HHS awarded Northrop Grumman $40.7M for enterprise systems development, with a cost-plus award fee structure

Contract Overview

Contract Amount: $40,751,871 ($40.8M)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Health and Human Services

Start Date: 2008-02-01

End Date: 2013-02-14

Contract Duration: 1,840 days

Daily Burn Rate: $22.1K/day

Competition Type: COMPETITIVE DELIVERY ORDER

Number of Offers Received: 8

Pricing Type: COST PLUS AWARD FEE

Sector: IT

Official Description: ENTERPRISE SYSTEMS DEVELOPMENT

Place of Performance

Location: WINDSOR MILL, BALTIMORE County, MARYLAND, 21244

State: Maryland Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $40.8 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: ENTERPRISE SYSTEMS DEVELOPMENT Key points: 1. The contract utilized a cost-plus award fee structure, which can incentivize performance but also carries inherent cost-reimbursement risks. 2. With 8 bidders, the competition level suggests a moderately contested market for these specialized IT services. 3. The contract's duration of 1840 days indicates a long-term need for enterprise systems development. 4. The award was a delivery order under a larger contract, suggesting it's part of an ongoing program. 5. The specific NAICS code (541512) points to a focus on computer systems design, a critical area for government IT infrastructure. 6. The contract was awarded to a single large business, with no indication of small business set-aside or subcontracting plans.

Value Assessment

Rating: fair

The contract's cost-plus award fee (CPAF) structure allows for reimbursement of costs plus a performance-based fee. While CPAF can drive desired outcomes, it requires robust oversight to manage costs effectively. Benchmarking the exact value is difficult without detailed cost breakdowns and performance metrics. However, the total award value of approximately $40.7 million over five years suggests a significant investment in enterprise systems development.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded as a competitive delivery order, indicating that multiple vendors had the opportunity to bid. With 8 bidders, the competition appears to have been reasonably robust for this type of specialized IT service. A higher number of bidders generally leads to better price discovery and potentially lower costs for the government.

Taxpayer Impact: The competitive nature of this award suggests that taxpayers likely benefited from a more efficient allocation of resources compared to a sole-source procurement. The presence of multiple bids helps ensure that the chosen vendor's pricing is market-aligned.

Public Impact

The primary beneficiaries are the Centers for Medicare and Medicaid Services (CMS), which rely on robust enterprise systems for managing healthcare programs. The services delivered include the design and development of complex IT systems essential for operational efficiency and data management. The contract's impact is primarily within the federal government's IT infrastructure, supporting critical healthcare administration functions. The workforce implications are likely related to specialized IT professionals involved in systems design and development, both within the contractor and potentially within CMS for oversight.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus award fee contracts require diligent oversight to prevent cost overruns and ensure the fee structure effectively incentivizes performance.
The long duration of the contract (over 5 years) necessitates ongoing monitoring to ensure continued relevance and adaptation to evolving technological needs.
As a large business award, there's a potential missed opportunity for small business engagement unless subcontracting is effectively managed.

Positive Signals

The contract was competitively awarded, indicating a degree of market validation for the chosen vendor and proposed solution.
The use of a delivery order under a larger contract suggests a structured approach to managing enterprise IT needs.
The focus on enterprise systems development addresses a fundamental need for robust IT infrastructure within CMS.

Sector Analysis

This contract falls within the broader IT services sector, specifically focusing on computer systems design and integration. The federal government is a significant consumer of such services, with substantial annual spending on IT modernization and maintenance. Comparable spending benchmarks would typically involve analyzing other large-scale enterprise IT development contracts within HHS and across other federal agencies, considering factors like contract type, duration, and specific service requirements.

Small Business Impact

This contract was awarded to a large business and does not appear to have a small business set-aside component. While large contracts can sometimes include subcontracting goals for small businesses, there is no specific information provided here to indicate such provisions. The absence of small business participation could represent a missed opportunity to foster growth within the small business IT ecosystem.

Oversight & Accountability

Oversight for this contract would primarily reside with the contracting officers and program managers within the Centers for Medicare and Medicaid Services (CMS). The cost-plus award fee structure necessitates close monitoring of costs incurred and performance achieved to determine the award fee. Transparency would be enhanced through regular reporting requirements stipulated in the contract. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

HHS Enterprise Systems Development Contracts
CMS IT Modernization Programs
Federal Civilian IT Services
Large-Scale Software Development Contracts
Cost-Plus Award Fee IT Contracts

Risk Flags

Cost-Plus Award Fee (CPAF) requires diligent oversight.
Long contract duration necessitates ongoing monitoring.
Potential for cost overruns in CPAF contracts.
Need for clear performance metrics in CPAF.

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $40.8 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. ENTERPRISE SYSTEMS DEVELOPMENT

Who is the contractor on this award?

The obligated recipient is NORTHROP GRUMMAN SYSTEMS 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 $40.8 million.

What is the period of performance?

Start: 2008-02-01. End: 2013-02-14.

What is the track record of Northrop Grumman Systems Corporation in delivering similar enterprise systems development projects for the federal government?

Northrop Grumman Systems Corporation has a long history of providing complex IT solutions and systems integration services to various government agencies, including the Department of Defense and civilian agencies. Their experience spans large-scale software development, cybersecurity, and enterprise resource planning (ERP) systems. For federal civilian agencies like HHS, they have been involved in projects related to health IT, data management, and mission-critical application development. Evaluating their specific performance on prior HHS contracts, particularly those with similar CPAF structures and complexity, would provide further insight into their capabilities and reliability for this particular award.

How does the $40.7 million award value compare to similar enterprise systems development contracts within HHS or other federal agencies?

The $40.7 million award value over approximately five years places this contract in the mid-to-large tier for enterprise systems development within the federal government. Many federal agencies, particularly those with extensive IT needs like HHS, award contracts in the tens or hundreds of millions of dollars for complex system design and implementation. For instance, other large IT modernization efforts within agencies like the Social Security Administration or the Department of Veterans Affairs can reach significantly higher figures. However, when compared to smaller, more focused IT service contracts, this award represents a substantial investment, reflecting the scope and criticality of enterprise systems.

What are the primary risks associated with the Cost Plus Award Fee (CPAF) contract type for this project?

The primary risks associated with a CPAF contract for enterprise systems development revolve around cost control and performance measurement. While CPAF aims to incentivize contractor performance through an award fee, there's a risk that costs could escalate beyond initial projections if not managed diligently by the government. The government must establish clear, objective, and measurable performance criteria to ensure the award fee accurately reflects the desired outcomes. Without robust oversight and well-defined metrics, there's a potential for the contractor to achieve the fee without delivering optimal value or for costs to increase without commensurate performance gains. This necessitates strong government program management and technical expertise.

How effective is the competitive delivery order process in ensuring value for money for taxpayers in this context?

The competitive delivery order process is generally effective in ensuring value for money, especially when multiple qualified bidders participate. By allowing several vendors to propose solutions and pricing, it fosters competition that can drive down costs and encourage innovation. In this case, with 8 bidders, there was a reasonable level of competition, suggesting that the selected vendor's pricing and approach were competitive. However, the effectiveness is also contingent on the clarity of the government's requirements and the evaluation criteria used. A well-defined scope and objective evaluation process maximize the chances of securing the best value for taxpayers.

What is the historical spending trend for enterprise systems development services by the Centers for Medicare and Medicaid Services (CMS)?

Historical spending data for enterprise systems development by CMS indicates a consistent and significant investment in IT infrastructure and modernization. CMS, responsible for managing massive healthcare programs like Medicare and Medicaid, relies heavily on complex, scalable IT systems. Over the years, CMS has undertaken numerous large-scale projects aimed at improving data processing, beneficiary services, provider management, and program integrity. Spending in this category often fluctuates based on major modernization initiatives, regulatory changes, and the lifecycle of existing systems. Analyzing trends would reveal periods of increased investment during major system overhauls and steady spending for ongoing maintenance and enhancements.

What are the potential implications of this contract award on the broader federal IT services market, particularly concerning large system integrators?

This award to Northrop Grumman, a major systems integrator, reinforces the trend of large federal IT contracts being awarded to established players with extensive resources and past performance. It signifies continued demand for comprehensive enterprise solutions that require significant project management, technical expertise, and security clearances. Such awards can shape market dynamics by validating the capabilities of large integrators and potentially influencing competitive strategies of other major players. It also highlights the government's reliance on these large firms for mission-critical IT infrastructure, while simultaneously underscoring the importance of effective oversight to ensure accountability and value.

Industry Classification

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

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

Competition & Pricing

Extent Competed: COMPETITIVE DELIVERY ORDER

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 8

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation

Address: 8110 GATEHOUSE RD, FALLS CHURCH, VA, 22042

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $47,747,678

Exercised Options: $40,751,871

Current Obligation: $40,751,871

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Parent Contract

Parent Award PIID: HHSM500200700014I

IDV Type: IDC

Timeline