Digital, Hughes Duo Brings Synergy to Contracts

After a disappointing contract loss for both, the team dominates key Air Force procurements with back-to-back wins

In the procurement world it is always advantageous to emphasize your strengths and downplay your weaknesses. That adage has served as a mantra for integrator Hughes Data Systems, Irvine, Calif., the $200 million subsidiary of Hughes Aircraft Co., and Digital Equipment Corp., Maynard, Mass., the world's third largest computer maker.

Hughes Data Systems was highly regarded for its integration services to government agencies, especially the U.S. Air Force, but sometimes lacked the technologies the customer demanded. Digital's Alpha processor family and 64-bit operating system was ready and waiting to be recognized, but lacked a business partner with procurement savvy.

But a surprising, mutual contract defeat in 1995 brought both integrator and computer manufacturer to the realization that to win critical awards, those voids needed to be filled. An alliance between the two soon followed, and today the Hughes/Digital partnership has become a powerhouse in federal procurements.

In 1993, Digital and Hughes competed against each other, along with Hewlett-Packard Co., Palo Alto, Calif., on the Navy's $672 million Tactical Advanced Computers 4 contract -- an award that some Digital officials said was tailored for the company's Alpha workstation. The contract, to provide 400,000 rugged or commercial advanced workstations, portables and peripherals, called for the "latest state-of-the-art workstations" and cross-platform compatibility. Digital's Alpha Reduced Instruction Set Computing, or RISC, system runs NT, UNIX and open VMS operating systems and is the technology recently chosen by Microsoft Corp. to run its NT systems. At the time, no other computer manufacturer had the complete 64-bit workstation and were offering only pieces of the technology. During the contract evaluation, Digital's workstation met the Navy's technical specifications, but its integration scheme fell short. The contract was awarded to Hewlett-Packard in January 1995.

James O'Neill, vice president and general manager of Digital's Federal Government Region, recalls the bidding process as "lengthy and expensive." The company spent two years and "millions of dollars" bidding the contract. "We finished first [in technology], but we failed to understand what expensive, third-party vendors [supplying peripherals] meant in the price cycle. Hughes could have helped us out in that respect," he said.

Meanwhile, Hughes Data Systems President E.O. Knowles was licking his own wounds. He realized Hughes needed a leading-edge computer manufacturer to complement the company's commitment to customer service. While the company's integration plan received high marks on TAC-4, the 32-bit technology its bid offered was becoming obsolete. "To an extent, Hughes is a service company," Knowles said. "We integrate, but what we need is a shared commitment to customer service. Some computer companies are just looking to put their catalog on the contract."

Soon after, Knowles arranged a meeting with Digital officials. "We admired a few things they were doing," said Knowles, referring to Digital's three-way open system strategy. Hughes had its eye on a U.S. Air Force contract that would provide 37,000 workstations to the service. Knowles recognized an opportunity for Alpha-based workstations and brought Digital on board.

"It became obvious to us that Hughes' knowledge of procurement law and winning proposals would be a great marriage," O'Neill said. Digital became a subcontractor on the bid. The alliance was consummated in March when the team won the Air Force workstation contract, a five-year, indefinite-delivery, indefinite-quantity award worth $956 million. The team's synergy was proving fruitful.

The Hughes/Digital team hit pay dirt again two months later with a $924 million award by the Air Force on its Desktop V contract. The indefinite-delivery, indefinite-quantity award supplies 360,000 computers, peripherals, software, services and support to Air Force commands, bases and other worldwide users, including federal and civilian agencies. The contract calls for a one-year ordering period with two one-year options, plus two additional years for upgrades.

"They used the value approach," said Lt. Col. Larry Sampson, small computer program manager at Maxwell Air Force Base, Ala., and the manager of the Desktop V contract. "Capabilities, quality product, tech refresh and cost -- you look at those factors and determine the best value at the best possible cost. It's not always the lowest price."

While the entire Desktop V contract did not require 64-bit technology, "they were given extra credit if the video data path was 64-bit compatible," added Technical Sgt. Dave Larson, chief of the Desktop V test team.

The Air Force made two distinct awards under the Desktop V program. The second award, potentially worth $1 billion, went to Zenith Data Systems Corp., Buffalo Grove, Ill. Hughes and Zenith now compete to supply the Air Force with the needed equipment.

Hughes' Knowles chalks up the duo's success to their complementary business styles. "Technology moves very quickly, and each partner needs to adapt," he said. O'Neill describes both companies as aggressive and innovative, contributing to their compatibility.

Hughes and Digital plan to ride their wave of success with a proposal to a civilian agency. The team is bidding on the Department of Veterans Affairs' computer hardware and software contract potentially worth $1.5 billion. Two winners will be chosen for the five-year contract to provide equipment to the VA's 576 medical centers, clinics, nursing homes and regional offices. Knowles expects the contract to be awarded in early 1997.

Hughes sees a trend in the market where companies are being forced to focus on core competencies. Integrators today must comb the market for the best product, rather than taking their products and making them fit, Knowles said. But the key to success with those companies once you find them, according to Knowles, are "quality, service, advanced technology and a good management relationship."

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