Dell's domination grows
- By Natasha Haubold
- Jan 23, 2000
Dell Computer Corp.'s dominance of the General Services Administration information
technology schedule in fiscal 1999 reflects how procurement reform has brought
about good and bad changes to the way government buys IT products and services.
While the government is paying lower prices than ever for some technology,
some experts question whether new buying practices carry hidden costs for
In fiscal 1999, Dell had more than $892 million in sales off the GSA schedule,
followed by IBM Corp. with $271 million and Micron Government Computer Systems
with $230 million.
Dell officials believe that their GSA sales are understated because
the number does not include sales the manufacturer makes to its government
reseller partners. Dell officials estimate that its government sales totaled
more than $1 billion in fiscal 1999.
Dell's success can be traced to two factors: fundamental changes in
government procurement rules, which make it easier for agencies to buy from
preferred suppliers, and Dell's direct sales business model, which lowers
the prices agencies pay for products.
In 1996, the federal IT market shifted from the use of indefinite-delivery,
indefinite-quantity contracts to blanket purchase agreements. The change
enabled agencies to use the vendors they preferred rather than the vendors
who submitted the lowest bids, as the procurement process once required.
"Procurement reform allowed the government to act more like the commercial
market and freed up agencies to purchase from vendors with products best-suited
for their needs," said Tom Buchsbaum, vice president and general manager
for Dell Government Systems. BPAs also enabled agencies to receive volume
discounts for larger purchases and to acquire services at a reduced rate.
Dell's direct sales model also has spiked sales. "Manufacturers [like
Dell] are able to offer discounts that resellers cannot compete with," said
Chip Mather, vice president of Acquisitions Solutions Inc., an industry
consulting firm in Chantilly, Va. "Plus, Dell is offering customers the
entire package — a great product, great services, great warranties and customization — that with a credit card and a point and a click of a mouse can be delivered
to an agency's doorstep in two to seven days."
In the past, agencies often relied on government resellers to supply
not only hardware but also software and services needed to make a complete
solution. Now, many procurement offices buy products directly from manufacturers
such as Dell, which generally offer limited services related only to the
configuration and maintenance of the products they sell. That means agencies
must often deal with more contractors to take care of their overall IT requirements.
"We will always need someone who can come in and tweak a program to
meet certain specifications," said Olga Grkavac, vice president of the Enterprise
Solutions Division of the Information Technology Association of America,
which represents federal IT vendors. "Not everything purchased off the shelf
is going to meet everyone's demands."
The Navy, for example, recently leased more than 40,000 computers from
Dell, but it relied on other contractors to provide key services. "We have
separate contracts to lay lines and networking systems," said a Pacific
Fleet spokesman. "The network backbone already had to be in place before
the [Dell] computers could be installed."
But this approach has a downside. As more vendors are needed to complete
projects, managing the projects becomes more difficult, according to industry
"Anytime you have more than one vendor working on a project, it is going
to cloud the picture," said Mark Amtower, an independent consultant in Ashton,
Md. "We have fewer people working for the government now than we have had
in the past 15 years, so when you have one IT person responsible for multiple
vendors, [the person is] barely able to tread water most of the time."
Dell's rapid growth within the federal market also has some industry
experts concerned that the company won't be able to keep up with services
outside its area of expertise.
"You can't be all things to all people," Mather said. "When a manufacturer
tries to provide services outside its main functions, there are risks to
As Dell wins more contracts, the quality of its services could suffer as
its work force is "spread too thin," Amtower added.
"Dell is one of the strongest brands of computers, but when you have people
working for you all over the world on a lot of different projects, the level
of service can't remain the same," he said.