NASA Turns to Performance Contracts

The infotech market will soon feel the pinch of NASA's shrinking budget

The consolidation of two large support and services contracts at Goddard Space Flight Center in Greenbelt, Md., heralds a new business environment between NASA and the infotech industry.


Goddard consolidated two of its largest contracts last month with AlliedSignal and Computer Sciences Corp. as part of an agencywide belt-tightening effort to cope with dwindling budgets. The tight budget climate means that infotech companies will face keen competition for fewer NASA

dollars.

At the same time, NASA is loosening its grip on contractors to spur productivity and efficiency.

The combined contract, dubbed CNMOS, is worth $197.2 million and runs through October 1997. AlliedSignal and CSC proposed consolidating the contracts as one solution to a NASA study begun earlier this year. That initiative explored ways to streamline operations, reduce duplicative efforts and decrease costs in the tight budget climate.

Under the consolidated contract, AlliedSignal Technical Services will operate, maintain and repair telecommunications, optics, television systems and meteorological forecasting at Wallops Flight Facility in Wallops Island, Va.

The systems sciences division of CSC will provide software systems, engineering and analysis support at Goddard.

The space agency awarded each company separate 10-year support contracts in 1987. The Network and Mission Operations Support contract was awarded to AlliedSignal; the agency awarded the Systems Engineering and Support contract to Computer Sciences Corp. Friedman said the agency historically had tight control on how its contractors did their job. He said NASA is migrating from cost-plus contracts to performance- based contracts, which allow contractors to decide how to perform services rather than take orders from NASA on how to carry out services.

"We are now experiencing the challenge of how to do the job under a reduced budget without delivering reduced services," said Friedman. "The performance-based contract is a new, innovative way of doing the job."

NASA estimates it will save $38 million through the consolidation but the two companies also have something to gain. AlliedSignal and CSC plan to team on a competition for a 10-year NASA contract worth $500 to $600 million annually to be awarded this fall. The Consolidated Space Operations Contract, which will cover support services at many of NASA's centers, is expected to draw bids from aerospace industry giants such as Lockheed Martin Corp., Bethesda, Md., and Boeing Co., Seattle.

"We [AlliedSignal] are very worried about winning that contract," said Wayne Friedman, program manager for the CNMOS contract. "But we're also very confident." The consolidation of contracts at NASA is being driven by budget reductions. The Clinton administration requested $11.6 billion for NASA in 1996 but Congress is expected to allocate about $12.3 billion.

That figure marks a reduction since the agency's peak funding of $14.5 billion in 1994. From 1997 to the turn of the century, NASA's budget faces $4 billion dollars in reductions from the agency's five-year spending blueprint.

"I believe NASA is faced with serious challenges," said Joe Konopka, manager of the project and mission management office at CSC for the consolidated contract. "But this consolidation maintains the business base."

The consolidated contract is forcing both companies to pare their work forces. AlliedSignal offered its 1,200 employees that work on the NMOS contract a "voluntary reduction in force." More than 60 employees, most of whom were on the verge of retirement, have accepted the offer.

An AlliedSignal official who did not want to be identified said some employees fear the company will resort to layoffs in the near future.

There is speculation, this official said, that AlliedSignal will attempt to reduce the dollar value of the contract by $41 million.

Konopka, who has worked for CSC for 25 years, said that his company does not plan to terminate any agreements with the 200 workers on the original contract.

"As the consolidation matures, there will be downsizing," said Konopka. "Management and administrative personnel will most likely be leaving."

Richard Tagler, associate director for missions, operations and data systems for directorate at Goddard, said the number of people working on the combined contract will decline but not as a result of the consolidation. The layoffs correspond to a reduction in Goddard's overall contracting budget, he said.

Analysts and industry observers are divided about the merits of the trend at NASA to consolidate contracts.

"They [NASA] are clearly attempting to turn as much management functions to contractors as legally possible," said John Pike, director of the Space Policy Project at The Federation of American Scientists in Washington, D.C. "

NASA is attempting to find out how few people they can keep on the government payroll."

Wolfgang Demisch, an aerospace analyst for BT Securities in New York, sees the consolidation as one of the only ways for NASA to deal with its shrinking budget.

"Administration of the systems takes up all the money," said Demisch. The scale of the cutbacks should be on the order of 20 to 30 percent reduction of the agency's overall budget, he said.

Infotech companies that depend on NASA for much of their revenue are bound to feel the agency's budget squeeze.

In 1995, CSC reported that NASA contributed to 9 percent of its federal revenue of $1.6 billion. The company's total revenues in 1995 were $3.37 billion.

AlliedSignal reported that 60 percent of its revenues comes from federal contracts with NASA. Total company revenues in 1995 stood at $14.3 billion.

The NMOS contract alone contributes to approximately one-third of AlliedSignal Technical Services' business.


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