDS. People are always rethinking strategy. Yes, you make decisions as you go on, but I would hope we don't get into a situation because we think today a different strategy would have been better down the road.'

The HASC staff member agreed:
'Here's the problem: If we use NMCI as the model, then of course everyone can pooh-pooh it and say it didn't work. What if the Navy and the contractor had really gone about this and had a strategy and executed it and had a schedule and there weren't these user issues. Would we be having this same conversation?'

The real problem with NMCI has always been a lack of a change management strategy, Soloway said.

'The Navy asked us to look at the question of business transformation,' Soloway said. 'The No. 1 recommendation was change management. When I was in DOD, we needed to think about how it will change the process. If you don't think about that in advance and put a strategy in place, then when the change is made, it's bad from a cultural standpoint.'

So what does the future hold for NMCI? Any of three main options is possible.

The Navy could recompete the contract in 2007 as a seat management program. Possible alternatives in this approach include breaking it into smaller, more manageable pieces, or keeping it as a single program but selecting two or more contractors to compete for task orders.

A risk in this scenario is the strong possibility that the Navy would have to pay more for the services it receives, as companies, in preparing their bids, consider the troubled history of the program and the financial difficulties it caused EDS.

Weighing options

The Navy also could not extend the option and completely retool the contract away from the seat management ap- proach, though most observers say that's unlikely.

Or, the Navy could exercise the three-year option with EDS, perhaps as early as next year. Some observers say the Navy hasn't made the decision yet and will base it in large part on the business case analysis it is currently conducting.

Some fear EDS will end up with the contract option renewal through default because the Navy might not come up with a new plan in time. Others believe giving EDS three more years is the best course, because it will give the Navy more time to cope with both the physical and cultural transition.

Kevin DeSanto, a vice president with the Aerospace Defense Government Group at Houlihan, Lokey, Howard and Zukin of McLean, Va., said he expects that, regardless of the scenario, EDS would likely benefit.

If the contract is recompeted, DeSanto said, he doubts that EDS would be shut out completely, but would more likely have its participation scaled back to concentrate on some key things rather than everything.

'If the option is not exercised, EDS gets reimbursed for something [the infrastructure now in place] and it takes away huge distraction,' he said.

And if the Navy exercises the three-year option, EDS would begin to regain the ground it lost.

'I don't think there's a downside for EDS in any of these three scenarios,' he said.

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