9 contracts that changed IT procurement
Desktop IV, DEIS and other contracts left a lasting legacy
- By David Hubler, Matthew Weigelt , Nick Wakeman
- Jul 22, 2009
Federal procurement is in many ways a fluid thing. The policies, processes, laws and practices that govern it are always in flux. Contract vehicles come and go, and the ever-changing make-up of the products and services the government needs requires a flexible approach.
But within all of that malleability, there have been some specific contracts that made a lasting impression and changed forever the way agencies conduct procurements. Most of these game-changers rose to prominence through a combination of strong leadership and good timing.
Many of them came on the heels of procurement reforms in the 1990s that streamlined acquisition processes. And the agencies that led these contracts had managers who were eager to take advantage of the new rules.
Today, a multiple-award, task-order contract might seem blasé. But if you had tried it in 1993, it would have been revolutionary at the time.
Or try outsourcing your entire infrastructure, down to the desktop. Today, cloud computing is gathering momentum. Not long ago, it was a seemingly outlandish idea.
Some of these contracts taught tough lessons about how to procure complex information technology systems.
We developed the list by tapping some of the leading thinkers in the government market and through our own institutional knowledge. But we make no claim that this list is complete or definitive, and we invite you to add your thoughts on our Web site. What other contracts should be included? Did we pick some that were maybe less important than we thought? Tell us what you think, and why.
GSA adds services to schedules
The government market changed rapidly in the 1990s, and technological advances outpaced many officials’ understanding of them.
Agencies found they needed more than the ability to buy hardware and software: They needed a way to tap into the services of experts who understood how the technologies worked.
The General Services Administration’s answer was to add IT services to the IT products it offered on the Multiple Award Schedules program’s Schedule 70.
The move led to an explosion of sales on Schedule 70, which now handles about $17 billion in transactions annually.
GSA allowed agencies to buy as much or as little support as they needed. The new services made the program invaluable to agencies and changed how GSA’s customers viewed the program.
Part of the impetus was agencies’ interest in revamping and expanding their IT infrastructure in the 1990s as new technologies offered appetizing features, such as connecting to the Internet and sharing information quickly among agencies.
But officials knew they also needed help with their technology updates.
“Without a knowledge base, you couldn’t knowledgeably purchase products,” said Hope Lane, officer of government contracts consulting at Aronson and Co.
Through the schedules program, GSA establishes long-term governmentwide contracts with companies to provide supplies and services. It processes more than 11 million transactions annually. And Schedule 70 is by far GSA’s largest schedule.
Its success and agencies’ increasing demand for services contracts attracted many significant players to the federal IT marketplace, said Larry Allen, president of the Coalition for Government Procurement.
The schedules program had chugged along for decades selling commodities, but the decision to sell services blasted sales to another level. Many companies created business units that specialized in GSA-schedule sales as they saw their customers flock to the program for its speed and flexibility.
GSA first offered a total IT solution to agencies in the late 1990s, and the range of services contracts expanded from 1999 to 2003, Lane said.
“It just went on and on and on,” she said.
GSA then added management and consulting services to the schedules system by creating the Mission Oriented Business Integrated Services schedule.
Agencies also liked that the schedules program allowed them to choose as much as they needed instead of buying an entire package.
“The schedules ended up being a little bit more nimble” than the governmentwide acquisition contracts, Allen said. And as a result, many agencies abandoned those IT contracts and turned to the schedules.
Allen said GSA officials were inspired by the first iteration of the Outsourcing Desktop Initiative for NASA, an innovative approach to outsourcing desktop computing and communications support.
“GSA realized they could do it, too,” he said.
When GSA gave agencies the ability to buy a total solution from its schedules program, it completely changed federal customers’ view of the program, Lane said. It was no longer a store that sold commodities and products — it was a tool that could solve their problems.
Desktop IV: Flawed masterpiece
The Air Force’s Desktop IV contract had a dark side, despite its benefits. The Air Force awarded the contract in 1992 to Government Technology Services Inc. — now just GTSI — and Zenith Data Systems. It was worth $1.1 billion, an enormous sum by the standards of the day. The goal was to create a contract vehicle that the Air Force could use to buy 300,000 PCs.
Before the Air Force finalized the winners, the contract went through a series of protests from losing bidders, which included Apple, EDS, CompuAdd. Even GTSI lost the first award and filed its own protest.
But once the contract was in place, it helped the Air Force modernize the service's infrastructure. For the government as a whole, Desktop IV showed that an indefinite-delivery, indefinite-quantity contract could deliver large volumes of computer hardware, said Dendy Young, chief executive officer of McLean Capital.
Young joined GTSI as CEO in January 1996.
Although Desktop IV helped fuel GTSI’s growth in the early and mid-1990s, it faced some tough challenges, in part because of the contract’s structure.
As the contract was winding down, GTSI had $22 million worth of IBM desktop computers in its warehouse.
“One of my interesting challenges when I first got to GTSI was to figure out what to do with all those IBM PCs,” Young said. “I couldn’t sell them commercially because they didn’t have a warranty on them.”
The Air Force initially refused to accept the units because IBM declined to provide a manufacturer’s warranty. That lowered GTSI’s purchase price but created other headaches for the company, he said.
However, GTSI could service the units far less expensively than IBM, so it set up a support division at the company to meet the Air Force’s warranty requirement, Young added.
Another problem arose when Microsoft introduced Windows 95. The Air Force considered the new operating system an upgrade and, per the contract, wanted Windows 95 installed on the machines for free.
Although Microsoft’s contract with GTSI provided for free upgrades, the software giant said Windows 95 was a new operating system, not an upgrade.
Microsoft told GTSI that “if you want to install it, you have to pay additional dollars,” Young said. “That caused us massive challenges.”
In addition, the company faced the potential loss of hundreds of thousands of dollars in administrative, distribution and software-duplication costs.
“When the dust settled, we ended up paying Microsoft a little bit, but not nearly as much as they wanted,” Young said. “And we ended up eating some of [the costs] just to keep the customer happy. That cost GTSI a lot of money.”
In addition, the Air Force's refusal to accept modifications hindered the contract. “Toward the end of the contract, they ended up with products which were not necessarily the best,” Young said. “But they met the contract specs, and we were, in effect, constrained by that.”
Nevertheless, and especially in its early days, Desktop IV was a highly profitable contract and helped GTSI become a company with $400 million in annual sales, Young said. “This was a huge, huge deal for us.”
Young said he believes IDIQs such as Desktop IV remain a great contract vehicle because they offer the government a means to buy small or large quantities of products at good prices.
Also, Desktop IV was instrumental in modernizing the Air Force because the service did not have many desktop computers. “What Desktop IV did was it populated those desks with modern, state-of-the-art machines,” he said. “It was a very efficient contract.”
Enterprise integration pioneered multiple awards
A convergence of factors helped make the Defense Enterprise Integration Services (DEIS) contract a groundbreaking vehicle.
First, the Defense Information Systems Agency, which issued the contract, was going through a transformation, said Mary Sloper, DEIS’ program manager. Second, it was 1993, and the Federal Acquisition Streamlining Act had just become law, initiating new regulations that gave procurement shops more flexibility.
And third was leadership, namely Michael Mestrovich, who was DISA's deputy director of enterprise integration.
“He was a very innovative guy," Sloper said. "One of the best bosses I had. He let you do your job and was always very supportive.”
With those three factors in place, Mestrovich’s team was able to answer a “mission with an acquisition,” Sloper said.
After DISA awarded the contract to BDM International, Boeing, Computer Sciences Corp., EDS and Martin Marietta in 1993, the contract quickly ran through its $1 billion ceiling in just two years. Then DISA launched DEIS II in 1996 with a $3 billion ceiling.
“It came at a really good time,” Sloper said.
The contract was one of the first to take advantage of procurement rules that allowed awards to multiple contractors who would then compete for task orders.
“It really cut down on the administrative paperwork and the long lead time,” Sloper said. “Before, there was a separate request for proposals for every requirement.”
Meanwhile, it was new territory for contractors and government.
“One of the good things we did was we held executive meetings with all five contractors to share ideas and share ways of marketing the contract,” Sloper said. “It was an interesting environment because they were all competitors, but they also were kind of in this thing together.”
Mestrovich’s leadership was critical in creating this kind of collaboration — collaboration that today is taken for granted. As a member of the Senior Executive Service, Mestrovich could pick up the phone and get things done, Sloper said.
“Nowadays, the whole thing is about working closer with industry, but at the time, it was more of an arms-length approach,” she said.
DEIS' legacy lives on in multiple ways. For example, the Encore contracts evolved from DEIS II.
“It is a good way to do contracting because it has a good element of competition,” she said.
Sloper said she runs across the same guidelines that she and her teammates wrote more than 16 years ago in current multiple-award contracts, such as the Homeland Security Department’s Enterprise Acquisition Gateway for Leading Edge Solutions contract and the Army’s Information Technology Enterprise Solutions contract.
“It is funny to see those same guidelines 16 years later,” she said. Sloper is retired from government but still consults part time with agencies.
“It was one of the best jobs I ever had,” she said. “It came at a time when you could do some interesting things. There was new legislation and agencies were able to take it and do some creative things.”