IT's all about service

Information technology services accounted for a huge portion of General Services

Administration schedule sales in fiscal 2001, as federal agencies' demand for skilled

expertise to deploy and maintain an array of technologies from networking to

information security continued to increase.

The move toward solutions-based buying, an ongoing trend during the past five years, shows no sign of abating as federal agencies turn to their IT providers to tackle an array of issues, including e-government initiatives, data sharing and systems interoperability, according to industry experts.

"Services is clearly the thrust," said Bill Gormley, president of the Washington Management Group and former assistant commissioner of GSA's Federal Supply Service, which oversees the GSA schedules. Service revenue increased $1.4 billion from fiscal 2000 to fiscal 2001, Gormley noted.

In the mid-1990s, when service revenue was first included on the GSA schedule, virtually no income from IT services was listed, Gormley said. Now, services account for $8.5 billion of the $12 billion in total GSA Schedule 70 sales, he said.

Dell Computer Corp., a supplier of PC and server hardware, continues to top the list, becoming the first company to reach $1 billion in GSA sales. However, that can be attributed to how Dell directly sells its products through the GSA schedule, said Ray Bjorklund, vice president of consulting at Federal Sources Inc., a market research firm specializing in the federal government.

The hardware supplier has successfully addressed the government's push to streamline the procurement process with solid products and fast order turnaround, becoming one of the first PC vendors to process orders online. But even Dell has included services such as delivering systems that are fully loaded with software — including government-developed software — according to agencies' specifications.

Still, agencies are looking at companies such as IBM Corp. — second on the GSA list with $313.7 million in revenue — that offer solutions that are not platform-specific. "That's what the government wants: for vendors to take the best combination of technology to address business problems," Bjorklund said.

More high-volume service-oriented contracts are being awarded through GSA, according to some vendors. "Big services are now being processed through the GSA," said Anne Altman, managing director of IBM Federal. "Clearly, agencies see they can do procurements faster and get to their intended outcome faster."

Unisys Corp. — ranked 19th in GSA schedule sales with $108.1 million, a 12.5 percent increase from last year's $96.1 million — is moving toward offering more service-oriented solutions, Bjorklund said. On the commercial side, Unisys transformed itself from being solely a technology provider years ago. Now the company's federal division is becoming more solutions-oriented, he added.

Seventy-five percent of Unisys' revenue in the federal government is generated by services. However, "we haven't lost sight of technology," said Ira Kirsch, president of the federal government group at Unisys. The company "is about solutions, but not at the price of [overlooking] technology."

The same holds true for some of the other top 25 companies on the list, such as EDS, GTSI Corp., Northrop Grumman Information Technology and Science Applications International Corp., Bjorklund added.

GTSI, for example, sells PCs, workstations and printers as a reseller, but also provides value-added services in which it packages technology into turnkey solutions for the government, Bjorklund said.

Oracle Corp. ranked fourth with $266.7 million, a

23.2 percent increase from fiscal 2000. The top software vendor on the list, Oracle provides the functional expertise to fine tune and package its database software in a way that is suited to government. GSA software sales increased $130 million to $800 million last year.

Although profit margins have shrunk for technologies that are now commodities — such as PCs, workstations and printers — this doesn't mean companies such as Compaq Federal LLC (now a part of Hewlett-Packard Co.), Gateway Inc. and Micron Government Computer Systems LLC, which have seen declines in revenue, are necessarily losing ground, experts said.

Many of those companies' systems are sold through resellers, so some of the revenue may be hidden, Bjorklund pointed out. Hardware sales for last year were $3.5 billion, and if revenue from Dell is taken out, that would drop to $2.3 billion, Gormley said. That is still a hefty sum, with much of the revenue belonging to companies such as Gateway and Micron, he said. What's more, some of Dell's revenue from last year includes HP printers, which Dell no longer sells.

It also is important to note the perception that small businesses get slighted from federal procurements. But small business continues to increase, Gormley said. Small 8(a) businesses accounted for $140 million in sales last year, a significant amount of money, he said.

NEXT STORY: TSA adds CSC to tech team

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