9 contracts that changed IT procurement

Desktop IV, DEIS and other contracts left a lasting legacy

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.

Most valuable players

Here are some of the contracts that left a lasting aftertaste for procurement policy-makers.

Contract: Advanced Automation System
Agency: Federal Aviation Administration
When: Awarded in 1981 to IBM Federal Systems.
Why it is important: This contract, which ran through 1994 and cost billions of dollars before it was canceled, was the poster child for why large information technology systems development contracts are so dangerous. The project called for IBM to modernize FAA’s air traffic control system in one big bang. But complexity and cost overruns doomed the project. Some believe the failure of the FAA project helped push procurement reforms later in the 1990s, which made many of the contracts on this list possible.

Contract: FTS2000
Agency: General Services Administration
When: Awarded in 1988 to AT&T and Sprint.
Why it is important: FTS2000 is arguably the first multiple-award, indefinite-delivery, indefinite-quantity contract. AT&T owned the government telecommunications market at the time, and Sprint was largely unknown. The contract broke that mold as it drove down prices and opened the government to the concept of task-order competitions.

Contract: Desktop IV
Agency: Air Force
When: Awarded in 1993 to Government Technology Services Inc. and Zenith Data Systems, after a series of protests.
Why it is important: This contract streamlined how the Air Force bought hardware and proved that a large volume of PCs could be procured from multiple sources as part of an IDIQ contract. The new task-order process allowed the Air Force to buy as many or as few PCs as it needed.

Contract: Defense Enterprise Information Systems
Agency: Defense Information Systems Agency
When: Awarded in November 1993 to six companies.
Why it is important: This was one of the first multiple-award contracts unleashed on the market by the Federal Acquisition Streamlining Act. It quickly exceeded its $1 billion ceiling, spawning DEIS II. The success continued as the contract grew and became Encore I and then Encore II, which DISA awarded in May 2008 with a $12 billion ceiling over 10 years.

Contract: GSA Schedule 70
Agency: GSA
Why it is important: The procurement reforms of the mid-1990s brought services to a schedule that was primarily hardware. The addition caused an explosion of business on Schedule 70. Even though sales have fallen slightly in recent years, Schedule 70 still does nearly $17 billion in annual sales. It became a must-have vehicle for companies that wanted to do business in the government.

Contract: Electronic Computer Store
National Institutes of Health
Awarded in September 1995 to 17 companies.
Why it is important: This governmentwide contract satisfied a demand for a vehicle that agencies could use to buy large quantities of hardware, software and related services. In two years, it ran through its $100 million ceiling. The follow-on contracts grew significantly. The current ECS III has 66 contractors and a $6 billion limit. It runs through 2012.

Contract: Information Technology Omnibus Procurement I
Agency: Transportation Department
When: Awarded in 1996 to 20 companies.
Why it is important: ITOP was the first multiple-award contract with a large number of contractors. But that didn’t deter users. In its first year and a half, it ran through its $1 billion ceiling. ITOP II, was the first large IDIQ with a small-business component, and its success led GSA to take over the contract from the Transportation Department.
Launched in 1996, ITOP gave DOT and other agencies a single source for IT services from 20 contractor teams led by a mix of industry heavyweights, such as Computer Sciences Corp., Unisys Corp. and Science Applications International Corp., and smaller businesses, such as Signal Corp.

Contract: Navy Marine Corps Intranet
Agency: Navy
When: Awarded in 2000 to EDS.
Why it is important: The Navy and EDS took a gamble when the service outsourced its infrastructure to EDS. The $8.8 billion contract nearly sunk EDS because of the financial burden it placed on the company. But today, EDS uses it as a reference to win other work. The Navy decided it doesn’t want a single company to own its infrastructure, so with the compete, it likely will make multiple awards.

Contract: Solutions for Enterprise-Wide Procurement IV
Agency: NASA
When: Awarded March 2007 to 38 companies.
Why it is important: The SEWP program has become a gold standard in the government for customer service, and the managers running the contract see both agencies and their contractors as customers. The focus on service has helped SEWP survive and thrive into its fourth generation.

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.”


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