Affiliated Computer Services Inc.<@VM>American Management Systems Inc.<@VM>Electronic Data Systems Corp.<@VM>General Dynamics Corp.

ACS announced that it has signed a contract with the Defense Finance and Accounting Service (DFAS) to provide a wide range of pay-related services and support to 2.5 million Defense Department retirees and annuitants with a monthly payroll of more than $2.6 billion.

The contract, with a term of up to 10 years and an estimated value of more than $354 million, will be one of ACS' largest federal government contracts.

This contract is a result of a U.S. Office of Management and Budget Circular A-76 cost-comparison study designed to allow the government to compete with commercial vendors in the bidding process. The specific tasks include payroll processing for new and existing accounts, customer service call center operations, as well as mailroom and imaging operations.

Originally announced on June 9, 2001, the award to ACS was tentative pending a public review period of not less than 20 days, as required under the A-76 program guidelines. The review period expired, and the contract was signed on Sept. 5, 2001.

Following a transition period, ACS will assume responsibility for pay services on Jan. 28, 2002. Approximately 535 federal employees in Cleveland and Denver are performing the contracted tasks currently.

After a transition period, ACS plans to assume operations at both locations by the end of January 2002 and plans to offer current federal employees the first opportunity to fill positions within the company. In addition to the main functions above, ACS employees will provide electronic data exchange, maintain and update DFAS' application information system, generate reports and ensure quality.A scathing General Accounting Office report questioned whether the Defense Department should continue investing in its multibillion-dollar Standard Procurement System.

The Defense Department began its search for a procurement system that would replace hundreds of legacy systems across all the defense services in 1994 and awarded a contract to AMS in April 1997 for its off-the-shelf procurement software. The contract is three and a half years behind schedule and "is likely to slip further," GAO said in its report, "DoD Systems Modernization: Continued Investment in the Standard Procurement System Has Not Been Justified."

The new procurement system was slated for a March 31, 2000, completion. Now the Defense Department hopes to have the full system up and running by September 2003. GAO noted that even this target date is unlikely to be met, because it does not take into account factors such as the testing practices of individual services.

The Defense Department initially pegged the system's cost over its 10-year life cycle at $3 billion. The contract is now estimated to come in with a $3.7 billion price tag, and costs could rise as the project falls further behind schedule.Less than a year after the contract award, the Navy's $6.9 billion Navy-Marine Corps Intranet effort to create an enterprise network has become a reality. EDS officially has taken control of five desktops at the Naval Air Facility in Washington.

In the coming days, EDS will be working to transfer all of NAF Washington's 600 seats to the NMCI network, an EDS representative said. NAF Washington is the first of three locations at the forefront of rolling out NMCI.General Dynamics said it may ask a court to suspend payment of more than $1 billion to the U.S. government, after a legal defeat in late August left the company and its contracting partner, the Boeing Co., on a now-defunct airplane project facing possible repayment of their fees.

The U.S. Court of Federal Claims Aug. 31 refused to set aside the Navy's 1991 termination of a contract to build A-12 attack planes, saying failure by General Dynamics and Boeing to meet the Navy's unilaterally revised production schedule was enough to terminate the contract as a default. General Dynamics and Boeing have said they will appeal the decision.

If the Navy's termination of the contract is upheld, the companies would have to repay about $1.35 billion, plus interest of about $900 million, for payments already received for the project. General Dynamics said its pretax share of the liability would be about $1.1 billion.

Both contractors have asked the Navy to continue to defer any repayment until an appeal is finished, and said they would seek relief through the court if necessary. The Navy earlier had agreed to suspend any repayment until after the recent claims court's decision.

These business briefs are composed of selected excerpts from the BB&T Capital Markets publication, "Aerospace/Defense/Government IT Services Weekly Review," written by Thomas Meagher.

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