Raytheon backs off plan to sell AF IDIQ contracts

Concerned about damaging its relationship with the Air Force, Raytheon Co. has decided, at least for the present, to continue to service the contracts it acquired when it purchased Hughes Electronics, including the Desktop V and Air Force Workstations contracts.

The company reportedly abandoned efforts to find a buyer to take over the contracts after several companies balked at the price, and the Air Force hinted that failure to perform on these contracts could affect Raytheon's bids on other Air Force business.

"Desktop V is an important part of our business, and we are looking for Raytheon to fulfill its commitment to the Air Force," said Col. Delbert Atkinson, vice commander of the Air Force Standard Systems Group (SSG), Montgomery, Ala., which manages the Desktop V and Air Force Workstations contracts. "We too are concerned that Raytheon wants to get out of that business, but Raytheon has indicated that it would remain focused on the customer by delivering current technology at attractive prices."

Atkinson said Raytheon also has stepped up to the substantial warranty, upgrade and maintenance liabilities of the Desktop V contract— liabilities potentially so large that other federal PC vendors said Raytheon would need to pay any company that acquired the contract. Atkinson said in a statement that Raytheon "would continue to retain warranties, upgrades and help-desk support" for PCs purchased by Air Force users.

"We expect Raytheon to continue to honor the intent of the contract," said Kenneth Heit-kamp, technical director at SSG. "We've expressed that expectation to Raytheon, and they have assured us that they intend to meet their contractual obligations. We expect that performance."

A Raytheon spokesman declined to comment on the status of the Raytheon (formerly Hughes) Data Products division, saying the Lexington, Mass.-based aerospace giant has a firm policy on "not commenting publicly on divestitures and acquisitions.''

Informed industry and Air Force sources confirmed that Raytheon decided within the past week to hold on to the Data Products division for reasons that had little to do with the bottom line of the division itself. Raytheon reportedly realized its efforts to divest itself of the contracts could harm relationships with Air Force commands responsible for the acquisition of "big-ticket" electronic systems.

SSG and its parent command, the Electronic Systems Center, are units of the Air Force Materiel Command at Wright-Patterson Air Force Base, which is the service's overall acquisition agency for items ranging from PCs to bat-winged bombers. Raytheon executives, FCW has learned, were made aware that the firm's lack of enthusiasm for the computer pacts could possibly jeopardize relationships throughout this command.

"Clearly the move to including substantial weight on past performance is well-established," said Bob Dornan, senior vice president of Federal Sources Inc. "It would be a no-brainer to hold it against a vendor for not fulfilling their contractual obligation."

However, agencies are expected to look at past performance in "relevant" contract actions, including the size, scope and complexity of a project, Dornan said. Raytheon's performance on a PC contract should not hurt its opportunities to win work in electronic systems and similar projects, he said.

Chip Mather, senior vice president of Acquisition Solutions Inc., Chantilly, Va., agreed that relevance is expected to be factored in, but "past performance has become such a big stick, it is being used in some cases inappropriately," he said.

Now that Raytheon has decided to keep the Data Products unit, SSG officials plan to push the company to actively market the Desktop V contract— a key revenue source for SSG, which is funded by industrial fees levied on contract purchases.

Raytheon may have a hard time initially meeting SSG's expectations, industry sources said, as morale at the Data Products division has dropped over the past two months, with key personnel pushed out the door or ready to leave.

"We fully expect Raytheon to fulfill their assurances to us, but in the event they don't, we have alternatives from an acquisition perspective as well," said Heitcamp. These alternatives would include using other contracts, establishing blanket purchase agreements based on the General Services Administration schedule or putting new contracts in place, he said.

Mather, who helped manage Desktop IV at SSG, believes Desktop V has been hurt by having only one prime contractor since the Air Force decided not to renew the contract of Zenith Data Systems Inc.

On Desktop IV, the two prime contractors— ZDS and Government Technology Services Inc.— competed with price discounts and technology refreshes, Mather said. "Competition is what kept both contractors successful," he said.