EDS to Use Small Businesses In Navy Intranet Project

By Nick Wakeman, Senior EditorPlenty of commercial experience and a strong commitment to small businesses are the likely factors that pushed Electronic Data Systems Corp. ahead of its competitors to win the lucrative Navy-Marine Corps Intranet contract.The outsourcing contract, valued at between $4.1 billion and $6 billion over the next five years, also should open the way for more business for EDS and other systems integrators, as other parts of the military and federal government use it as a model for their own outsourcing projects, industry and government officials said."The success of this contract will go a long way to proving or disproving seat management in the government," said Kevin Plexico, chief technology officer and vice president of the market research firm Input Inc. of Chantilly, Va.Several other agencies have awarded seat management contracts, but none on this scale, he said."The Navy is taking seat management further with their security needs and communications requirements," said Bill Dvoranchik, president of EDS Federal. The Plano, Texas-based company already manages desktop services for more than 2 million commercial and government users."This is our bread and butter," Dvoranchik said.When fully implemented, the intranet will connect about 350,000 users or seats. EDS will provide secure voice, video and data networking, desktop computers, hardware, software, services and training for Navy and Marine Corps personnel in the United States, Alaska, Hawaii, Guantanamo Bay, Cuba, Puerto Rico and Iceland. Ships at sea also will have access to the intranet via a satellite connection.EDS beat teams led by Computer Sciences Corp. of El Segundo, Calif., General Dynamics Corp. of Falls Church, Va., and IBM Corp. of Armonk, N.Y.EDS' team includes principal partners Raytheon Co. of Lexington, Mass., WorldCom of Clinton, Miss., and Wam!Net Inc. of Eagan, Minn., a digital networking company. But the company also has fielded a large contingent of small businesses.The company has pledged to have small businesses do 40 percent of the work under the contract. The Navy had required a minimum of 35 percent. "We looked at what we were trying to achieve, and we found we could do it with small businesses," Dvoranchik said. "We are committed to that 40 percent."The impact on small businesses was one of several concerns raised as the Navy developed the contract. Congress held up the project until the Navy addressed issues such as how the service would pay for the project, what alternatives were evaluated, how military and civilian personnel would be affected and how information security and information assurance would be addressed.Sue Monge, assistant administrator for contracting assistance at the Small Business Administration, said the agency will be closely following the intranet contract. "Obviously, we had some concerns, because a lot of the contracts that became part of this acquisition were small business contracts," she said.The agency will be reviewing EDS' small business plan, and SBA hopes to play a role in how the Navy monitors EDS' compliance with that plan, she said.The Navy estimates it pays $1.6 billion a year to keep the more than 200 separate networks running that the intranet will replace. The new contract is expected to save the Navy $400 million a year, said Navy Secretary Richard Danzig.Beyond cost savings, the Navy and Marines also said the project will help improve security, ensure that the technology remains current, and field new enterprisewide applications in areas such as logistics, supply chain management and personnel.Danzig said the intranet will have greater security because it will have centralized network management and system administration. At the same time, users will have access to more information, because the intranet will break down barriers between what are now separate and not integrated networks."We are looking at this as a way to bring the two organizations closer together," said Gen. James Jones, commandant of the Marine Corps."This will lead us to the management systems we need to do business in the 21st century," said Adm. Vern Clark, chief of Naval Operations.The size and scope of the contract make the project one that other agencies and even other governments will be watching, industry officials said."They are the first of the three services to do this, and we think this opens up a world market," Dvoranchik said.The contract includes some of the newest wrinkles in government contracting, such as service level agreements and incentive clauses.The largest incentive clause involves customer satisfaction. Users of the intranet will be surveyed, and EDS can earn an extra $150 million a year if its customer satisfaction grades are high enough, said Joseph Capriano, Navy program executive officer for information technology.Other incentive clauses cover areas such as security and small business participation, he said. "An independent Navy team will validate those areas," Capriano said.By using service level agreements, the Navy will ensure that it has access to the latest technology because, rather than buying hardware and software, it will be buying a service. EDS will be responsible for modernizing its equipment. "We'll be buying connectivity like we buy electricity," Danzig said.Work under the contract will begin immediately. The Naval Air Systems Command will be the first user of the contract with 40,000 seats being deployed by January 2001. The command will serve as a pilot for the project, Capriano said.The network architecture will be validated before the next group of users is brought online next May or June, he said. The second group to connect to the intranet will be the Naval Sea Command.To hold EDS' feet to the fire, the Navy also has a termination clause that allows it to cancel the contract and award it to one of the other bidders. While the Navy has selected the backup contractor, officials declined to name that company.CSC and IBM officials declined to comment on losing the competition.A spokeswoman for General Dynamics, however, said the competition was a learning experience for the company.The company's IT unit is only about two years old and was created by a series of acquisitions, the most notable of which was the $1 billion purchase of GTE Corp.'s government unit in September 1999."We've made a number of superb acquisitions that are working well together," said Norine Lyons, a spokeswoman for General Dynamics. "We are pleased to have been in the competition and to have done as well as we did."