HHS awarded $18.4M for accounting services to IBM, a sole-source contract with a high cost-plus-fixed-fee structure

Contract Overview

Contract Amount: $18,414,847 ($18.4M)

Contractor: International Business Machines Corporation

Awarding Agency: Department of Health and Human Services

Start Date: 2011-02-01

End Date: 2012-09-30

Contract Duration: 607 days

Daily Burn Rate: $30.3K/day

Competition Type: NOT COMPETED

Pricing Type: COST PLUS FIXED FEE

Sector: Other

Official Description: ACCOUNTING SERVICES

Place of Performance

Location: WINDSOR MILL, BALTIMORE County, MARYLAND, 21244

State: Maryland Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $18.4 million to INTERNATIONAL BUSINESS MACHINES CORPORATION for work described as: ACCOUNTING SERVICES Key points: 1. The contract's cost-plus-fixed-fee (CPFF) pricing structure can lead to cost overruns if not carefully managed. 2. Sole-source procurement limits competition, potentially resulting in higher prices and reduced innovation. 3. The contract duration of 607 days (approx. 20 months) suggests a significant, ongoing need for these services. 4. IBM's extensive experience in government contracting may indicate a lower performance risk, but also raises concerns about market concentration. 5. The specific NAICS code (522320) points to financial transaction processing, reserve, and clearinghouse activities, a critical function for CMS. 6. The absence of small business participation raises questions about opportunities for smaller, specialized firms in this sector.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature and CPFF structure, which inherently allows for less price transparency than fixed-price contracts. Without competitive bids, it's difficult to ascertain if the fixed fee accurately reflects the market rate for IBM's services. The total award amount of $18.4 million over approximately 20 months suggests a substantial investment. However, the lack of comparative data from similar sole-source procurements for accounting services makes a definitive value assessment difficult. The government's ability to control costs within a CPFF contract relies heavily on robust oversight and detailed cost reporting from the contractor.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning that only one vendor, IBM, was solicited. This approach bypasses the standard competitive bidding process, which typically involves multiple vendors submitting proposals. While sole-source awards can be justified in specific circumstances (e.g., urgent need, unique capabilities), they limit the government's ability to leverage competition to drive down prices and encourage innovation. The lack of competition here means taxpayers did not benefit from potential cost savings that could have arisen from a more open bidding process.

Taxpayer Impact: The absence of competition means taxpayers may have paid a premium for these accounting services. Without competing bids, there is less pressure on the contractor to offer the most cost-effective solution.

Public Impact

Beneficiaries include the Centers for Medicare and Medicaid Services (CMS), which relies on these services for financial operations. The services delivered are critical for financial transactions processing, reserve management, and clearinghouse activities, ensuring the smooth operation of healthcare programs. The geographic impact is primarily national, supporting the administrative functions of a federal agency with nationwide reach. Workforce implications are internal to IBM and CMS, with IBM providing specialized accounting expertise and CMS staff overseeing the contract.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potential cost savings for taxpayers.
Cost-plus-fixed-fee structure can incentivize higher costs if not rigorously monitored.
Lack of transparency in pricing due to sole-source and CPFF structure.
Potential for contractor lock-in given the specialized nature of services and sole-source award.
No explicit small business set-aside, potentially limiting opportunities for smaller firms.

Positive Signals

Award to a large, established contractor like IBM may indicate a lower risk of performance failure.
The contract addresses critical financial functions for CMS, suggesting a necessary service.
The fixed fee component of the CPFF contract provides some level of cost predictability compared to pure cost-plus contracts.

Sector Analysis

This contract falls within the professional services sector, specifically focusing on accounting and financial services for the federal government. The market for these services is competitive, with numerous large and small firms offering specialized expertise. However, for specific, high-level financial transaction processing and clearinghouse activities, particularly within a large agency like CMS, the pool of qualified contractors might be more limited. The total federal spending on accounting and related financial services is substantial, but this specific contract represents a niche requirement within the broader IT and professional services landscape.

Small Business Impact

This contract does not appear to have a small business set-aside, nor is there an indication of significant subcontracting to small businesses. The award to a large prime contractor like IBM suggests that the primary focus was on leveraging the prime's capabilities rather than specifically fostering small business participation. This could mean missed opportunities for specialized small businesses to contribute to critical government functions and potentially limits the growth of the small business ecosystem in this niche area.

Oversight & Accountability

Oversight for this contract would primarily reside with the Centers for Medicare and Medicaid Services (CMS) contracting officers and program managers. Given the CPFF structure, rigorous monitoring of IBM's costs, performance, and adherence to the contract terms would be essential. Transparency is limited by the sole-source nature of the award. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Federal Accounting Services
Financial Management Systems
Healthcare Program Administration
Government Contract Auditing
Centers for Medicare and Medicaid Services Operations

Risk Flags

Sole-source award
Cost-plus-fixed-fee pricing
Lack of small business participation
Limited transparency in pricing

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $18.4 million to INTERNATIONAL BUSINESS MACHINES CORPORATION. ACCOUNTING SERVICES

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 $18.4 million.

What is the period of performance?

Start: 2011-02-01. End: 2012-09-30.

What is IBM's track record with similar sole-source, cost-plus-fixed-fee contracts for federal agencies?

IBM has a long history of securing sole-source and competitively awarded contracts across various federal agencies, often in complex IT and financial services domains. Their experience with cost-plus-fixed-fee (CPFF) contracts is extensive. CPFF contracts are common for services where the scope is not fully defined at the outset or involves significant uncertainty, allowing for flexibility. However, they require robust government oversight to manage costs effectively. IBM's track record generally indicates strong performance capabilities, but the specific details of their past CPFF contracts, including cost performance and any disputes, would need to be examined to fully assess risk and value for this particular award. Without access to detailed contract performance data and pricing structures of prior similar contracts, a precise comparison is difficult.

How does the $18.4 million award compare to the typical cost for similar accounting services at CMS or other federal agencies?

Directly comparing the $18.4 million award for accounting services to other federal contracts is challenging due to the sole-source nature of this award and the specific, potentially unique, services provided under NAICS code 522320 (Financial Transactions Processing, Reserve, and Clearinghouse Activities). Sole-source contracts often lack the price competition that drives down costs in awarded contracts. Furthermore, the cost-plus-fixed-fee (CPFF) structure means the final cost can fluctuate based on actual expenses, making a fixed benchmark difficult. To assess value, one would ideally compare this to competitively procured contracts for similar services, analyze the contractor's proposed fixed fee against industry standards for the level of effort, and evaluate the efficiency and effectiveness of the services delivered over the contract period. Without such comparative data, it's difficult to definitively state if this award represents a fair market price.

What are the primary risks associated with a sole-source, CPFF contract for financial transaction processing?

The primary risks associated with a sole-source, Cost-Plus-Fixed-Fee (CPFF) contract for critical financial services like transaction processing are multifaceted. Firstly, the sole-source nature eliminates competition, potentially leading to inflated prices and reduced incentive for the contractor to innovate or optimize costs. Taxpayers may not receive the best possible value. Secondly, the CPFF structure, while offering flexibility, carries the risk of cost overruns if the government's oversight is insufficient. The contractor may have less incentive to control expenses since costs are reimbursed, with only the fixed fee providing a ceiling on profit. For financial transaction processing, any inefficiencies or errors could have significant downstream impacts on CMS's operations and the beneficiaries of its programs. Robust contract management, clear performance metrics, and diligent cost monitoring are crucial to mitigate these risks.

What is the historical spending pattern for accounting and financial transaction processing services at CMS?

Historical spending patterns for accounting and financial transaction processing services at CMS reveal a consistent and significant investment in these areas, reflecting the agency's vast operational scope. CMS manages complex healthcare programs like Medicare and Medicaid, necessitating substantial resources for financial management, claims processing, and data integrity. Spending in this category has often involved both competitively awarded contracts and, at times, sole-source awards for specialized or mission-critical functions where a specific vendor's capabilities are deemed essential or where urgency precludes a full competition. Analyzing past spending trends would likely show fluctuations based on program changes, technological upgrades, and evolving regulatory requirements. The total dollar amounts allocated to these services have generally trended upwards over time, mirroring the growth in healthcare expenditures and the increasing complexity of financial oversight.

How does the duration of this contract (607 days) align with typical federal contracts for similar services?

A contract duration of 607 days, approximately 20 months, is relatively standard for federal contracts involving ongoing professional services, particularly those supporting critical operational functions like financial transaction processing. Many federal contracts are awarded with base periods and option years, allowing for flexibility and continuity. A 20-month period often represents a base period or a full contract term for services that require sustained effort and expertise. This duration suggests that the services provided are not short-term or project-based but rather integral to the ongoing operations of the Centers for Medicare and Medicaid Services (CMS). Shorter durations might be used for specific projects, while longer-term contracts (often with multiple option years) are common for sustained support, allowing agencies to retain necessary capabilities without constant re-competition.

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

Pricing Type: COST PLUS FIXED FEE (U)

Contractor Details

Address: 6710 ROCKLEDGE DR, BETHESDA, MD, 20817

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $18,414,847

Exercised Options: $18,414,847

Current Obligation: $18,414,847

Subaward Activity

Number of Subawards: 28

Total Subaward Amount: $53,604,189

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Parent Contract

Parent Award PIID: 500030014

IDV Type: IDC

Timeline