IBM's $104M contract for application services shows limited competition and fair value

Contract Overview

Contract Amount: $104,424,506 ($104.4M)

Contractor: International Business Machines Corporation

Awarding Agency: Department of Health and Human Services

Start Date: 2008-07-01

End Date: 2013-02-28

Contract Duration: 1,703 days

Daily Burn Rate: $61.3K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: IT

Official Description: APPLICATION SERVICE PROVIDERS (ASP)

Place of Performance

Location: BETHESDA, MONTGOMERY County, MARYLAND, 20817

State: Maryland Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $104.4 million to INTERNATIONAL BUSINESS MACHINES CORPORATION for work described as: APPLICATION SERVICE PROVIDERS (ASP) Key points: 1. Contract awarded to a single, large vendor, indicating potential for reduced price competition. 2. Pricing appears reasonable when benchmarked against similar IT service contracts. 3. The contract duration and value suggest a significant, long-term engagement. 4. Performance context is limited due to the nature of application service provision. 5. This contract falls within the broader IT services sector, specifically application support. 6. Oversight mechanisms are standard for a contract of this type and duration.

Value Assessment

Rating: fair

The contract's value of $104.4 million over approximately 4.5 years suggests an average annual spend of around $23.2 million. Benchmarking against similar large-scale IT application service contracts, this pricing appears within a reasonable range, though a lack of competitive bids limits a definitive assessment of optimal value. The firm-fixed-price structure provides cost certainty for the government.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning there was no open competition. This approach is often used when a specific vendor possesses unique capabilities or when transitioning between systems is prohibitively complex and costly. The lack of competition means the government did not benefit from multiple bids to drive down prices or explore alternative solutions.

Taxpayer Impact: Sole-source awards can lead to higher costs for taxpayers as the government may not secure the most competitive pricing available in the market.

Public Impact

Beneficiaries include the Centers for Medicare and Medicaid Services (CMS) and potentially healthcare providers and beneficiaries who rely on the underlying applications. Services delivered likely involve the maintenance, support, and potential enhancement of critical healthcare IT applications. Geographic impact is national, supporting federal healthcare operations. Workforce implications may involve specialized IT professionals within IBM supporting CMS systems.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Long-term nature of the contract may reduce flexibility for future technology adoption.
Reliance on a single vendor for critical application services poses a potential risk if performance falters.

Positive Signals

IBM is a well-established IT services provider with extensive experience.
Firm-fixed-price contract provides budget certainty.
Contract duration suggests a stable, ongoing need for these services.

Sector Analysis

This contract falls within the broader IT services sector, specifically focusing on application service providers (ASP). The market for such services is substantial, with numerous large and small companies offering a range of support, maintenance, and development capabilities. Comparable spending benchmarks for large federal IT service contracts often run into tens or hundreds of millions of dollars, reflecting the complexity and scale of government IT needs.

Small Business Impact

This contract does not appear to have a small business set-aside component, nor is there information suggesting significant subcontracting opportunities for small businesses. The award to a large prime contractor like IBM typically means the primary work is performed by the prime or its large subcontractors, potentially limiting direct opportunities for the small business ecosystem in this specific procurement.

Oversight & Accountability

Oversight for this contract would typically be managed by the contracting officer's representative (COR) at CMS, responsible for monitoring performance, ensuring compliance with contract terms, and approving invoices. Standard reporting requirements and performance reviews would be in place. Transparency is generally maintained through contract databases, though specific performance metrics are often internal.

Related Government Programs

Healthcare IT Services
Application Maintenance and Support
Federal Civilian IT Contracts
Centers for Medicare and Medicaid Services IT Spending

Risk Flags

Sole-source award
Lack of competition
Potential for cost overruns
Vendor lock-in risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $104.4 million to INTERNATIONAL BUSINESS MACHINES CORPORATION. APPLICATION SERVICE PROVIDERS (ASP)

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 $104.4 million.

What is the period of performance?

Start: 2008-07-01. End: 2013-02-28.

What is the track record of International Business Machines Corporation (IBM) in providing application services to the federal government, particularly within the Department of Health and Human Servic

IBM has a long and extensive history of providing a wide array of IT services, including application development, maintenance, and support, to numerous federal agencies. Within the Department of Health and Human Services (HHS), IBM has been a significant contractor for many years, supporting critical systems for agencies like the Centers for Medicare and Medicaid Services (CMS). Their track record generally includes large-scale system integrations, modernization efforts, and ongoing operational support. While specific performance details for individual contracts are often not publicly detailed, IBM's sustained presence indicates a capacity to meet the complex requirements of federal healthcare IT. However, like any large contractor, they have faced scrutiny on specific projects regarding cost, schedule, and performance, necessitating robust government oversight.

How does the pricing of this $104.4 million contract compare to similar federal IT application service contracts awarded around the same period (2008-2013)?

Benchmarking this $104.4 million contract, awarded between 2008 and 2013, against similar federal IT application service contracts requires considering the scope, duration, and specific services. Contracts of this magnitude for large-scale application support and maintenance, especially within complex environments like CMS, were common during that era. The firm-fixed-price (FFP) structure provided cost certainty. While a precise apples-to-apples comparison is difficult without detailed service level agreements and specific deliverables, the average annual value of approximately $23.2 million falls within the expected range for major federal IT service engagements. The lack of competition, however, means it's harder to ascertain if this represented the most cost-effective option available compared to a competitively bid contract.

What are the primary risks associated with a sole-source award for critical application services, and how might they be mitigated?

The primary risks associated with a sole-source award for critical application services include potentially higher costs due to the absence of competitive pressure, reduced innovation as the incumbent vendor may have less incentive to propose new solutions, and vendor lock-in, making it difficult and expensive to switch providers later. Mitigation strategies employed by the government can include rigorous negotiation of terms and pricing, establishing clear performance metrics and service level agreements (SLAs) with penalties for non-performance, conducting regular market research to understand alternative solutions, and planning for future competition or transition well in advance. Strong contract management and oversight by the government are crucial to ensure the vendor remains accountable and delivers value.

What was the historical spending pattern for application services by the Centers for Medicare and Medicaid Services (CMS) in the years leading up to and during this contract period?

Leading up to and during the 2008-2013 period, CMS consistently represented a significant portion of HHS's IT spending. The agency manages some of the nation's largest and most complex IT systems, including those for Medicare and Medicaid. Spending on application services, encompassing development, maintenance, modernization, and support, was substantial and growing, driven by factors like the need to comply with new regulations, improve data analytics, enhance user interfaces, and ensure system security and reliability. Contracts for application services often constituted a large segment of CMS's overall IT budget, reflecting the critical nature of these systems to healthcare delivery and administration nationwide. This IBM contract aligns with that broader trend of significant investment in application services by CMS.

How does the 'Financial Transactions Processing, Reserve, and Clearinghouse Activities' (NAICS 522320) classification relate to the application services provided under this contract?

The NAICS code 522320, 'Financial Transactions Processing, Reserve, and Clearinghouse Activities,' appears somewhat tangential to the primary description of 'Application Service Providers (ASP)' for which the contract was awarded. Typically, ASP contracts focus on the delivery, management, and support of software applications. NAICS 522320 relates more directly to the financial sector's back-office operations, such as processing payments, managing reserves, and facilitating interbank clearing. It's possible that the applications supported under this contract have functionalities related to financial transactions processing within the healthcare domain (e.g., claims processing, payment systems for Medicare/Medicaid), thus linking the service provision to this financial NAICS code. However, the core service is IT application provision, not direct financial transaction processing itself.

Industry Classification

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

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

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

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: $104,424,506

Exercised Options: $104,424,506

Current Obligation: $104,424,506

Parent Contract

Parent Award PIID: 500030014

IDV Type: IDC

Timeline