DoD's $30M Microsoft Product Engineering Services contract awarded to Microsoft Corporation with no competition

Contract Overview

Contract Amount: $30,002,205 ($30.0M)

Contractor: Microsoft Corporation

Awarding Agency: Department of Defense

Start Date: 2020-09-28

End Date: 2021-09-28

Contract Duration: 365 days

Daily Burn Rate: $82.2K/day

Competition Type: NOT COMPETED

Pricing Type: FIRM FIXED PRICE

Sector: IT

Official Description: MS PRODUCT ENGINEERING SERVICES (MPES)

Place of Performance

Location: REDMOND, KING County, WASHINGTON, 98052

State: Washington Government Spending

Plain-Language Summary

Department of Defense obligated $30.0 million to MICROSOFT CORPORATION for work described as: MS PRODUCT ENGINEERING SERVICES (MPES) Key points: 1. Contract awarded on a sole-source basis, raising questions about potential overpayment and lack of market-driven pricing. 2. The fixed-price contract structure may offer some cost certainty, but the absence of competition limits upside for taxpayers. 3. Performance period of one year suggests a tactical need rather than a long-term strategic investment. 4. The contract falls under custom computer programming services, a broad category with varying market rates. 5. No small business set-aside was applied, indicating a focus on large prime contractors. 6. The award was a delivery order, implying it was part of a larger, pre-existing agreement or contract vehicle.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging without knowing the specific services rendered. However, awarding a $30 million contract on a sole-source basis to a single vendor, even a dominant one like Microsoft, inherently limits the government's ability to secure the best possible price. Without competitive bids, there's a reduced incentive for the contractor to offer deeply discounted rates. The fixed-price nature provides some predictability, but the lack of competition means the government might be paying a premium compared to what could be achieved in a more open market.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning the Department of Defense did not solicit bids from multiple vendors. This approach is typically justified under specific circumstances, such as when only one vendor possesses the necessary capabilities or when urgency precludes a competitive process. The absence of competition means that pricing was likely negotiated directly with Microsoft, without the downward pressure that multiple bids would typically exert. This limits the government's ability to discover the most cost-effective solution.

Taxpayer Impact: Sole-source awards can lead to higher costs for taxpayers as the government foregoes the benefits of competitive bidding, potentially paying more than necessary for the services received.

Public Impact

The primary beneficiary is the Department of Defense, which receives custom computer programming services for its product engineering needs. Services delivered likely include software development, customization, integration, and support for Microsoft products used by the Navy. The geographic impact is centered in Washington, where the contract was awarded, suggesting proximity to Navy operations or contractor facilities. Workforce implications may involve specialized IT professionals employed by Microsoft to fulfill the contract requirements.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potentially increases costs for taxpayers.
Lack of competition may reduce incentives for the contractor to innovate or offer cost-saving measures.
Contract duration of one year might indicate a reactive approach rather than proactive strategic planning.
Absence of small business participation could limit opportunities for smaller, specialized firms in the IT sector.

Positive Signals

Fixed-price contract provides cost certainty for the government, assuming the scope is well-defined.
Award to a major vendor like Microsoft suggests access to specialized expertise and established product lines.
Delivery order format implies it might be part of a broader, established relationship or framework agreement.

Sector Analysis

This contract falls within the Custom Computer Programming Services sector (NAICS 541511), a significant segment of the IT industry focused on developing and implementing tailored software solutions. The market is characterized by a mix of large enterprise providers and specialized smaller firms. Spending in this area by defense agencies is substantial, often driven by the need for unique capabilities or integration with existing complex systems. Benchmarks for custom programming can vary widely based on complexity, required expertise, and vendor market position.

Small Business Impact

This contract was not set aside for small businesses, nor does it indicate any subcontracting requirements for small businesses. The award to Microsoft Corporation, a large technology company, suggests a focus on prime contracting with major vendors. This approach may limit opportunities for small businesses to participate directly in delivering these specific engineering services, although they might be involved further down the supply chain or in other contract vehicles.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of the Navy's contracting and program management offices. As a sole-source award, scrutiny might be higher to ensure the price is fair and reasonable. Transparency is limited due to the lack of public competition details. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Information Technology Professional Services
Software Development Services
Custom Computer Programming
Department of Defense IT Contracts
Microsoft Government Contracts

Risk Flags

Sole-source award
Lack of competition
Potential for cost overruns
Limited transparency

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $30.0 million to MICROSOFT CORPORATION. MS PRODUCT ENGINEERING SERVICES (MPES)

Who is the contractor on this award?

The obligated recipient is MICROSOFT CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Navy).

What is the total obligated amount?

The obligated amount is $30.0 million.

What is the period of performance?

Start: 2020-09-28. End: 2021-09-28.

What specific product engineering services were procured under this contract?

The provided data indicates the contract was for 'MS PRODUCT ENGINEERING SERVICES (MPES)' awarded to Microsoft Corporation. While the specific services are not detailed, 'Product Engineering Services' typically encompass activities such as software design, development, testing, integration, maintenance, and support for Microsoft products. Given the award to Microsoft, these services likely relate to customizing, enhancing, or ensuring the optimal performance of Microsoft software solutions within the Department of Defense's operational environment. This could include anything from developing custom applications on the Azure platform to engineering specific features for Windows or Office 365 deployments tailored to military requirements.

How does the $30 million value compare to similar custom computer programming contracts within the DoD?

Comparing the $30 million value requires context on the scope and duration. For a one-year contract, $30 million is a substantial sum for custom programming services, suggesting a significant scope of work or highly specialized expertise required. The DoD procures a vast array of IT services, and while many contracts are larger, this amount for a single-year, sole-source engagement is notable. Without knowing the specific deliverables, it's hard to benchmark precisely, but such awards often involve complex system integrations, critical software development, or extensive support for enterprise-level solutions. The lack of competition, however, makes direct value-for-money comparisons difficult, as a competitive process might have yielded lower prices.

What are the primary risks associated with a sole-source award of this magnitude?

The primary risk associated with a sole-source award of this magnitude is the potential for inflated costs due to the absence of competitive pressure. The government may overpay for services because there was no opportunity to solicit and compare bids from multiple vendors, which typically drives down prices and encourages efficiency. Another risk is vendor lock-in, where the government becomes overly reliant on a single provider, potentially limiting future flexibility and innovation. Furthermore, without competition, there's less incentive for the contractor to proactively identify cost-saving opportunities or to deliver services beyond the minimum contractual requirements. Ensuring the 'fair and reasonableness' of the price becomes a critical oversight function.

What does the 'Delivery Order' (AW) designation imply about this contract?

The 'Delivery Order' (AW) designation suggests that this contract was likely issued under a pre-existing indefinite-delivery, indefinite-quantity (IDIQ) contract or a similar type of contract vehicle. IDIQ contracts allow agencies to order goods or services over a period of time up to a certain maximum value. A delivery order represents a specific task or quantity of work issued against that larger contract. This implies that the initial contract vehicle itself may have undergone some form of competition or justification, but this specific order was placed without a new, separate competition. It could also mean it's a task order against a basic ordering agreement (BOA).

What is the significance of the contract being 'FIRM FIXED PRICE' (PT)?

A 'FIRM FIXED PRICE' (FFP) contract type means the price is set and not subject to adjustment based on the contractor's cost experience. This shifts most of the risk to the contractor, as they are obligated to complete the work for the agreed-upon price, regardless of their actual costs. For the government, FFP provides cost certainty, making budgeting more predictable. However, in a sole-source situation, the 'firm' price is determined through negotiation, and the lack of competition means this negotiated price might be higher than it would be in a competitive FFP environment. The contractor has a strong incentive to control costs to maximize profit.

What is the track record of Microsoft Corporation as a federal contractor, particularly with the DoD?

Microsoft Corporation is a long-standing and significant federal contractor, with extensive experience serving various government agencies, including the Department of Defense. They provide a wide range of products and services, from software licenses (like Windows and Office) to cloud computing (Azure Government) and complex engineering and support services. Their track record includes numerous large-scale deployments and ongoing support contracts. While generally considered a reliable provider of technology solutions, like any large contractor, they have been involved in contracts that have faced scrutiny regarding pricing, scope, or performance. Their deep integration with DoD systems and reliance by military personnel make them a critical, albeit sometimes costly, partner.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Computer Systems Design and Related Services › Custom Computer Programming Services

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

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 1 MICROSOFT WAY, REDMOND, WA, 98052

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Manufacturer of Goods, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $30,002,205

Exercised Options: $30,002,205

Current Obligation: $30,002,205

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: N6600119D0019

IDV Type: IDC

Timeline