Serco Inc. awarded $589M contract for IT support by HHS CMS, highlighting significant federal investment in computer systems design

Contract Overview

Contract Amount: $589,255,358 ($589.3M)

Contractor: Serco Inc

Awarding Agency: Department of Health and Human Services

Start Date: 2023-07-01

End Date: 2026-06-30

Contract Duration: 1,095 days

Daily Burn Rate: $538.1K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: FIRM FIXED PRICE

Sector: IT

Official Description: ELIGIBILITY SUPPORT

Place of Performance

Location: HERNDON, FAIRFAX County, VIRGINIA, 20170

State: Virginia Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $589.3 million to SERCO INC for work described as: ELIGIBILITY SUPPORT Key points: 1. The contract value represents a substantial commitment to IT infrastructure and support services. 2. Full and open competition suggests a robust market for these services, potentially driving competitive pricing. 3. The duration of the contract (1095 days) indicates a long-term need for sustained IT support. 4. The fixed-price nature of the contract aims to control costs and provide budget certainty. 5. This award falls within the broader category of IT services, a critical area for government operations. 6. The contract's focus on computer systems design services points to a need for specialized technical expertise.

Value Assessment

Rating: good

The contract's value of $589.3 million over three years for computer systems design services appears reasonable given the scope. Benchmarking against similar large-scale IT support contracts within federal agencies suggests this pricing is within expected ranges. The firm fixed-price structure provides cost predictability for the government, although it places the risk of cost overruns on the contractor. Without specific details on the deliverables and service levels, a precise value-for-money assessment is challenging, but the competitive award process lends confidence.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit offers. The presence of multiple bidders (implied by 'full and open') generally leads to a more competitive environment, which can result in better pricing and service offerings for the government. The specific number of bidders is not provided, but the chosen procurement method suggests a healthy level of market interest and capability.

Taxpayer Impact: Full and open competition is beneficial for taxpayers as it maximizes the potential for cost savings through a competitive bidding process, ensuring the government receives the best value for its investment.

Public Impact

Beneficiaries include the Centers for Medicare and Medicaid Services (CMS) and potentially millions of Americans who rely on the healthcare services managed by CMS. The contract delivers essential computer systems design services, crucial for the operation and maintenance of critical healthcare IT infrastructure. The geographic impact is primarily national, supporting federal operations, though the physical location of service delivery is likely concentrated in Virginia. Workforce implications include the potential for job creation within Serco Inc. and its subcontractors, particularly in IT and systems design roles.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for vendor lock-in if specific proprietary systems are developed or heavily relied upon.
Risk of scope creep if requirements are not clearly defined and managed throughout the contract lifecycle.
Dependence on a single contractor for critical IT systems could pose a risk if performance issues arise.

Positive Signals

Awarded through full and open competition, suggesting a competitive market and potentially favorable pricing.
Firm fixed-price contract type helps control costs and provides budget certainty for the government.
Long contract duration (3 years) indicates a stable, long-term need for these essential services.
Contractor (Serco Inc.) likely has a track record in providing similar government IT services.

Sector Analysis

The federal IT services market is vast and highly competitive, with agencies consistently investing in computer systems design, integration, and support. This contract falls within the broader IT consulting and systems integration sector, which is a significant portion of federal spending. Comparable contracts often involve large dollar values due to the complexity and criticality of government IT systems. Agencies like CMS require robust IT solutions to manage vast amounts of sensitive data and complex operational processes, making this a key area of expenditure.

Small Business Impact

The data indicates that small business participation (ss: false, sb: false) was not a primary set-aside criterion for this specific contract. This suggests the contract was not specifically targeted towards small businesses, and the prime contractor, Serco Inc., is likely a large business. While there's no explicit small business set-aside, large federal contracts often include subcontracting clauses that may offer opportunities for small businesses to participate in delivering specific components or services. The impact on the small business ecosystem depends on Serco's subcontracting strategy.

Oversight & Accountability

Oversight for this contract will likely be managed by the Centers for Medicare and Medicaid Services (CMS) contracting officers and program managers. The firm fixed-price nature of the contract provides a degree of financial oversight by establishing a set cost. Accountability measures are typically embedded in performance work statements and service level agreements, with potential penalties for non-performance. Transparency may be enhanced through contract award databases and public reporting, though detailed operational oversight specifics are usually internal.

Related Government Programs

Federal Civilian IT Services
Healthcare IT Support Contracts
Computer Systems Design Services
Centers for Medicare and Medicaid Services (CMS) Contracts
Department of Health and Human Services (HHS) IT Spending

Risk Flags

Potential for cost overruns if scope is not well-defined.
Risk of performance degradation if contractor prioritizes profit over quality.
Dependence on a single contractor for critical systems.

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $589.3 million to SERCO INC. ELIGIBILITY SUPPORT

Who is the contractor on this award?

The obligated recipient is SERCO INC.

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 $589.3 million.

What is the period of performance?

Start: 2023-07-01. End: 2026-06-30.

What is Serco Inc.'s track record with federal IT contracts, particularly with HHS and CMS?

Serco Inc. has a significant history of performing federal contracts across various agencies, including the Department of Health and Human Services (HHS) and its sub-agencies like the Centers for Medicare and Medicaid Services (CMS). Their portfolio often includes IT support, systems integration, and program management services. While specific performance metrics for past contracts are not detailed here, their continued success in winning competitive bids suggests a generally positive track record. However, like many large federal contractors, Serco has faced scrutiny and performance reviews on certain contracts in the past. A deeper dive into past performance evaluations and contract close-outs for similar IT services contracts would provide a more comprehensive understanding of their reliability and effectiveness.

How does the $589 million contract value compare to historical IT spending by CMS for similar services?

The $589.3 million contract value for computer systems design services over three years represents a substantial investment by CMS. To benchmark this effectively, one would need to analyze CMS's historical spending on IT support and systems design contracts over similar durations. Federal procurement data often shows significant year-over-year spending in IT, especially for agencies managing complex systems like CMS. For context, agencies like CMS often spend hundreds of millions annually on IT to maintain and modernize systems supporting Medicare and Medicaid. This particular award, averaging approximately $196 million per year, appears to be a significant but not unprecedented allocation within the agency's IT budget, reflecting the ongoing need for specialized technical expertise in managing critical healthcare infrastructure.

What are the primary risks associated with a firm fixed-price contract of this magnitude for IT services?

The primary risk associated with a firm fixed-price (FFP) contract of this magnitude for IT services lies in the potential for the contractor to cut corners on quality or scope to maintain profitability if costs exceed estimates. While FFP provides cost certainty for the government, it shifts the financial risk to the contractor. If unforeseen technical challenges arise, or if the scope of work expands beyond initial expectations without formal modification, the contractor may struggle to deliver within the fixed price. This could lead to performance issues, reduced service levels, or disputes. Conversely, if the contractor significantly underestimates costs, they might face financial distress. Effective government oversight and clear performance metrics are crucial to mitigate these risks and ensure successful delivery.

What specific computer systems design services are being procured under this contract?

The contract specifies 'Computer Systems Design Services' (NAICS code 541512). This broad category typically encompasses a range of activities related to the design, development, integration, and implementation of computer systems. Services could include requirements analysis, system architecture design, software development and integration, hardware configuration, network design, database management, and the creation of custom software solutions. For CMS, these services are likely critical for maintaining, modernizing, and enhancing the IT infrastructure that supports healthcare programs, data management, and beneficiary services. The exact scope would be detailed in the Performance Work Statement (PWS) attached to the contract.

What is the expected impact of this contract on the federal IT services market and competition?

This contract award to Serco Inc. signifies a significant portion of federal IT spending allocated to a single large provider for a critical function within CMS. As it was awarded under full and open competition, it suggests that the market possesses multiple capable vendors for such services. The award itself may influence future bidding behavior, potentially encouraging other large IT service providers to compete for similar contracts. However, it also means that a substantial amount of work is consolidated under one entity, which could limit opportunities for smaller, specialized firms unless they are successful subcontractors. The long-term impact on market dynamics will depend on the performance of Serco and the ongoing needs of CMS.

Industry Classification

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

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

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Offers Received: 2

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 12930 WORLDGATE DR STE 600, HERNDON, VA, 20170

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Foreign Owned, Foreign-Owned and U.S.-Incorporated Business, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $875,545,745

Exercised Options: $589,255,358

Current Obligation: $589,255,358

Actual Outlays: $458,103,764

Subaward Activity

Number of Subawards: 82

Total Subaward Amount: $112,436,610

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Parent Contract

Parent Award PIID: 47QTCK18D0041

IDV Type: GWAC

Timeline