Budget squeeze, SBInet award highlight 2006

Iraq war costs take toll on agency spending

The year 2006 will likely be remembered as a time when the soaring cost of the conflict in Iraq forced agencies to tighten their budgets. It was also a year in which the Homeland Security Department awarded the first phase of its multibillion-dollar border protection SBInet contract and small and midsize companies expressed concerns about the Alliant governmentwide acquisition contract.

War in Iraq affects IT at home
“What I’ve seen is a slowdown in terms of new contracts, new task orders and new work,” said Robert Nabors, director of Defense Department and Army programs at EDS.

Budget considerations and a more structured procurement process were evident during the fiscal year-end buying period in September. “There isn’t the year-end frenzy anymore,” said Michelina LaForgia, director of the Army Small Computer Program at Fort Monmouth, N.J.

In Congress’ final week before the midterm elections, the House and Senate passed a final version of the fiscal 2007 Defense Appropriations bill, totaling $436.5 billion. The bill, which sets spending limits for the military, includes a $70 billion bridge fund for the Iraq and Afghanistan wars.

The lawmakers cut funding for several information technology and modernization programs and shifted that money to support systems already in use.

Technology programs in particular received less money than the Bush administration had requested. The effect will be significant delays in the delivery of integrated technology and business systems, said Kevin Carroll, who leads the Army’s Program Executive Office for Enterprise Information Systems.

Existing systems will remain in use longer, and new equipment and services will be delayed, Carroll said.

BlackBerry panic
This year began with the threatened loss of one of government’s most ubiquitous telecommunications tools, the Research in Motion BlackBerry handheld device. A long-standing patent infringement suit pitted RIM against NTP, which claimed its patents created the device.

When the Supreme Court refused in January to hear RIM’s appeal of a lower court ruling in NTP’s favor, NTP sought a court injunction to shut down BlackBerry service in the United States.

But there was a collective sigh of relief when a court denied the injunction request and the two companies signed a definitive licensing and settlement agreement in March. RIM paid NTP $612.5 million for a perpetual, fully paid license covering all patents NTP owned and controlled. In return, NTP granted RIM the right to continue selling BlackBerry devices.

Boeing wins SBInet contract
DHS announced in September that it had awarded its long-awaited SBInet contract to Boeing, which beat out four major contractors for a project potentially worth $2.5 billion.

Under the initial $67 million indefinite-delivery, indefinite-quantity contract, Boeing’s Integrated Defense Systems division will construct a surveillance system along a 28-mile border strip near Tucson, Ariz.

SBInet is a component of the Secure Border Initiative, which is managed by DHS’ Customs and Border Protection unit. Its purpose is to integrate critical border security components that will close U.S. borders to illegal immigrants and potential terrorists.

Boeing promptly shared the wealth, naming nine core subcontractors. Small business is expected to account for at least 40 percent of the overall subcontractor team, said Wayne Esser, director of advanced systems and security at Boeing, who is leading the SBInet project.

Despite SBI’s ambitious aims, lawmakers were dubious and cited the failure of two previous border security programs — the Integrated Surveillance Intelligence System and the America’s Shield Initiative — to support their skepticism.

DHS Secretary Michael Chertoff called the plan to build a network of high-tech sentry towers along U.S. borders “a 21st-century virtual fence.”

GSA explores help for midsize firms
The General Services Administration issued requests for proposals in September for Alliant and Alliant Small Business, two 10-year GWACs collectively worth $65 billion. Officials say those contracts will provide a wide array of IT services to federal agencies.

Earlier in the year, GSA sought the counsel of business leaders and services providers on how to make the two GWACs more accessible to midsize businesses, which lack the resources of the big firms and don’t have the special incentives designated for small businesses.

Some experts worry that the contracts will send large businesses into a buying spree for small companies to cash in on the lucrative contracts reserved for them, leaving midsize companies in limbo.

“Unless you talk about a shift in the whole way GSA goes about it, I don’t see much relief for the small and midsize companies,” said Russell Hall, chief executive officer of MacFadden, a midsize integrator.

Alliant has a maximum value of $50 billion, while Alliant SB has a maximum value of $15 billion, according to GSA. The agency expects to make as many as 30 Alliant and as many as 60 Alliant SB awards in 2007.

In an effort to address contractors’ concerns about size, the Small Business Administration and the Office of Federal Procurement Policy announced a new rule in November that requires small businesses to recertify their size status on long-term contracts whenever a contract option is exercised, a small business is purchased by or merged with another business, or the first five years of a contract is completed.

Consolidated telecoms take first steps
The 2005 mergers of SBC Communications and AT&T and Verizon and MCI created two new telecom giants that quickly made their presence known by creating new divisions focused on the government sector.

The Federal Communications Commission approved the merger of SBC and AT&T on Oct. 31, 2005, the same day the agency cleared the pending merger of Verizon and MCI.

Verizon created Verizon Business for its midsize and large businesses and government customers, drawing in part on MCI’s existing federal division. “We have the team in place to hit the ground running and offer Verizon Business customers greater value from Day One,” said John Killian, president of the unit and former senior vice president and chief financial officer at Verizon Domestic Telecom.

The SBC/AT&T merger led to the creation of AT&T Government Solutions. “One thing we feel well-positioned about is [that] this organization, AT&T Government Solutions, focuses only on federal, not state and local,” said Don Herring, president of AT&T Government Solutions. “SBC had a federal government business that was not like ours. It was spread out all over the country.”

The merger eliminated the old SBC structure. “We feel very good about where we are,” he said.

The combined companies put their existing long-distance federal groups in charge of federal business, said Warren Suss, president of Suss Consulting. He added that government customers would not see much immediate change.

“The customers for legacy AT&T and legacy MCI will see the same faces, the same technologies and the same systems,” he said. “I don’t think there will be much difference at all in the near term.”

Suss said, however, that changes may occur in the following years, depending to a significant degree on the broader commercial marketplace. “There’s enormous potential in both companies to integrate the long-haul and local services,” he added.

Both companies were disappointed when GSA announced in February that it would not award the Networx Universal contract until March 2007 and the Networx Enterprise contract until May 2007. GSA originally planned to award them in June and September 2006, respectively. The multiple-award contracts could be worth as much as $20 billion over their expected 10-year span.

Networx is intended to replace the agencywide FTS 2001 system.

Michael Hardy contributed to this report.

A leaner Defense DepartmentThe final version of the fiscal 2007 Defense Appropriations bill, passed by the House and Senate just before the November midterm elections, totaled $436.5 billion.

Among the major cuts, the Program Executive Office for Enterprise Information Systems’ Single Army Logistics Enterprise lost $20 million from its request of $121.8 million. Congress also cut the Army’s Installation Information Infrastructure Modernization Program’s budget by $32 million from its request of $279 million.

The Defense Business Transformation Agency, which leads the Defense Department’s business modernization effort, had its budget cut from the requested $179.3 million to $150.9 million.
— David Hubler


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