What does DOD's Microsoft deal mean for federal IT?

The Defense Department and Microsoft have heralded their recently announced, $617 million joint enterprise licensing agreement as a game-changer in military IT. Like multiyear enterprise licensing agreements made by the individual military services in the past, the deal aims to offer more effective, efficient and agencywide access to Microsoft products. This time around, the agreement involves multiple components and was reached in an era of fiscal pressure.

The JELA, as Pentagon officials are calling it, reflects the increasing focus on enterprise IT and ongoing budget worries, officials say. But what does it mean for the way DOD leaders buy technology and for the broader federal IT market?

According to DOD officials, the agreement is more than a run-of-the-mill government IT buy. "Shrinking budgets, a determined cyber threat and a need for enhanced information security [have] resulted in a concerted push to the establishment and use of the DOD-wide enterprise," said Air Force Lt. Col. Damien Pickart, a DOD spokesman. "This Microsoft joint licensing agreement offers a great example of DOD refining its acquisition processes to achieve the most benefit from each dollar it spends."

The three-year deal involves many of today's buzzwords -- security, information-sharing, cloud, mobility -- and DOD leaders tout the way it complements the much-discussed Joint Information Environment. Officials say that although the deal focuses on current IT trends, it is structured to adapt to rapidly evolving technology and applications.

"In the overarching conversations we had in dialogue, we recognized that we can't just solve for this point in time, we have to solve for [an] unknown future," said Tim Solms, general manager of Microsoft's DOD business. "We have to look at what's available right now and make secondary- and tertiary-level effects not only cost-effective but also natural building blocks to where we're going."

Some say that forward-looking flexibility has been missing in previous agreements and is one reason why this deal could be representative of a new way of doing business in defense IT and the broader federal space.

"We're seeing bits and pieces of this mind-set of getting the best value and best price," said Deltek federal IT analyst John Slye. "We've seen that in strategic sourcing, shared services, even with places like [the Department of Homeland Security] with their push toward offering IT as a service. Agencies are looking for ways to really drive efficiency. At DHS, they don't even want to own the infrastructure anymore; they want to rent it as a service from providers. So if something becomes obsolete, they don't have to buy or upgrade. They can say, 'You're contracted to provide this network or server or software, so it's your job to upgrade it as part of our service-level agreement.'"

According to officials, that is exactly what the JELA is supposed to do: accommodate DOD's evolving use of the suite of Microsoft products as military organizations upgrade software, operating systems and platforms for collaboration and information sharing. In the past, steady-state agreements have not necessarily allowed for that, sources said.

"At DOD, there are disparate levels of software solutions," Solms said. "Some are running Office 2007, some 2013. On the collaboration and social side, it diversifies even more. We had to look at the most relevant and cost-effective solutions we can bring under a single contract that would allow savings and innovation ... while still leaving options for unique, a la carte solutions as part of the overall enterprise deal. We made a large commitment to DOD, but we're also able to allow for next-generation technology to be written into the contract as it becomes available, certified and meets the security requirements on the network."

Although on the surface, the agreement -- combined with the promised hundreds of millions of dollars in savings -- seems like a dream for agencies encumbered by binding contracts, red tape and tight budgets. But given the logistics involved, it might not be that simple, some experts say.

For one thing, there is the transition of at least some of the roughly 2 million users under the contract, which could involve added labor and will definitely require time to upgrade devices spread throughout the world. The contract also calls for data center consolidation and migration of services to cloud solutions that are not yet in place. In the world of government IT, three years might not be long enough to cover all those changes.

"Everyone throws around these buzzwords, but drilling down on all the products on the list, are they all cloud and data center-type products? And when will they be used?" said one former Pentagon IT official who spoke on background. "The big move to data centers isn't under way yet, and this is a three-year license. It could be premature."

There are also questions about whether the savings. The source pointed out that previous Army licensing agreements with Microsoft were valued at about $80 million per year. When combined with the Defense Information Systems Agency and the Air Force, is roughly $200 million per year a good deal?

"Just adding up the numbers, it's worth asking if it's really a great deal leveraging DOD buying power across the different agencies or if each of the services could have gotten this good of a deal or better on their own," the source said.

DOD officials are quick to point out the projected savings: 10 percent over the life of the three-year agreement, and $70 million and $50 million per year specifically for the Army and Air Force, respectively, Pickart said. Still, although dollar figures are under particular scrutiny now, it might be more than a numbers game.

"The real question comes down to efficiency and getting what you need -- but not more than you need -- and maximizing the value of that in the life cycle," Slye said. "The question is whether that $200 million [per year] is spent effectively and efficiently over the span of the contract. Not just is it the right number, but is it applied appropriately?"

How that shakes out could affect more than just the Pentagon. Although enterprise licensing agreements are not new, the renewed focus on their use is growing with the push to save money, and the DOD/Microsoft deal represents part of a broader market shift. It could also spur action, Slye said.

"It's a maturing [trend] that started a few years ago," he said. "The overall move toward enterprise licensing agreements and consolidation is a game-changer. Usually you're taking multiple steps to get to the end goal, and [the JELA] is one of those. The question is whether other federal agencies will be able to take a look at what DOD has done and come together to learn from it. Other agencies that may have similar or related missions could band together. It might be different or separate from DOD but similar in large scale, large volume. This could definitely go broader."