Desktop IV proved IDIQs could work

If ever there were a contract that had a good side and bad side, it was the Air Force’s Desktop IV contract.

Awarded in 1992, to Government Technology Services Inc. — now just GTSI — and Zenith Data Systems, the contract worth $1.1 billion was huge 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 by companies such as Apple, EDS, CompuAdd and even GTSI, when it didn’t win on the first go-round.

But once it was off the ground, 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 LLC.

“Yes, [Desktop IV] had its flaws and, yes, it could have been better,” he said. “But given what we did with it, I thought it was a very successful contract.”

Young joined GTSI as CEO in January 1996, after the company had won a spot on the $1.1 billion Air Force contract.

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, Desktop IV was hampered by the Air Force's refusal to accept modifications. “Therefore, 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.”