Recent large IT contracts could cut prices for government, experts say

Multibillion-dollar pacts might be positive for agencies, but they're not always beneficial for vendors that must pay more for a chance to participate.

The Social Security Administration, Homeland Security Department, and the Centers for Disease Control and Prevention each have awarded during the past month multibillion dollar, comprehensive information technology contracts that could prevent the types of cost overruns that have long plagued projects of all sizes, according to some procurement experts.

The Office of Management and Budget has recently issued numerous policies to curb contracting waste, as well as directives focused solely on IT acquisition reform. None of the memos ban megacontracts, but they do instruct agency heads to renegotiate existing agreements for lower prices and reduce reliance on high-risk contract vehicles.

The three agencies engineered their pacts for an array of services in a way that would ensure competitive prices, ease of ordering and more consistency in contract administration, said Ray Bjorklund, chief knowledge officer at market research firm FedSources. SSA awarded a $2.8 billion contract to four vendors; DHS signed a $2.63 billion deal with one of 59 suppliers participating in a governmentwide contract program; and CDC entered into an agreement worth a potential $5 billion with 30 companies.

But while the trend of one-stop-shop jumbo deals might be positive for the government, it is not always beneficial for vendors that must pay more for a chance to participate in all the contracts.

The companies rack up additional bidding costs, as well as recurring sales and administrative expenses to track upcoming orders -- which they sometimes recoup by raising government prices down the road, Bjorklund said.

"If OMB is trying to achieve a less risky contracting environment, I'd say these contracts do that. They're less risky, [but] it doesn't mean they've mitigated all the risks," he said.

In each case, interested parties had to or will have to negotiate lower prices to win a contract. While DHS awarded its contract to Northrop Grumman Corp., the company already had competed to get into the huge Alliant program, which consists of a group of contractors authorized to provide governmentwide IT services.

The three projects are variations of multiple-award indefinite delivery-indefinite quantity contracts, in which the federal agency has the right to issue an unknown number of work orders during a given period of time.

At CDC offices worldwide, 30 suppliers that were named on Sept. 23 will have to vie for task orders in multiple categories of work during the next decade, CDC Chief Information Officer Jim Seligman said. Groups of three to 11 awardees will bid against each other for services, including information management, management consulting and IT infrastructure.

In addition, CDC officials said the contract reduces administrative costs by merging an existing support services contract and numerous other orders placed through various vehicles, such as General Service Administration schedules, the procurement agency's list of companies approved to conduct government business.

Dispensing separate contracts saps time, energy and government resources, Seligman explained. "By consolidating these contracts and then having ongoing competitions will achieve better pricing," he said.

DHS is paying Northrop Grumman to install networks at the agency's new headquarters on the campus of the former Saint Elizabeths Hospital in Southeast Washington, according to a federal award notice issued on Sept. 23. The work probably will not cost more than $300 million during any one year of the 10-year contract, according to Bjorklund. "Multibillion dollar contracts don't equate to multibillions in a single year," he noted.

SSA officials have said they will replace any of the four companies that perform poorly during its seven-year technology refresh project, so no contractors are guaranteed continuous pay. "The fact that there is an ability to fire a contractor means that the competitive practices are still at work," Bjorklund said. The contract was awarded on Sept. 10 to Accenture, Computer Sciences Corp., Lockheed Martin Corp. and Northrop Grumman.

Agency IDIQs simplify the contracting process for the government, but they can complicate the bidding process for contractors, which must repeatedly submit proposals to get into each pool of potential money.

"I don't think a lot of people in government are sensitive to what impact it has on industry," he said. "When you start making contractors incur more expenses, many of those additional expenses are rolled up into future pricing."

Meanwhile, some good government groups view all billion-dollar projects as risky. "They should all be examined thoroughly" by White House officials, said OMB Watch Executive Director Gary Bass, a critic of federal contracting.

The Obama administration "expects all agency IT contracts to be well-planned, well-managed and deliver successful results on time and within budget," said OMB spokeswoman Moira Mack. "When that does not happen, agencies are expected to make timely and effective interventions to remedy the deficiencies in contractor performance."