HHS's $38.9M accounting services contract awarded to IBM raises questions about competition and value

Contract Overview

Contract Amount: $38,905,219 ($38.9M)

Contractor: International Business Machines Corporation

Awarding Agency: Department of Health and Human Services

Start Date: 2006-03-25

End Date: 2008-12-20

Contract Duration: 1,001 days

Daily Burn Rate: $38.9K/day

Competition Type: NOT AVAILABLE FOR COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS AWARD FEE

Sector: Other

Official Description: ACCOUNTING SERVICES

Place of Performance

Location: LINTHICUM HEIGHTS, ANNE ARUNDEL County, MARYLAND, 21090

State: Maryland Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $38.9 million to INTERNATIONAL BUSINESS MACHINES CORPORATION for work described as: ACCOUNTING SERVICES Key points: 1. The contract's value of $38.9 million for accounting services warrants scrutiny regarding its efficiency. 2. Awarded to a single, large vendor, the lack of open competition may have inflated costs. 3. The 'NOT AVAILABLE FOR COMPETITION' status is a significant risk indicator for price discovery. 4. Performance context is limited due to the nature of accounting services, making direct comparisons difficult. 5. This contract falls within the administrative and financial services sector for the Centers for Medicare and Medicaid Services. 6. The absence of small business participation is noted, with no set-aside or subcontracting requirements indicated.

Value Assessment

Rating: questionable

Benchmarking the value of this $38.9 million accounting services contract is challenging without more specific performance metrics or comparable contracts. The Cost Plus Award Fee (CPA) structure can incentivize performance but also carries a risk of cost overruns if not tightly managed. Given the lack of competition, it's difficult to assess if the pricing reflects market rates or if a more competitive process could have yielded better value for the Centers for Medicare and Medicaid Services.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded under a 'NOT AVAILABLE FOR COMPETITION' status, indicating that only one vendor, International Business Machines Corporation (IBM), was considered. This severely limits the opportunity for price discovery and potentially leads to higher costs for the government. The rationale for this sole-source award is not provided, which is a concern for transparency and ensuring the government is not missing out on better offers.

Taxpayer Impact: Taxpayers may have paid a premium due to the absence of competitive bidding. The lack of transparency in the sole-source justification means it's hard to confirm if this was the most cost-effective approach.

Public Impact

The Centers for Medicare and Medicaid Services (CMS) benefits from accounting services to manage its financial operations. These services are crucial for the accurate processing of financial transactions and maintaining fiscal integrity within a major health agency. The contract's impact is primarily internal to CMS operations, supporting its administrative functions. While not directly impacting the public's healthcare services, efficient financial management by CMS indirectly supports program stability.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competitive bidding raises concerns about potential overpayment.
Sole-source award limits transparency and accountability in pricing.
Cost Plus Award Fee structure requires diligent oversight to control costs.
Absence of small business involvement may limit broader economic participation.

Positive Signals

Awarded to a well-established contractor (IBM) with extensive experience.
Contract duration of 1001 days suggests a need for continuity in services.
Services provided are essential for the functioning of a critical government agency.

Sector Analysis

This contract falls within the professional, scientific, and technical services sector, specifically focusing on accounting and financial services. The federal government spends billions annually on such services to support its vast operations. Contracts like this are essential for agencies like CMS to manage complex financial landscapes. Comparable spending benchmarks for accounting services can vary widely based on scope, complexity, and the specific agency's needs.

Small Business Impact

This contract does not appear to have a small business set-aside, nor is there information indicating subcontracting opportunities for small businesses. The award to a large corporation like IBM suggests that small businesses were not actively sought or considered for this particular requirement. This limits the potential for small business growth and participation in federal contracting for these types of specialized services.

Oversight & Accountability

Oversight mechanisms for this contract would typically involve the contracting officer's representative (COR) at CMS, responsible for monitoring performance and ensuring compliance with the contract terms. The Cost Plus Award Fee structure implies performance metrics that are evaluated to determine award fees, suggesting a degree of accountability. However, the transparency of this oversight and the specific accountability measures are not detailed in the provided data.

Related Government Programs

Federal Accounting Services
Financial Management Support
Administrative Support Services
Centers for Medicare and Medicaid Services Contracts
Information Technology Services (if applicable to accounting systems)

Risk Flags

Sole-source award lacks competition.
Potential for cost overruns due to CPAF structure.
Lack of transparency in award justification.
No indication of small business participation.

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $38.9 million to INTERNATIONAL BUSINESS MACHINES CORPORATION. ACCOUNTING 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 Health and Human Services (Centers for Medicare and Medicaid Services).

What is the total obligated amount?

The obligated amount is $38.9 million.

What is the period of performance?

Start: 2006-03-25. End: 2008-12-20.

What was the specific justification for awarding this contract on a sole-source basis to IBM?

The provided data indicates the contract was 'NOT AVAILABLE FOR COMPETITION,' which is a designation for sole-source awards. The specific justification for this designation is not included in the data. Typically, sole-source awards are justified when only one responsible source can provide the required supplies or services, such as in cases of urgent and compelling need, unique capabilities, or when a specific brand-name item is required. Without the official justification document, it is impossible to determine the precise reasons why IBM was the only considered vendor for these accounting services.

How does the Cost Plus Award Fee (CPAF) structure compare to other contract types for similar accounting services?

The Cost Plus Award Fee (CPAF) structure is a type of cost-reimbursement contract where the contractor is reimbursed for allowable costs plus a fee that consists of a fixed base amount and an award amount. The award amount is based on the contractor meeting or exceeding certain performance objectives. Compared to Firm-Fixed-Price (FFP) contracts, CPAF offers more flexibility for the government when requirements are not well-defined or are expected to change, but it carries a higher risk of cost growth. For accounting services, FFP might be suitable if the scope is very clearly defined, while CPAF could be used if performance quality and efficiency are key differentiators and difficult to pre-define precisely.

What are the potential risks associated with a sole-source award for accounting services?

The primary risks associated with a sole-source award for accounting services include a lack of price competition, which can lead to higher costs for the government than might be achieved through a competitive bidding process. There's also a reduced incentive for the contractor to innovate or become more efficient, as they face no direct competition. Furthermore, sole-source awards can raise concerns about fairness and transparency, potentially leading to perceptions of favoritism or missed opportunities to engage with a broader range of capable vendors, including small businesses.

Can the performance of IBM on this contract be benchmarked against other federal accounting service contracts?

Benchmarking IBM's performance on this specific contract is difficult without detailed performance metrics and award fee determinations. The data provided does not include information on whether IBM met or exceeded performance targets, nor does it offer insights into the quality or efficiency of the accounting services delivered. To benchmark effectively, one would need access to performance reports, customer satisfaction surveys, and potentially compare the contract's cost per unit of service (if definable) against similar contracts awarded to other vendors or even IBM on different projects.

What is the historical spending trend for accounting services by the Centers for Medicare and Medicaid Services?

The provided data only pertains to a single contract awarded in 2006. To understand historical spending trends for accounting services by CMS, a broader analysis of their procurement history would be necessary. This would involve examining contract databases over multiple fiscal years to identify the total amount spent on accounting and related financial services, the types of contracts used (e.g., competitive vs. sole-source), the primary contractors, and the evolution of spending patterns in response to agency needs and budget allocations.

What is the significance of the PSC code (522320) and NAICS code (Financial Transactions Processing, Reserve, and Clearinghouse Activities) for this contract?

The Product Service Code (PSC) 522320 typically relates to 'Accounting and Auditing Services.' The North American Industry Classification System (NAICS) code, 'Financial Transactions Processing, Reserve, and Clearinghouse Activities' (though often associated with specific financial institutions), in this context, likely points to the broader financial operations that the accounting services support. These codes help categorize the contract within federal procurement systems, allowing for analysis of spending patterns and identification of relevant industries and services. For this contract, they confirm the focus on financial management and processing support within the agency.

Industry Classification

NAICS: Finance and Insurance › Activities Related to Credit Intermediation › Financial Transactions Processing, Reserve, and Clearinghouse Activities

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › MANAGEMENT SUPPORT SERVICES

Competition & Pricing

Extent Competed: NOT AVAILABLE FOR COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 1

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Address: 6710 ROCKLEDGE DR, BETHESDA, MD, 08

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $41,084,988

Exercised Options: $41,084,988

Current Obligation: $38,905,219

Contract Characteristics

Multi-Year Contract: Yes

Parent Contract

Parent Award PIID: 500030014

IDV Type: IDC

Timeline