Contracting showdown

After some bickering among Defense Department and Army officials about an acquisition strategy for the complex General Fund Enterprise Business System (GFEBS) program, DOD officials have won.

Army officials had wanted to award a time-and-materials task order and pick a winner from a large pool of companies, but they failed to win with that strategy, industry officials said.

Instead, the Army will take bids from five vendors that already have blanket purchase agreements for enterprise resource planning (ERP) integration services. The BPAs were awarded last year under DOD’s Enterprise Software Initiative program.

Under the new acquisition plan, five companies will compete for a six-year, $850 million firm, fixed-price contract. The eligible contractors are Accenture, BearingPoint, Computer Sciences Corp., Deloitte Consulting and IBM.

Kevin Carroll, program executive officer in the service’s Program Executive Office for Enterprise Information Systems (PEO-EIS), said service and DOD officials reached an agreement in January on a new GFEBS acquisition strategy.

Carroll, the Army’s top business IT program official, characterized the discussion as a debate rather than an argument. “We wanted more control and flexibility,” he said.

Rex Bolton, chairman of the DOD Enterprise Software Initiative Working Group, said the protracted discussion concerned choosing the best acquisition strategy for updating the Army’s financial systems. “It was about using the right contracting tool for the job,” he said.

The Army will be buying commercial ERP software, systems integration services and application service provider support.

Bolton said the five companies are among the most capable and skilled in the industry in implementing ERP software. Collectively, the companies have completed and been evaluated on 18,000 such projects, he said.

However, some industry officials say ESI may not serve the Army well and could saddle the service with $11 million in fees for using the contract.

Other industry observers say that an economies-of-scale approach is the clear winner in this latest contracting showdown.

Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources, said the GFEBS contracting dilemma shows that DOD officials mean business when they ask people to use bulk-buy contracting vehicles.

“DOD is seriously enforcing the ESI and the potential for large economies of scale for the government,” he said.

No contract is perfect, and both firm, fixed-price and time-and-materials contracts have drawbacks, Bjorklund said. For example, vendors usually submit higher-cost proposals when they bid on firm, fixed-price deals for complex systems integration programs because they are accepting greater risk.

“Contractors will charge a higher premium,” he said. “Both types of contracts come with upsides and downsides.”

John Gilligan, the Air Force’s chief information officer, said that systems integration work accounts for 80 percent of back-office IT project costs. But he said the military and the government must do a better job of reining in costs and managing such programs.

Army officials announced GFEBS last spring and planned to award the contract last summer. But they did not issue a draft request for proposals until November 2004. Officials announced the change in acquisition strategy in February.

Service officials plan to issue a request for quotation for GFEBS as soon as possible. “We’re struggling to get it moving,” Carroll said, speaking last month at a PEO-EIS industry day event. He said the program has received a lot of scrutiny from service and DOD leaders because of its size, scope and dollar value.

Lt. Gen. Steve Boutelle, the Army’s chief information officer, described the program as an integration nightmare. “We need to get it right,” he said, adding that the service desperately needs a modern financial system to support its transformation to a rapidly deployable force.

Robert Guerra, a partner at Guerra, Kiviat, Flyzik and Associates, said Army officials need better money management servicewide. GFEBS will help them achieve that by fiscal 2007, he said.

Army officials have said they expect to manage GFEBS’ installation in an evolutionary fashion. They anticipate it being a system for sharing data across the service and potentially saving millions of dollars.

A phased approach will help achieve early project success and encourage the service’s finance employees to accept and use it, said John Argodale, deputy assistant secretary of the Army for financial operations, who spoke at last year’s PEO-EIS industry day event.