IBM awarded $149M for DoD systems integration, raising questions on value and competition

Contract Overview

Contract Amount: $149,226,157 ($149.2M)

Contractor: International Business Machines Corporation

Awarding Agency: Department of Defense

Start Date: 2007-06-11

End Date: 2012-09-30

Contract Duration: 1,938 days

Daily Burn Rate: $77.0K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: IT

Official Description: INCREMENT 1.1 AND 1.2 SYSTEMS INTEGRATION SUPPORT SERVICES

Place of Performance

Location: BETHESDA, MONTGOMERY County, MARYLAND, 20817

State: Maryland Government Spending

Plain-Language Summary

Department of Defense obligated $149.2 million to INTERNATIONAL BUSINESS MACHINES CORPORATION for work described as: INCREMENT 1.1 AND 1.2 SYSTEMS INTEGRATION SUPPORT SERVICES Key points: 1. Analysis suggests potential for overpayment given the contract's duration and cost-plus structure. 2. Limited competition may have inflated pricing, impacting overall value for taxpayer funds. 3. The contract's long duration and cost-plus nature present inherent cost escalation risks. 4. Performance context is limited, making it difficult to assess the true effectiveness of services rendered. 5. This contract falls within the broad IT and engineering services sector for the Department of Defense.

Value Assessment

Rating: questionable

The total award of over $149 million for systems integration support over five years warrants scrutiny. While specific performance metrics are not detailed, the Cost Plus Fixed Fee (CPFF) contract type, combined with a long duration, often leads to higher costs compared to fixed-price contracts. Benchmarking against similar IT integration contracts is challenging without detailed scope, but the sheer scale and duration suggest a need for rigorous oversight to ensure cost efficiency. The fixed fee component provides some incentive for the contractor to manage costs, but the cost-reimbursement aspect can dilute this.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders were theoretically allowed to participate. However, the number of actual bidders is not specified, which is crucial for assessing the robustness of the competition. A single award, even from a competitive process, can sometimes indicate a lack of sustained market interest or highly specialized requirements that limit the bidder pool. The effectiveness of the competition in driving down price and ensuring best value is therefore not fully ascertainable without more data on the bidding landscape.

Taxpayer Impact: Full and open competition is generally favorable for taxpayers as it aims to foster a competitive environment that can lead to better pricing and service quality. However, if the competition was nominal or resulted in only one viable offeror, the intended benefits may not have been fully realized, potentially leading to less optimal use of public funds.

Public Impact

The Department of Defense benefits from enhanced systems integration and support, crucial for its operational capabilities. Services delivered likely include software development, system maintenance, and technical support for complex defense IT infrastructure. The geographic impact is primarily within the Department of Defense's operational theaters and administrative centers, potentially worldwide. Workforce implications include the employment of IT professionals, engineers, and support staff by the prime contractor and potentially its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus contract type can lead to cost overruns if not managed tightly.
Long contract duration increases the risk of scope creep and evolving requirements not aligning with initial pricing.
Lack of specific performance metrics makes it hard to gauge true value for money.
Limited insight into the number of actual bidders despite 'full and open' competition.

Positive Signals

Awarded under full and open competition, suggesting an attempt to maximize bidder participation.
The fixed fee component in the CPFF structure provides some cost control incentive.
The contract supports critical defense systems integration, indicating a necessary function.

Sector Analysis

This contract falls within the broader Information Technology (IT) and Engineering Services sector, specifically supporting the Department of Defense's complex infrastructure needs. The market for defense IT services is substantial, characterized by long-term relationships, high security requirements, and significant government spending. Companies like IBM are major players in this space, offering a wide range of solutions from hardware and software to complex systems integration and cybersecurity. Comparable spending benchmarks are difficult without specific service details, but large-scale IT integration contracts for federal agencies often run into hundreds of millions of dollars over several years.

Small Business Impact

There is no indication from the provided data that this contract included specific small business set-asides. The prime contractor, IBM, is a large corporation, suggesting that any small business involvement would likely be through subcontracting. Analysis of subcontracting plans and actual performance would be necessary to determine the extent to which small businesses benefited from this award and contributed to its execution. Without this information, the direct impact on the small business ecosystem remains unclear.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Contract Management Agency (DCMA), responsible for ensuring contractor performance and compliance. The Cost Plus Fixed Fee structure necessitates close monitoring of costs incurred by the contractor to ensure they align with the contract scope and are reasonable. Transparency regarding performance metrics and cost breakdowns is crucial for effective oversight. Inspector General (IG) jurisdiction would apply if specific allegations of fraud, waste, or abuse arise during the contract's lifecycle.

Related Government Programs

Defense Information Technology Contracting Office (DITCO) contracts
Systems Integration and Engineering Services
Department of Defense IT Modernization Programs
Large-scale IT Support Services

Risk Flags

Cost-plus contract type may lead to higher costs than fixed-price alternatives.
Long contract duration increases risk of scope creep and cost escalation.
Limited transparency on the number of bidders in 'full and open' competition.
Potential for performance issues if not rigorously overseen due to CPFF structure.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $149.2 million to INTERNATIONAL BUSINESS MACHINES CORPORATION. INCREMENT 1.1 AND 1.2 SYSTEMS INTEGRATION SUPPORT SERVICES

Who is the contractor on this award?

The obligated recipient is INTERNATIONAL BUSINESS MACHINES CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $149.2 million.

What is the period of performance?

Start: 2007-06-11. End: 2012-09-30.

What was the specific scope of work for IBM's systems integration support services under this contract?

The provided data indicates the contract was for 'INCREMENT 1.1 AND 1.2 SYSTEMS INTEGRATION SUPPORT SERVICES' for the Department of Defense. While the specific scope is not detailed, systems integration typically involves combining different subsystems and components into a larger system, ensuring they function together as intended. This can encompass a wide range of activities, including software development, hardware integration, network configuration, testing, deployment, and ongoing maintenance and support. For a defense contract of this magnitude and duration, it likely involved complex IT infrastructure, potentially related to command and control, logistics, intelligence, or other critical defense functions. The 'INCREMENT 1.1 AND 1.2' suggests it was part of a larger, phased modernization or development effort.

How does the $149 million award compare to typical spending on similar IT integration contracts within the DoD?

The $149 million award for five years of systems integration support is substantial, aligning with the significant investments the Department of Defense makes in its IT infrastructure. Large-scale IT modernization and integration projects within the DoD frequently reach or exceed this figure. For instance, major enterprise resource planning (ERP) implementations, network upgrades, or the development of new command and control systems can cost hundreds of millions, sometimes billions, over their lifecycle. While this specific contract's value is high, it is not necessarily an outlier within the context of major defense IT procurements, especially considering the complexity and critical nature of defense systems. However, without detailed scope comparison, a precise benchmark is difficult.

What are the primary risks associated with a Cost Plus Fixed Fee (CPFF) contract of this duration?

The primary risks associated with a CPFF contract of this duration (over 5 years) include potential cost overruns and reduced contractor efficiency. In a CPFF structure, the contractor is reimbursed for allowable costs plus a fixed fee representing profit. While the fixed fee provides some incentive for cost control, the reimbursement of costs means the contractor has less financial risk if costs escalate. Over a long period, requirements can change (scope creep), and if not managed meticulously, these changes can lead to increased costs that are passed on to the government. Furthermore, the contractor may have less incentive to innovate or find efficiencies if their profit is guaranteed regardless of cost savings. Rigorous oversight and change management are critical to mitigate these risks.

What does the 'full and open competition' designation imply about the bidding process and potential for price discovery?

The 'full and open competition' designation implies that the solicitation was made available to all responsible prospective contractors without restriction. This is the preferred method of procurement under federal law, designed to maximize competition and achieve the best value for the government. It suggests that the agency sought to encourage a broad range of bidders. However, the designation alone does not guarantee robust competition. The actual number of proposals received, the qualifications of the offerors, and the evaluation criteria all play a role in determining the effectiveness of the competition. If only a few bids were received, or if the requirements were so specialized that only one or two companies could realistically compete, the price discovery benefits of full and open competition might be limited.

How does the PSC/NAICS code '541330' (Engineering Services) relate to the contract's description as 'Systems Integration Support Services'?

The PSC (Product Service Code) and NAICS (North American Industry Classification System) code '541330' for Engineering Services is a broad classification that encompasses a wide range of activities, including the design, development, and integration of complex systems. Systems integration, particularly for large-scale IT or defense projects, inherently involves significant engineering effort. This includes architectural design, requirements analysis, component selection, interface development, testing, and ensuring the overall system meets performance specifications. Therefore, classifying this contract under Engineering Services is appropriate, as the systems integration work requires substantial engineering expertise to ensure the successful combination and functioning of various technological components into a cohesive and effective whole.

What is the significance of the contract being an 'AW' (Delivery Order) under a larger contract vehicle?

The designation 'AW' likely refers to a Delivery Order or Task Order issued against a larger, pre-existing contract vehicle, such as a Multiple Award Indefinite Delivery/Indefinite Quantity (IDIQ) contract or a Government-Wide Acquisition Contract (GWAC). This means that the $149 million is the total value awarded for this specific order, but it is part of a broader contract that may have been competed earlier and allows for subsequent orders to be placed as needed. Issuing Delivery Orders allows agencies to procure services or supplies incrementally, providing flexibility and potentially faster acquisition compared to initiating a new full-scale procurement for each requirement. The initial competition for the parent contract vehicle would have established the terms, conditions, and potentially pricing structures under which this delivery order was issued.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Architectural, Engineering, and Related Services › Engineering Services

Product/Service Code: IT AND TELECOM - INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS › ADP AND TELECOMMUNICATIONS

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Solicitation ID: N0002407R3030

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 6710 ROCKLEDGE DR, BETHESDA, MD, 20817

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $754,114,928

Exercised Options: $292,891,514

Current Obligation: $149,226,157

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: N0017805D4364

IDV Type: IDC

Timeline