Make or buy could be make or break
SBI-Net raises the issue: Who supplies the products?
- By Alice Lipowicz
- Sep 15, 2006
It's probably the most sought-after Homeland Security Department contract this year, but the competition thus far has been very polite, even restrained. But now, in the final stages of the contest to see who will build the nation's $2 billion Secure Border Initiative Network, the gloves may be coming off.
Behind-the-scenes sparring has begun over how the five competing teams are handling their "make-or-buy" decisions for components of their border security and surveillance systems.
Those decisions are the processes by which the lead systems integrators ensure that they are buying only best-value technologies for their solutions, and are not overtly biased toward buying products produced by members of their own team.
Make-or-buy decisions can create conflict if a systems integrator, which chooses the technologies for the solution, also makes those technologies.
Such could be the case for Boeing Co., Lockheed Martin Corp., Northrop Grumman Corp. and Raytheon Co. All those companies are heading teams bidding for SBI-Net. All have divisions that make unmanned aerial vehicles. Raytheon also makes sensors, Lockheed Martin makes radars, and Northrop Grumman makes mobile command centers, among other products. Ericsson Inc. also has fielded a team to bid on SBI-Net.
All four technologies ? UAVs, sensors, radars and command centers ? likely will be included in the comprehensive SBI-Net surveillance system along U.S. land borders with Canada and Mexico.'We have independence'
In the case of SBI-Net, Boeing raised the make-or-buy issue first, suggesting that it has the least potential for conflict because it only makes a single, rather small UAV, the Scan Eagle.
The Boeing team also includes Kollsman Inc., a division of Elbit Systems Ltd. of Haifa, Israel, and Unisys Global Public Sector of Reston, Va.
"I am not implying necessarily that our competition is out there proposing their own [UAVs] just because they have them," Wayne Esser, capture team leader of the Boeing team, told Washington Technology. "I suspect they have gone through a process such as we have, and are doing what they think is right.
"All I am saying is that we don't have any products that fit [SBI-Net]. We are more of an integrator than a vertically integrated product seller. Almost everything we sell is made of components that we acquire. So we just don't have that issue at Boeing," Esser said of the make-or-buy decision. "We have independence."
The potential for conflict also applies to teammates. In reviewing its requirements for a UAV for the border system, Boeing decided to include a light aerostat that a lone person can launch. Although Boeing selected the Skylark, which is made by Elbit, there was no bias in the decision, Esser said. The Elbit product represented the best value in that category of aerostat, he said.
"We looked at a whole list of UAVs," Esser said. "We will continue to evaluate others as we have time."
In contrast with Boeing's single UAV, Northrop Grumman's portfolio of UAVs spans several different types, including the high-altitude Global Hawk for the Air Force and Navy. The company has produced more than 100,000 UAVs for the Pentagon and U.S. allies.'It's not a problem'
Asked about the potential for a make-or-buy conflict in Northrop Grumman's SBI-Net solution, company executives touted their process of determining the best value in each category of technology, including UAVs, and indicated that their make-or-buy business processes have been honed through experience.
"When we buy, we show [DHS] the competitive nature of how we make that buy ? it's not a problem, it's something Northrop is good at doing," said Tom Arnsmeyer, vice president and project manager for Northrop Grumman's Secure Border team.
The team includes Anteon International Corp., Fairfax, Va. (now part of General Dynamics); BearingPoint Inc., McLean, Va.; General Dynamics Corp.; L-3 Communications Titan Group, San Diego; and SRA International Inc., Fairfax, Va.
"We are pretty agnostic about which UAVs we use," Arnsmeyer said.
"Is Northrop going to use its own stuff? I think the answer is yes, but we will do a best-value analysis to determine that," said Bruce Walker, vice president of strategic planning for homeland security at Northrop Grumman.
Although the company is planning to use one of its own Global Hawks, UAV models for SBI-Net have not yet been determined, he said.
The analysis will include getting proposals from competitors for cost and capabilities, and determining which technology best fits the solution. In the case of the Coast Guard's Deepwater, for example, Northrop Grumman, in some cases, chose alternatives to its own technologies, Walker said.
"All of our UAVs are not flying in Deepwater," Walker said. "We are not bound to use our own products for a large integration job."
Neither will Northrop Grumman be using its own mobile command centers in its SBI-Net solution, Arnsmeyer said.Best value here
Both Lockheed Martin and Raytheon have developed businesses processes to determine best value, their executives said.
"We have an open-business model," said Jay Dragone, vice president of homeland security for Lockheed Martin. "If it is within our team, great. If it is outside, great."
The Lockheed Martin team has included some of the company's UAVs in SBI-Net.
"Our product is superior," Dragone said. But he added that the selection could change upon consultation with DHS.
For radar, Lockheed Martin ran ground tests and chose a product made by a competitor, he said.
"We hold ourselves and our team members accountable to make sure we deliver a best-value solution," Dragone said.
A Raytheon spokesman also said the company addressed the potential for make-or-buy conflicts and, in its SBI-Net proposal, specified for handling those situations.
Technically, because DHS is asking the teams to both develop and implement a solution, including selecting the necessary products and devices to do so, the SBI-Net contract does not present an organizational conflict in the usual sense of the term, said Alan Chvotkin, senior vice president of the Professional Services Council.
Nonetheless, he said, "there has to be heightened agency attention and oversight" to the make-or-buy process to avoid bias in technology selection. Similar concerns about defense contracts were raised in a memo circulated by the Pentagon in 2004, he said.
Ultimately, how the companies handle the make-or-buy dilemma may or may not give them a competitive edge, Chvotkin said.
"How a company intends to evaluate other technologies could be offered as a discriminator between company A and company B for evaluation purposes," he said.
The potential for conflicts may be minimized if SBI-Net is implemented slowly and incrementally, providing an opportunity for technologies to be proven to be the best value before selecting them for the entire solution, said Ray Bjorklund, senior vice president and chief knowledge officer for FedSources Inc., a McLean, Va., market research firm.
"The idea is: Design a little, build a little, test a little," he said. "You're not designing a grand solution right out of the gate."
Staff Writer Alice Lipowicz can be reached at email@example.com.