State Department's $34.7M Microsoft contract for custom programming services raises value and competition concerns

Contract Overview

Contract Amount: $34,732,934 ($34.7M)

Contractor: Microsoft Corporation

Awarding Agency: Department of State

Start Date: 2013-09-30

End Date: 2017-09-30

Contract Duration: 1,461 days

Daily Burn Rate: $23.8K/day

Competition Type: NOT COMPETED

Pricing Type: FIRM FIXED PRICE

Sector: IT

Official Description: IGF::OT::IGF CUSTOM PROGRAMMING

Place of Performance

Location: ARLINGTON, ARLINGTON County, VIRGINIA, 22205

State: Virginia Government Spending

Plain-Language Summary

Department of State obligated $34.7 million to MICROSOFT CORPORATION for work described as: IGF::OT::IGF CUSTOM PROGRAMMING Key points: 1. The contract's value appears high given the duration and lack of competitive bidding. 2. Sole-source procurement limits price discovery and potentially inflates costs. 3. The absence of a competitive process is a significant risk indicator. 4. Performance context is limited due to the sole-source nature. 5. This contract falls within the IT services sector, specifically custom programming. 6. The fixed-price nature offers some cost certainty, but the base price is unbenchmarked.

Value Assessment

Rating: questionable

The contract's total value of $34.7 million over four years for custom programming services from Microsoft raises questions about value for money. Without competitive bidding, it is difficult to benchmark the pricing against market rates or similar government contracts. The sole-source award to a large, established vendor like Microsoft may not have resulted in the most cost-effective solution for the government. Further analysis would be needed to compare the delivered services and their cost to industry standards for custom software development.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one vendor, Microsoft Corporation, was solicited. This approach bypasses the standard competitive procurement process, which typically involves soliciting bids from multiple qualified vendors. The lack of competition means there was no opportunity for other companies to offer their services or for the government to negotiate based on multiple proposals. This significantly limits price discovery and may lead to higher costs than if the contract had been competed.

Taxpayer Impact: Sole-source awards can mean taxpayers do not receive the best possible price for goods and services. The absence of competition prevents the government from leveraging market forces to drive down costs, potentially resulting in a less efficient use of taxpayer funds.

Public Impact

The primary beneficiary of this contract is the Department of State, which receives custom programming services. These services are crucial for the department's internal operations and potentially for its mission-critical systems. The geographic impact is primarily within Virginia, where the contract is managed or services are delivered. The contract supports the workforce within Microsoft Corporation, likely involving software developers and project managers.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to inflated costs for taxpayers.
Sole-source awards can reduce transparency and accountability in government spending.
Reliance on a single vendor for critical services poses a potential risk if that vendor's performance falters or pricing changes unfavorably.
The duration of the contract (4 years) without re-competition limits future opportunities for cost savings or service improvements.

Positive Signals

The contract is with a well-established technology provider, Microsoft Corporation, which may imply a certain level of reliability and expertise.
The firm fixed-price contract type provides cost certainty for the government, assuming the scope of work remains stable.
The contract is managed by the Department of State, a major federal agency with established procurement oversight processes.

Sector Analysis

This contract falls within the Information Technology (IT) sector, specifically under the category of Custom Computer Programming Services (NAICS code 541511). This sector is characterized by high demand for specialized software development to meet unique organizational needs. The market for custom IT services is vast, with numerous providers ranging from large corporations like Microsoft to smaller, specialized firms. Government spending in this area is substantial, driven by the need to modernize legacy systems, develop new applications, and maintain complex IT infrastructures. Benchmarking this contract's value is challenging without competitive data, but IT services represent a significant portion of federal IT budgets.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Furthermore, the award was made to Microsoft Corporation, a large business. There is no explicit information regarding subcontracting plans for small businesses. This sole-source award to a large prime contractor limits opportunities for small businesses to participate directly in this specific contract, potentially impacting the small business ecosystem if similar large, sole-source awards are prevalent.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of State's contracting officers and program managers. As a sole-source award, the justification for not competing the contract would be subject to review. Transparency is limited due to the lack of a competitive bidding process. Inspector General jurisdiction would apply if any issues of fraud, waste, or abuse arise during the contract's performance. The fixed-price nature of the contract provides some level of financial oversight, but the initial pricing is unverified through competition.

Related Government Programs

Custom Software Development Services
IT Services for Federal Agencies
Microsoft Software Licensing and Support
Department of State IT Modernization Efforts

Risk Flags

Sole-source award
Lack of competition
Potential for overpricing
Limited transparency in procurement

Frequently Asked Questions

What is this federal contract paying for?

Department of State awarded $34.7 million to MICROSOFT CORPORATION. IGF::OT::IGF CUSTOM PROGRAMMING

Who is the contractor on this award?

The obligated recipient is MICROSOFT CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of State (Department of State).

What is the total obligated amount?

The obligated amount is $34.7 million.

What is the period of performance?

Start: 2013-09-30. End: 2017-09-30.

What is the justification for awarding this contract on a sole-source basis to Microsoft Corporation?

The provided data does not include the specific justification for the sole-source award. Typically, sole-source contracts are justified when only one responsible source is available or capable of meeting the government's needs, or in cases of urgent and compelling need. For a large technology provider like Microsoft, justifications might include unique software compatibility, existing infrastructure integration, or specialized expertise not readily available elsewhere. However, without the official justification document (e.g., a Justification and Approval - J&A), it is impossible to definitively state the reason. This lack of transparency is a common concern with sole-source procurements.

How does the $34.7 million cost compare to similar custom programming contracts awarded by the government?

Direct comparison is difficult without knowing the specific scope of work and the duration of comparable contracts. However, $34.7 million over four years (approximately $8.7 million per year) for custom programming services from a major vendor like Microsoft is a substantial investment. To assess value, one would need to benchmark against contracts for similar complexity, duration, and vendor type. Given this was a sole-source award, it is less likely to represent the lowest possible market price. A thorough value analysis would require comparing the delivered functionalities and performance metrics against industry standards and potentially other government contracts that were competed.

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

The primary risks associated with a sole-source contract of this magnitude include: 1. Inflated Costs: Without competition, the government may pay a premium compared to what could be achieved through a competitive bidding process. 2. Lack of Innovation: The absence of multiple bidders can stifle innovation, as there is less pressure on the contractor to offer novel solutions or efficiencies. 3. Vendor Lock-in: The government may become dependent on the sole-source provider, making it difficult and costly to switch vendors in the future. 4. Reduced Accountability: While oversight mechanisms exist, the lack of competitive pressure can sometimes lead to complacency or reduced responsiveness from the contractor. 5. Limited Transparency: The justification and negotiation process for sole-source awards are often less transparent than competitive procurements.

What specific custom programming services were delivered under this contract?

The provided data indicates the contract was for 'Custom Computer Programming Services' (NAICS 541511) awarded to Microsoft Corporation. However, the specific details of the services delivered are not itemized in the data. These services could range from developing new software applications, modifying existing software, integrating different software systems, database development, or providing specialized programming expertise for the Department of State's unique operational requirements. Without access to the contract's Statement of Work (SOW) or performance reports, the precise nature and scope of the custom programming remain unspecified.

What has been the historical spending trend for custom programming services at the Department of State?

The provided data only pertains to a single contract awarded from 2013 to 2017. It does not offer historical spending trends for custom programming services at the Department of State. To analyze historical spending, one would need access to a broader dataset encompassing multiple contracts over several fiscal years, ideally broken down by service type (like custom programming) and vendor. Such an analysis would reveal patterns of increasing or decreasing expenditure, identify key vendors, and highlight any shifts in procurement strategies within the department for IT services.

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

Solicitation ID: 1019232

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: ONE 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: $34,732,934

Exercised Options: $34,732,934

Current Obligation: $34,732,934

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: SAQMMA12D0191

IDV Type: IDC

Timeline