NSA Outsourcing: A Pot of Gold

By Nick Wakeman The National Security Agency is quietly taking steps to outsource its data centers, desktop computers, telecommunications and other pieces of its information technology infrastructure under a contract that could be worth $4 billion over 10 years.The contract, which is expected to include provisions for as many as 2,000 agency employees to transfer permanently to the winning contractor, also may cover applications such as payroll and human resources.The agency is turning to outsourcing so it can focus more resources on its core intelligence functions, sources said. Part of the Department of Defense, the agency provides signals intelligence, communications security and information systems security for the government. A request for proposals for the contract should be released by the end of 1999, and an award is expected by the summer of 2000, sources said. National Security Agency officials said it is too early in the procurement cycle to comment on the contract.Known as Groundbreaker, the potentially lucrative contract to manage a large slice of the agency's IT infrastructure has sparked interest from a host of leading systems integrators and one telecommunications giant. "NSA really is the first one in the [federal] government to approach something with this scale," said Shawn Donovan, vice president of sales for Electronic Data Systems Corp. "A lot of eyes are on NSA to see how this goes for them." Indeed, many companies view the contract as a harbinger of large outsourcing contracts in the future. If an agency with a mission as sensitive as the NSA's can turn to outsourcing, industry officials said, there is little reason that other agencies cannot use outsourcing. Also, what better calling card than an outsourcing deal with the supersecret NSA?Executives with Computer Sciences Corp. of El Segundo, Calif., and OAO Corp. of Greenbelt, Md., confirmed that their companies intend to pursue a prime contractor role for this effort. Also leaning toward bidding as a prime is AT&T Corp. of New York, sources said. AT&T officials declined to comment on the NSA contract.These three companies are part of a larger group that NSA has designated pre-qualified to bid on the Groundbreaker contract. The others are: Andersen Consulting of Chicago; EDS of Plano, Texas; GTE Corp. of Irving, Texas; IBM Corp. of Armonk, N.Y.; Keane Inc. of Boston; and Lockheed Martin Corp. of Bethesda, Md. Executives with EDS, GTE and Keane said they are still reviewing their strategies. Officials from IBM and Lockheed Martin declined to comment on the project.Industry comments on a request for information from NSA are due May 3, so companies have until then to decide whether they are bidding as a prime or will join a team. Several sources said they did not expect more than four companies to bid as a prime.The next step will be for NSA to pick no more than three finalists for the contract, sources said. The contractors and NSA then will work together in developing the final RFP for the contract."There have been races around the Beltway trying to get teams together in the last couple of weeks," said Austin Yerks, CSC's senior vice president for business development in the defense group. Yerks said he is not ready to announce the names of companies on the team he is forming.Both CSC and OAO bring substantial outsourcing experience in their bids to prime the contract. Yerks estimated that half of CSC's $7.4 billion in 1998 revenue came from outsourcing projects, mainly in the commercial market."One of the great benefits for us is we have a very strong commercial arm that has been doing this for over 10 years," Yerks said.Also, CSC won the $20 million Breakthrough contract from NSA in August 1998. Yerks described that contract as a pilot of sorts for the agency because it included provisions for moving NSA employees to the private sector. "They wanted to test the water before they dive in," Yerks said. By October, some 150 former NSA employees will have been transferred to the payrolls of CSC or one of its partners, he said.OAO, which won a task order in June 1998 under NASA's Outsourcing Desktop Initiative contract potentially worth $500 million, will try to leverage that win in its bid for the NSA contract, said Robert Lohfeld, senior vice president of OAO's Information Systems Group.Under that task order, OAO is running all of NASA's desktops at four agency centers. OAO also has a $200 million contract to run the desktops at the Jet Propulsion Laboratory in Pasadena, Calif. "We are a major player in the federal IT outsourcing market, and [the NSA contract] lines up with our core competencies," Lohfeld said.But other companies on NSA's pre-qualified list also boast substantial outsourcing experience. Electronic Data Systems, for example, won a $1 billion contract in December to outsource Connecticut's IT infrastructure based in large part on its far-reaching proposals to improve government services. The United Kingdom's Inland Revenue Service also outsources its information technology to EDS.While Keane's federal business is relatively small at $64 million, the $1.1 billion company will be able to leverage its commercial experience whether it bids as a prime or as a subcontractor, said Glenn Giles, managing director of Keane Federal. Keane also is on CSC's team on the NSA Breakthrough contract.Andersen Consulting is looking for a "substantial role as a teammate," said Roger Dooley, managing partner for Andersen's defense practice. While not one of the pre-qualified bidders, Science Applications International Corp. of San Diego is pursuing a role as a major subcontractor, said Samuel Visner, business development manager for the advanced technologies and solutions group at SAIC. Industry officials were united in their praise for NSA and its approach to the Groundbreaker contract. The request for proposal process for this effort will be proactive, with companies taking part in the creation of the document, company officials said. "There is a lot of thought leadership there," Giles said. Industry officials will observe agency IT operations and develop a baseline for the requirements of the contract, said SAIC's Visner. NSA also is looking for commercial best practices in the bids. For example, the agency wants a contract with "service level agreements" rather than a contract based on paying for time and materials, Giles said. The agency wants to structure the contract so that NSA's information technology workers will want to leave the government and join the private sector. The agency wants a "soft landing" for employees who may move to the private sector, Yerks said. "They are combining outsourcing in non-mission areas and seeking to attract people [to the private sector] as opposed to laying them off," Giles said. NSA is a "very employee-centric agency."If "they can creatively think of ways outsourcing can work for them, that certainly sets the bar for the rest of the federal IT community," Giles said.