IRS Project Tops List of Nearing Opportunities

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IRS Project Tops List of Nearing Opportunities

By Nick Wakeman

The Army wants to wire the trenches. NASA wants to outsource its desktops. And the Justice Department wants to build an automated booking system.

But perhaps the most eagerly awaited request for proposal due in the coming months will be the Internal Revenue Service's Prime Integration Services contract, possibly the biggest systems integration project ever and perhaps worth billions to the winner.

The contract will be watched not just because of its size but because it could provide a blueprint for how other agencies will approach large information technology projects in the future.

The IRS is not just looking for a contractor but a "strategic partner" who will help the agency in its modernization efforts, said Arthur Gross, chief information officer for the IRS.

The partner also will "have some skin in the game," Gross said, meaning that the winner of the contract will be expected to begin building the system before getting paid by the government. Returns to the company might not come for a year or more, until parts of the system begin to operate, Gross said.


John Eisele photo

"No one company possesses all the skills needed."

-Arthur Gross, chief information
officer for the IRS

To make this risk more palatable to potential bidders, the IRS wants to pick a contractor and then work with the winner to develop the specifications for modernizing the tax systems, Gross said.

Under the traditional way of contracting, the government develops the specifications for a system. The companies then write proposals based on the specifications. Sometimes problems arise after the contract is awarded because the specifications were not realistic or feasible, Gross said.

The contractor often wants changes made as the system is being developed. An adversarial relationship between the agency and the contractor can develop, Gross said.

"We want to give them a place at the table," he said of the process for developing specifications together.

The IRS contract is certainly attracting heavy hitters. Lockheed Martin Corp. of Bethesda, Md., Andersen Consulting of Chicago, and Electronic Data Systems Corp. of Plano, Texas, have formed a team to pursue the contract. Computer Sciences Corp. of El Segundo, Calif., and Northrop Grumman of Los Angeles, also are likely bidders, company officials said. The pending Lockheed Martin-Northrop Grumman merger will not alter the bidding strategies.

The IRS has only issued a request for comments on its integration contract. A draft RFP is expected in October, with a final RFP in December. Bids will be due May 1. Work is scheduled to begin Oct. 1, 1998, Gross said.

The agency is encouraging the integrators to form teams, Gross said. "No one company possesses all the skills needed," he said.

The IRS has come under scrutiny from members of Congress and the General Accounting Office because of problems it has had over the last decade in trying to modernize its tax systems. The agency, in essence, was acting as its own systems integrator and it wasn't working, Gross said.

"The IRS' core competency is tax administration, not information technology," he said.

The new approach Gross is advocating and Congress is supporting, worked in California when that state developed its Franchise Tax Board to increase the efficiency of tax collections, he said.

Rather than the government developing the specifications for a system and then contractors giving a price, the state set the outcomes it wanted to achieve and the contractors made proposals on how they would achieve those outcomes.

"It is a whole new operating model," said Linda Cohen, an analyst with the research firm, Gartner Group of Stamford, Conn.

For the IRS to be successful, the agency's contracting officers have to move away from simply thinking about price when they evaluate bids, she said.

"Agencies have to put together a business case to support what they are buying," she said. "And a business case is not just dollars and cents."

More agencies are going to have try the IRS approach, Cohen said. Finding an IT partner is becoming more important because the government does not have the resources to develop information technology in house, she said.

The IRS contract could stretch out for 15 years. As a "partner" with the IRS, the winning contractor will be expected to provide advice and guidance to the agency, Gross said.

Part of that advice and guidance will include running competitions among the subcontractors for work, Gross said. Some of these competitions will be open to any bidder because the agency wants to make sure it is getting the best solutions available, he said.

He likened the IRS contract to a family hiring a general contractor to build its home. The family sets the parameters of what it wants and then the contractor finds the plumbers, electricians and carpenters to get the job done.

Another agency likely to be watching the IRS contract closely is the Health Care Financing Administration, said Andrew Sung, an analyst with Input in Vienna, Va. That agency has run into problems integrating its Medicare billing and benefits systems.


Northrop Grumman photo

Gene Kakalec, VP for business development at Northrop Grumman's Data Systems and Services Division

"For large contracts [the IRS approach] is a good idea because the vendors have more experience and more technical know-how than the government," he said.

Vendor experience brings another benefit, Sung said. Because the vendor is the expert, more of the blame can go to them if the system fails. "This will take some heat off of the IRS," he said.

"This contract is going to allow for a different and unique business model," said Gene Kakalec, vice president for business development at Northrop Grumman's Data Systems and Services Division in Herndon, Va. "For the government, they are going to be able to accomplish their goals without putting resources up front."

Because the company's revenues are on the line, a contract like the IRS project cannot be taken lightly, Kakalec said. "You really have to evaluate your business approach," he said.

To be successful, the company and IRS have to set specific goals and define expectations, he said.

"This contract forms a real partnership," said Pat Ways, vice president for business development for CSC Systems Group. "We like the idea of working with the agency rather than just the agency putting out an RFP with pre-determined requirements."


CSC photo

Pat Ways, vice president for business development for CSC Systems Group

Execution of the IRS contract is likely to follow a pattern of "build a little, test a little, deploy a little," he said. This approach will enable officials to more easily spot problems and make adjustments, he said.

The need for overarching contracts such as IRS' will increase, said Ways, as indefinite delivery, indefinite quantity contracts with multiple vendors and broad purchasing agreements make it easier for agencies to buy information technology.

"But then there is the question of where is the oversight, where is the systems integration," Ways said.

But the IRS contract might not be an overnight success because it involves shifting to what Cohen calls a "value-based procurement."

Project:
Outsourcing Desktop Initiative
Agency: NASA
Primary Service: Outsourcing
RFP Expected: September 1997
Value: $350 million
Possible Bidders:
Boeing Information Services, Computer Sciences Corp., Dell Computer Corp., Government Technology Services Inc., Electronic Data Systems Corp., Lockheed Martin Corp., Zenith Data Systems, Hughes, BTG Inc., Litton-PRC.

Project:
Prime Systems Integration Services Contract
Agency: Internal Revenue Service
Primary Service: Systems integration
RFP Expected: December 1997
Value: $1 billion to $5 billion (Industry estimate)Possible Bidders: CSC, GTE, Hughes, IBM, Litton-PRC, Lockheed Martin, Northrop Grumman, Raytheon, Trancor TRW.

Project:
Depot Maintenance System
Agency: Air Force
Primary Service: Systems Integration
RFP Expected: August 1997
Value: $400 million
Possible Bidders:
BDM International Inc., CSC, Harris, Litton-PRC, Lockheed Martin

Project:
Defense Information Systems Network - Europe
Agency: Defense Information Systems Agency
Primary Service:Telecommunications
RFP Expected: Draft to be released in September
Value: $1 billion
Possible Bidders:
AT&T, MCI, Sprint and GTE

Source: Input

Evaluating the bids will be a challenge, Gross said. "With the traditional procurement, there is a lot of appearance of specificity," he said. Quantitative comparisons can be made - an apples-to-apples evaluation, Cohen said.

But awarding the IRS integration contract will be more of a judgment call, Gross said. "We will need maturity and sound judgment. That is probably one of the more significant issues," he said.

IRS also will need different management skills, where the agency oversees the contractor but not the implementation of the system, Gross said. The agency has tried this successfully with smaller contracts but none of those efforts were similar in scope to the integration contract, he said.

"The government is not accustomed to giving up control," Cohen said.

One thing that bodes well for the IRS' approach working is that the agency is under inspection by lawmakers. "This project will get a lot of visibility," Ways said.

The visibility also makes the project attractive to integrators, Cohen said. "It is a huge opportunity because it is so critical and Congress is watching over it," she said. "Whoever wins it, will get a lot of marketing play."

Other government information technology projects in the pre-RFP stage that are following a more traditional contracting approach include the following:

The Warfighter Information Network, which will integrate the Army's command, control, communications and computer systems. The $4.5 billion system will connect commanders to the battlefield using multimedia, video teleconferencing and cellular personal communications systems. An RFP is expected in October 1998, Input said.

The FBI's Joint Automated Booking Station, which is still in the planning stage. An estimated value of that project is not available but a draft RFP is expected in September. FBI has been developing a prototype with Booz-Allen & Hamilton Inc. of McLean, Va. The system will automate the collection of fingerprints, mug shots, and other information.

NASA project to outsource desktop operations. The agency's goal is to have the contractor own and operate all hardware, which also will include some scientific workstations. NASA also wants to buy maintenance, help desk services and local area network services. Input estimates the project to be worth about $350 million. The RFP is expected in September.


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