Dell's domination grows

Dell Computer Corp.'s dominance of the General Services Administration information

technology schedule in fiscal 1999 reflects how procurement reform has brought

about good and bad changes to the way government buys IT products and services.

While the government is paying lower prices than ever for some technology,

some experts question whether new buying practices carry hidden costs for

agencies.

In fiscal 1999, Dell had more than $892 million in sales off the GSA schedule,

followed by IBM Corp. with $271 million and Micron Government Computer Systems

with $230 million.

Dell officials believe that their GSA sales are understated because

the number does not include sales the manufacturer makes to its government

reseller partners. Dell officials estimate that its government sales totaled

more than $1 billion in fiscal 1999.

Dell's success can be traced to two factors: fundamental changes in

government procurement rules, which make it easier for agencies to buy from

preferred suppliers, and Dell's direct sales business model, which lowers

the prices agencies pay for products.

In 1996, the federal IT market shifted from the use of indefinite-delivery,

indefinite-quantity contracts to blanket purchase agreements. The change

enabled agencies to use the vendors they preferred rather than the vendors

who submitted the lowest bids, as the procurement process once required.

"Procurement reform allowed the government to act more like the commercial

market and freed up agencies to purchase from vendors with products best-suited

for their needs," said Tom Buchsbaum, vice president and general manager

for Dell Government Systems. BPAs also enabled agencies to receive volume

discounts for larger purchases and to acquire services at a reduced rate.

Dell's direct sales model also has spiked sales. "Manufacturers [like

Dell] are able to offer discounts that resellers cannot compete with," said

Chip Mather, vice president of Acquisitions Solutions Inc., an industry

consulting firm in Chantilly, Va. "Plus, Dell is offering customers the

entire package — a great product, great services, great warranties and customization — that with a credit card and a point and a click of a mouse can be delivered

to an agency's doorstep in two to seven days."

In the past, agencies often relied on government resellers to supply

not only hardware but also software and services needed to make a complete

solution. Now, many procurement offices buy products directly from manufacturers

such as Dell, which generally offer limited services related only to the

configuration and maintenance of the products they sell. That means agencies

must often deal with more contractors to take care of their overall IT requirements.

"We will always need someone who can come in and tweak a program to

meet certain specifications," said Olga Grkavac, vice president of the Enterprise

Solutions Division of the Information Technology Association of America,

which represents federal IT vendors. "Not everything purchased off the shelf

is going to meet everyone's demands."

The Navy, for example, recently leased more than 40,000 computers from

Dell, but it relied on other contractors to provide key services. "We have

separate contracts to lay lines and networking systems," said a Pacific

Fleet spokesman. "The network backbone already had to be in place before

the [Dell] computers could be installed."

But this approach has a downside. As more vendors are needed to complete

projects, managing the projects becomes more difficult, according to industry

consultants.

"Anytime you have more than one vendor working on a project, it is going

to cloud the picture," said Mark Amtower, an independent consultant in Ashton,

Md. "We have fewer people working for the government now than we have had

in the past 15 years, so when you have one IT person responsible for multiple

vendors, [the person is] barely able to tread water most of the time."

Dell's rapid growth within the federal market also has some industry

experts concerned that the company won't be able to keep up with services

outside its area of expertise.

"You can't be all things to all people," Mather said. "When a manufacturer

tries to provide services outside its main functions, there are risks to

everyone involved."

As Dell wins more contracts, the quality of its services could suffer as

its work force is "spread too thin," Amtower added.

"Dell is one of the strongest brands of computers, but when you have people

working for you all over the world on a lot of different projects, the level

of service can't remain the same," he said.