This article was updated at 6:10 pm, Friday, July 9.
The Navy awarded HP Enterprise Services a contract potentially worth $3.4 billion to migrate its massive Navy Marine Corps Intranet to a new and expanded system called the Next Generation Enterprise Network, Navy and HP officials announced late Thursday.
NGEN is intended to be a secure onshore network for warfighters and support staff that also can communicate with the Navy's networks on ships at sea.
The fixed-price, base contract is worth $27 million with options through 2015 that, if exercised, would bring the total value to $3.4 billion, according to department officials. EDS, which HP acquired in 2008, was awarded the $10 billion NMCI contract in 2000.
The contract was not competitively bid because HP, which owns and operates NMCI, is the only company able to meet Navy requirements for continuing services without disruption, department officials said.
Initial transition work, to be performed in Herndon, Va., where HP is based, is expected to end in October. The NMCI contract expires Sept. 30. The option-period work would take place at about 2,500 locations in the United States, Japan and Guantanamo Bay, Cuba.
The base contract covers the purchase of a license for the Navy to access NMCI intellectual property, according to department officials. Under the new agreement, HP will help switch information technology services to NGEN, which is expected to support more than 700,000 sailors, Marines and civilians, and lay the foundation for a ubiquitous, seamless network that is available to the entire Navy.
HP officials were not made available for interviews, but Dennis Stolkey, senior vice president for HP Enterprise Services U.S. Public Sector, said in a statement, "The Department of the Navy needs to provide uninterrupted service to users while the Navy and Marine Corps execute a transition of one of the world's largest and most secure defense network environments. With the NMCI contract ending on Sept. 30, 2010, the Navy and HP have signed the [continuity of services contract] to continue many of the IT services while enabling the Navy and Marine Corps to transition services to NGEN."
On Friday, Navy officials released more details on the renewal, including provisions intended to keep pace with escalating cyberthreats.
In addition, the requirements may make it easier for other vendors to competitively bid on the forthcoming NGEN contract. "The goal of the continuity of services contract is to ultimately enable a NGEN acquisition strategy that will provide greater industry competition," stated a Navy fact-sheet on HP's new NMCI award.
Officials with the Program Executive Office of Enterprise Information Systems said on Friday the follow-on will give the Navy more command and control over the network. "This contract ensures continuity of service for more than 700,000 sailors, Marines and civilian employees of the Department of Navy as well as continue to provide the connectivity and security of NMCI," Rear Admiral C. E. "Grunt" Smith, program executive officer for enterprise information systems, said in a statement.
Industry analysts said it was not improper in this case for the Navy to offer HP a sole-source contract, because only HP has the knowledge necessary to modify the network.
"The incumbent contractor has developed a wealth of corporate knowledge, and the Navy needs to tap that wealth to ensure continuity of operations in the future. HP Enterprise Services owns that data, and is therefore the only source," said Ray Bjorklund, senior vice president and chief knowledge officer for market research firm FedSources Inc. "To ensure that the contractor who eventually wins NGEN can sprint quickly from the starting blocks, that contractor will need a full disclosure of where all the assets are, how they are configured, operations procedures, business rules for day-to-day decision making, and so forth."
The Navy also should establish a backup plan to retain HP in case the award date for the NGEN contract slips, he added.