HUD Pushes Reform With HITS Contract

Four Firms Eye Multibillion-Dollar Outsourcing Project

Incumbent contractor Lockheed Martin Corp. provides facilities management and maintenance services to the Department of Housing and Urban Development.

The Department of Housing and Urban Development will be pushing the cutting edge of procurement reform with its planned HITS performance-based contract.

The agency is expected to release soon a request for proposals for the HUD Information Technology Service contract, the department's 10-year desktop outsourcing program for between 10,000 and 14,000 seats. The contract ceiling is $4 billion, making it potentially one of the largest civilian agency information technology contracts on the horizon.

"Any time you talk about a contract that begins with a 'b,' of course it's going to be important," said Jim Loving, an IBM Corp. client manager working on the company's response.

Moving to a seat management program of this size is a serious effort. Within the contract are just about all the elements of IT services covered by the concept of seat management: hardware, software, database management, nationwide telecommunications services, teleconferencing, facilities management, help-desk operations, training, disaster recovery, logistics and asset management and systems engineering and technical support.

Compounding the challenge, HUD has made HITS a test case for performance-based contracting. Under such contracts, the agency sets out measurable performance standards and pays the contractor according to how well those standards are met.

For HITS, instead of providing a 5,000-page statement of work dictating what the department requires in terms of hardware, software, connectivity and services, HUD gave interested bidders a two-page statement of objectives, spelling out the agency's problems and needs.

"This is a very innovative acquisition strategy," said Paul Bize of Electronic Data Systems Corp., another company chasing the contract.

Bize, EDS' client sales executive for HUD, said the agency "is making a tremendous leap in moving into a performance-based contract structure. ... It's also very difficult, because the transition requires a lot of internal training and acclimation to fulfill this type of contract structure."

Although at press time HUD had not released the RFP, the agency announced Sept. 20 that four prospective contractors are "viable" to pursue this contract. Those companies are incumbent contractor Lockheed Martin Corp., Bethesda, Md.; Affiliated Computer Services Inc., Dallas; EDS, Plano, Texas; and IBM, Armonk, N.Y.

HUD's Web site says this determination of viability does not bar other prospective contractors from bidding on the contract.

"This was really a message to say, 'You can go ahead and bid on this ... but HUD has determined [who is] really qualified to perform this task,'" Bize said.

Cutting down the field of prospective bidders is necessary in performance-based contracting, said one procurement expert, because comparing the responses and selecting a winner is a big challenge in these types of contracts.

Department spokesman Brian Sullivan declined to discuss HITS. "We're in the middle of the contract process," he said. "When this award is ultimately made, [we'll] have more to say."

"Because each vendor will be allowed to provide its own interpretation of what's best value, [the department] will have to do some kind of normalization" and find a way to put the proposals on a par with each other, said Steve Otsuki, vice president of information technologies and identification solutions for Lockheed Martin Information Systems, the division holding the existing contract.

Lockheed Martin won the current contract, a more traditional facilities management and maintenance program, in November 1990. Originally established as a 12-year, $530 million deal, the work was modified in the mid-1990s to incorporate provision of Internet services.

To date, HUD has paid more than $821 million to Lockheed Martin for its services, according to market research firm Input Inc. of Chantilly, Va.

As the incumbent, Lockheed Martin is in "complete agreement" that moving to performance-based contracting will create a better product for HUD and a better business case for vendors, Otsuki said.

"From a vendor perspective, you're allowed to provide to the customer the service levels that are best value to [them], and you're allowed to price them best for your business," he said.

HUD is using outside consultants to work through the intricacies of switching to a performance-based contract for HITS.

None of the prospective bidders would reveal their planned teammates in the project. Providing such a list would reveal too much about the structures of their responses, company officials said.

But all companies agreed that the small businesses they plan to work with will be integral to their success. Effective use of smaller companies is one of the criteria the proposals will be evaluated on.

"Our emphasis has been on using types of small businesses that have extra teeth in key areas, in order to maximize the amount of work that can be given to the small business community," said Otsuki of Lockheed Martin.

Candy Quinn, director of federal content with Federal Sources Inc., a McLean, Va., market research firm, said performance-based contracting "is a really key element of President Bush's management agenda."

The administration is pushing all agencies to comply with Clinger-Cohen and GIPRA, two laws to simplify the procurement process and cut down on red tape, Quinn said.

"I think we'll be seeing a lot more of this from other agencies" as well as HUD, she said.

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