DOD shifts contracting in-house

DOD shifts contracting in-house<@VM>DOD shifts contracting in-house (continued)<@VM>DOD shifts contracting in-house (conclusion)

"We found an incredible duplication in NAVSEA, so we tried to come up with a means to buy services as a corporation.'

' Jerome Punderson

'Now that GSA is having to follow the book more closely, the advantage of speed and time is not much different from doing it on our own.'
' Kevin Carroll

Defense moves toward using servicewide vehicles, instead of GSA, for IT.

In an effort to consolidate purchases, save money and streamline processes, the Army, Navy and Air Force have developed their own contract vehicles to buy IT products and services.

The General Services Administration still wants military agencies as customers'and under varying circumstances provides procurement assistance'but the three services have increasingly enhanced, promoted and even mandated their own in-house procurement vehicles.

There are reasons why the services have chosen this path. The most obvious, according to Defense officials, is the contract problems GSA has faced over the past three years. GSA's inspector general released an audit in December 2004 citing repeated violations of contract law and regulations across all 11 regional offices of GSA's Federal Technology Service.

Among these were the use of contracts to buy goods and services for which those contracts weren't designed, inadequate competition for work, 'ineffective' or 'nonexistent' contract administration, misleading descriptions of work and lack of documentation to justify prices. The IG also found that money intended to buy technology products and services through the IT Fund was used inappropriately.

Through the IT Fund, FTS lets agencies obligate money for specific IT purchases. But agencies have 'parked' money in the fund without a specific need'and more than $1 billion of unused money has built up over the years. This issue could become moot as Congress considers merging the IT Fund with the General Supply Fund.
GSA launched the Get It Right campaign in July 2003 to correct these problems, with DOD as a key partner.

'We have a great relationship with DOD in doing work for customers in the field,' said Bob Suda, GSA's FTS assistant commissioner for IT Solutions.

Nevertheless, a former GSA official who asked not to be identified said FTS had lost two of the three main reasons DOD or any agency would use their services.

'They can still provide a contracting officer if you don't have one, but they can't park money through the IT Fund anymore,' the former official said. 'And GSA has overreacted to the problems and put in a lot of controls and oversight, which has doubled the amount of time to do an acquisition.'

Kevin Carroll, the Army's program executive officer for enterprise information systems, which launched Information Technology Enterprise Services 1 and plans to release a request soon for proposals for ITES 2, agreed.

'Now that GSA is having to follow the book more closely, the advantage of speed and time is not much different from doing it on our own,' he said.
Suda disagreed.

'New controls and policies always have a new learning curve, which will increase time to get something done, but it's still faster than the internal procurement shops at DOD,' he said.

Another issue cited by the services has been the fees GSA charges. Last year, DOD paid millions of dollars. For basic contract access, GSA charges 0.75 percent of the contract amount (down from 1 percent), a fee embedded in the price of the product or service. If, however, the customer needs to 'rent a contracting officer,' GSA charges between 2 percent and 5 percent for commodity purchases and between 3 percent and 5 percent for services acquisitions.

'The fee covers everything during the lifecycle of the procurement,' Suda said.
That, military officials said, can add up. 'For big contracts of $20 million, it's a good amount,' Carroll said.

According to a recent DOD inspector general report, DOD spent between $170 million and $425 million on FTS fees in 2004.

Bringing contracts back in-house might not be a panacea. Congress still has deep concerns over DOD procurement practices (see story, Page 12).

But the Navy, with its SeaPort Enhanced program, estimates that in 2004 it saved approximately $8 million by conducting its headquarters service procurements in-house'and sans GSA fees.

Finally, each of the services feels that it has a distinct mission that entails unique contracting requirements. And, indeed, while leveraging buying across agencies can bring costs down, experts note that there's a limit, even within DOD itself.

'DOD, being so large with so many diverse missions, is never going to get to a one-size-fits-all mission,' said Larry Allen, executive vice president of the Coalition for Government Procurement. 'It shouldn't be the goal, because it removes the flexibility each service needs to support its own warfighters.'

The separate approaches, however, haven't generated much concern about contract duplication.

'Some people are concerned about duplication,' said Steve Kelman, professor of public management at Harvard University and a former administrator of the Office of Federal Procurement Policy. 'I am no more concerned about duplication of government-wide contracts than I am about having Crest and Colgate toothpastes. Basically, it's a good thing to have different contract vehicles competing with each other on a governmentwide basis. Once you get down to the agency level, [the agency] wants to best leverage its buying power.'

GSA's Suda added that the contracts are 'very complementary to what we're providing. They have individual needs they have to meet internally with their contracts.'

Go on to Page 2SeaPort-e

The Navy's SeaPort Enhanced vehicle is unique among the services because IT is just one of 21 functional areas covered by the contract. And it is actually more than a contract vehicle. SeaPort-e is:
  • A set of competitively awarded multiple-award contracts
  • An automated, Web-based procurement system
  • A Web portal that serves as a procurement system entry point and repository for service contract-related information.

    The Navy developed the original SeaPort effort in April 2001 as a response to declining budgets. The Naval Sea Systems Command and its Warfare Centers targeted a reduction in the cost of services for its headquarters directorates. The resulting business process reengineering set out to maximize the efficiency and economy of support service procurements.

    SeaPort-e is the second iteration of the SeaPort project. The Navy established the contract in April 2004, when it awarded a new set of multiple-award contracts to 151 vendors.

    In October of that year, NAVSEA, the Naval Air Systems Command, Space and Naval Warfare Systems Command, and Naval Supply Systems Command signed an agreement designating SeaPort-e as the mandatory acquisition vehicle for engineering, financial and program management support services.

    In the 12-month period ending July 2005, it had obligated $846 million.
    'Historically, we bought services in any manner you can imagine,' said Jerome Punderson, SeaPort's program manager. 'It was all done ad hoc with no real rhyme or reason. We found an incredible duplication in NAVSEA, so we tried to come up with a means to buy services as a corporation. We're not trying to take away local ordering activities support for the customer but create a more effective means to buy and also track spending.'

    Punderson added that service requirements for virtual systems commands are competed among the prime contract holders within seven geographic zones based on the 'principal place of performance' of the associated service requirements. SeaPort-e officials said the resulting process efficiency allows procurements to be made in less time'an average of 60 working days, down'from eight months'resulting in lower administrative costs.

    As with the other two services, officials said the Navy is adjusting to DOD's performance-based requirements, and they're seeing benefits from an acquisition standpoint as well as service, particularly with the tools offered by the Web portal.

    'Within the portal, we can track past performance, and it's available to anyone placing orders under the vehicles,' Punderson said. 'It gives us an ability to put in place processes and save money from both our administrative expense and contractor administrative expense. We're saving about 7 percent to 10 percent across the board, and that's conservative.'

    He added that while writing performance-based contracts still is a challenge, the number of contracts is increasing.

    'At the end of 2004, we were up to 38 percent of our dollar obligations. To get us up to the 100 percent DOD wants, we're doing both organic training and have professional trainers,' Punderson said.

    The Navy doesn't have the equivalent of an IT Commodity Council or ASCP, but the concept is something they're considering.

    'This is as close as we've come to taking a strategic approach,' said Capt. Richard Sweeney, NAVSEA deputy commander for contracts. 'We're taking a look at a commodity council for some areas in the future.'

    In the meantime, SeaPort has given the Navy the ability to provide oversight and buy services more strategically.

    'We don't have a contract with each division of Lockheed Martin,' Punderson said. 'We have one contract. And it's all done electronically. We push our requirements to all contract holders and let them know if they want to compete for it. Then we make an electronic award for the order. It helps us standardize processes and uses the best-of-breed approach to competition.'

    However, with 654 prime SeaPort-e contracts under a 'rolling admissions' clause, some wonder how competitive it really is.

    'The only way it can work is to keep it small,' said a former GSA official who requested anonymity.

    But SeaPort officials said contracting officers must provide each awardee a fair opportunity to be considered for each order exceeding $2,500. Under SeaPort-e, they point out, each prime contractor within a respective zone can compete for each solicitation in the zone.

    Still, what all these servicewide contracts have in common is the push for more vendors vying for work with DOD, which then pushes cost down.
    'The name of the game is competition,' Sweeney said. 'We want them to see all of our requirements.'

    ITES-1 and ITES-2

    The Army initially launched a contract vehicle for IT equipment and services in October 2003 as the Information Technology Enterprise Solutions with the idea of having bigger, more consolidated and longer contracts. It awarded four contracts, worth $500 million, for hardware and software to Dell Corp., GTSI Corp., Hewlett-Packard Co. and Lockheed Martin Corp. The three-year base, two-year option, indefinite-delivery, indefinite-quantity contracts were meant to guide people with a soft hand toward consolidation and a standard, Carroll said.

    One problem the Army found, though, was that they had set the ceiling too low. The well-promoted program proved so popular and easy to use, said Carroll, that they were surprised by the traffic and number of orders. Hence, ITES 2 has a $20-billion ceiling over 10 years. The contract will have up to eight contractors'four large businesses and four small businesses. Carroll said the Army Small Computer Program, which manages the contract, will award the new ITES by November and contracting officers can start placing orders.

    'We're the requiring activity,' says Michelina La Forgia, ASCP's assistant program manager. 'We take customer requirements, make sure they meet all standards and send them to contracting officers.'

    ASCP also runs the Army Desktop and Mobile Computing Procurement vehicle and is making its first major buy under the $5 billion, 10-year, multivendor vehicle.
    It also provides enterprise services'running the IT e-mart'and functions as the Army's software product manager. One of its major achievements has been a six-year, Army enterprise agreement for Microsoft Corp. products. In fact, its mandate has become so broad, La Forgia said, that 'we're thinking of changing our name to encompass all we do.'

    Carroll emphasized that ITES ordering is still very decentralized.
    'ASCP, Netcom, the Army CIO office, CECOM and ITEC 4 put together the contracting requirements and the vehicle,' he said. 'They do the competition.'

    DOD or civilians can place orders for IT services or products from the contract vehicles. The Army ensures competition by competing task orders among the eight vendors. Using ASCP's e-mart, those in the field are linked to ITES contracts and can place orders or issue task orders.

    'It narrows the windows, so there's a lot faster action,' Carroll said, 'but we'll still get good competition.

    'Whittling down the number of vendors leads to groupthink, so they become partners to what the Army is trying to do in terms of infrastructure. It's more focused. We like to have our partners know our business better.'

    One of the challenges Carroll is facing with ITES is DOD's mandate of performance-based contracting, which he acknowledges hasn't been very successful with ITES 1.
    'People must write statements of objectives instead of statements of work,' he said. 'For example, if we want to install a network, we need to set out what's important to us'that it runs 99 percent of the time and that users get help in X number of seconds'and contract it on a fixed-price basis instead of paying as we use it.'

    But the people writing the RFPs must focus on results. Currently, performance-based contracts are only 10 percent of what Carroll and his team had hoped.
    For ITES 2, they're aiming for 50 or 60 percent and are working with experts from Acquisitions Solutions Inc. of Oakton, Va., to write performance-based statements and to train those within the Army who are writing orders.

    Go on to Page 3Netcents

    Netcents, or Network-Centric Solutions, is the Air Force's comprehensive contract that replaces the expired Unified Local Area Network Architecture II contract. The mission, said Melva Strang, Netcents' program manager, is to help meet Air Force goals for standardization and configuration management of the IT communications infrastructure.

    'It reflects current DOD netcentric enterprise communications requirements to cover all aspects of IT communications infrastructure products and services, with an emphasis on standardization and configuration management,' Strang said.

    The Air Force's IT budget for 2005 is $6.3 billion, and the service has requested $7.1 billion for 2006. Netcents operates as a multiple-award, indefinite-delivery/indefinite-quantity vehicle with a five-year ordering period and a $9 billion ceiling.

    As with ITES 2, there are eight prime contractors'four large businesses and four small businesses'and about 400 subcontractors. Approximately 40 percent of the total amount of money obligated on the contract must go to small businesses.

    According to Strang, agencies with requirements that can be met through Netcents can contact their local contracting agency to issue an order against the contract.
    'The contracting officer can make a determination to compete the requirement as a small-business set-aside, in which case proposals or bids would only be solicited from the four small businesses,' Strang said. 'Alternatively, that contracting officer could elect to compete it among all eight contractors or, with appropriate justification, issue a sole-source order.'

    The Air Force has found it difficult to quantify savings so early in the life of the contract, given that the purchase price represents only one-quarter to one-third of the total cost of ownership.

    And they acknowledge that, in many cases, customers can go directly to OEMs to get lower purchase prices for small quantities of products in Netcents e-catalogs.
    But then there's the question of product support, warranty and customer support that may or may not be available compared to Netcents requirements.

    'The real savings we would expect to see realized via Netcents is through its close relationship with the IT Commodity Council,' Strang said. 'As the ITCC develops strategies for leveraging its buying power on products and services offered through Netcents, we would be able to track and report total ownership costs savings on these products throughout the life of the contract.'

    The ITCC, which was established in July 2003, figures prominently in the Air Force IT world. It develops and oversees the execution of IT commodity buying, contracting and lifecycle strategies.

    Lt. Col. Thomas Gaylord, ITCC deputy director, said a major accomplishment has been its focus on desktop and notebook computer acquisitions.

    'We're able to standardize purchases of over 108,000 mainstream desktop and notebook computers,' he said. 'Knowing what we've purchased and having common systems allows us to work things into the lifecycle, such as software, to support the strategy.

    'We can test a software image against standard hardware platforms, for example. It also gives us the ability to have a strong security posture. We can train users once on the system and, if they move to a different major command or base, it reduces training costs because the systems are familiar.'

    Currently, Gaylord said, ITCC is working with the Army in line with overall DOD strategies to determine how the services should acquire wireless devices and address cellular telephones and airtime. It's also involved in developing a strategy for Air Force digital printing and imaging acquisitions, operation and support through the product lifecycle.

    All this is a new approach for the Air Force, which used to buy IT at the unit or base level. With a more standardized and centralized vehicle, contracting officers can take advantage of the AFWAY ordering portal.

    'They can upload requests for information, quotes, and RFPs,' Strang said. 'They can make a choice as to whether they're going to do an open order or get a quote from small business contractors.'

    As with the Army, the new system has presented challenges.

    'We tried to build the Netcents contract to be as flexible and easy to use as possible and still meet the objectives of the CIO,' Strang said. 'But like anything else, something new comes along, and some people don't like 'new.' It's an educational challenge.'

    One way to address this has been communication through policy memos, as well as an open Web site that describes Netcents to users and vendors. Another way is through a community of practice.


    The centerpiece of the Navy's IT program is the $8.8 billion Navy-Marine Corps Intranet program, a consolidated voice, video and data portal that will link more than 360,000 desktops at more than 300 bases in the United States and several overseas.

    In 2004, the Navy received $6.1 billion for IT and national-security system spending. Out of that money, $2.3 billion was allocated for national-security systems, $2.3 billion was set aside for non-NMCI functions and the remaining $1.5 billion went to NMCI.

    The largest seat management contract in government history, this year NMCI has rolled out high-speed broadband for laptop users, Microsoft Windows XP, an enterprise tool to combat spam and a new online catalog.

    The Navy is analyzing future contracting options for NMCI [GCN, June 20, Page 1]. That analysis will determine whether the Navy sticks with prime contractor EDS Corp. through three additional option years when the original contract expires in 2007, recompetes the contract or opts to restructure it.

    The Contracts


    Purpose: A set of awarded multiple-award contracts, as well as an online procurement system and Web portal

    Contact value: For the 12-month period ending in July 2005, SeaPort-e had obligated $846 million as the mandatory acquisition vehicle for engineering, financial and program management support services.

    Contractors: There are 654 prime SeaPort-e contracts under a 'rolling admissions' clause


    Full name: Information Technology Enterprise Solutions-2

    Purpose: A contract vehicle for IT equipment and services. ITES-2, with the Army Small Computer Program expects to award in November, expands on the $500 million ITES-1 awarded in 2003.

    Contract details: $20-billion ceiling over 10 years

    Contractors: To be determined


    Full name: Network-Centric Solutions

    Purpose: Meet goals of standardization and configuration management of the IT communications infrastructure; replaces the Unified Local Area Network Architecture II contract.

    Contact details: A five-year, multiple-award, indefinite-delivery/indefinite-quantity vehicle with a $9 billion ceiling


    Full name: Navy-Marine Corps Intranet

    Purpose: Provide a consolidated voice, video and data portal for than 360,000 seats at more than 300 bases, most of the in the United States.

    Contact value: $8.8 billion.

    Prime contractor: EDS Corp.

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