HHS awards $160M contract to Magna Systems Inc. for IT support services in California

Contract Overview

Contract Amount: $16,044,499 ($16.0M)

Contractor: Magna Systems Incorporated

Awarding Agency: Department of Health and Human Services

Start Date: 2006-08-31

End Date: 2011-08-31

Contract Duration: 1,826 days

Daily Burn Rate: $8.8K/day

Number of Offers Received: 3

Pricing Type: COST PLUS AWARD FEE

Sector: IT

Official Description: RFTOP NO. 280-06-0160

Place of Performance

Location: LOS ANGELES, LOS ANGELES County, CALIFORNIA, 90012

State: California Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $16.0 million to MAGNA SYSTEMS INCORPORATED for work described as: RFTOP NO. 280-06-0160 Key points: 1. Contract value of $160.4 million over five years suggests significant IT support needs. 2. The Cost Plus Award Fee (CPAF) structure incentivizes performance but can lead to higher costs if not managed closely. 3. Awarded to Magna Systems Inc., a single contractor, raising questions about competition and potential for price optimization. 4. The contract duration of 1826 days (approximately 5 years) indicates a long-term need for these services. 5. Geographic focus on California (st: CA) may indicate specific regional IT infrastructure or user support requirements. 6. The absence of small business set-aside (ss: false, sb: false) suggests the primary contractor is not a small business, and subcontracting opportunities for small businesses are not explicitly mandated.

Value Assessment

Rating: fair

The contract value of $160.4 million over five years averages to approximately $32 million annually. Without specific benchmarks for similar IT support contracts within HHS or other agencies, it's difficult to definitively assess value for money. The Cost Plus Award Fee (CPAF) pricing structure allows for cost reimbursement plus a fee based on performance, which can be effective in complex service contracts but requires diligent oversight to ensure costs remain reasonable and performance targets are met. Benchmarking against industry standards for IT support services of this scale would be necessary for a more precise evaluation.

Cost Per Unit: N/A

Competition Analysis

Competition Level: unknown

The provided data does not specify the competition level for this contract (e.g., full and open, sole source, limited competition). Understanding how this contract was competed is crucial. If it was a full and open competition, a larger pool of bidders would typically lead to more competitive pricing. If it was sole-source or limited, the rationale for restricting competition needs to be examined to ensure fair pricing and access for potential vendors. The number of bids received, if available, would further illuminate the competitive landscape.

Taxpayer Impact: The level of competition directly impacts taxpayer value. Robust competition generally drives down prices and encourages innovation, leading to better use of public funds. Limited competition may result in higher costs for taxpayers if the chosen contractor does not face sufficient market pressure to offer the most cost-effective solution.

Public Impact

The Substance Abuse and Mental Health Services Administration (SAMHSA) is the primary beneficiary, receiving IT support services essential for its operations. This contract likely supports the agency's mission delivery by ensuring reliable IT infrastructure and user support for its staff. The geographic impact is focused on California, suggesting the services are either delivered from or support operations within that state. Workforce implications could include the creation or maintenance of IT support jobs, both within the prime contractor and potentially subcontractors, primarily in California.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost Plus Award Fee contracts require careful monitoring to prevent cost overruns and ensure performance targets are genuinely driving value.
Lack of explicit small business subcontracting goals may limit opportunities for smaller businesses to participate in this contract.
The contract's duration suggests a long-term reliance on Magna Systems Inc., potentially reducing future competitive opportunities if not managed strategically.

Positive Signals

The Cost Plus Award Fee structure, if managed effectively, can incentivize high performance and quality service delivery.
Awarding to a single entity implies a potentially streamlined management approach for the agency.
The contract's focus on IT support addresses a critical operational need for the agency.

Sector Analysis

This contract falls within the Information Technology (IT) services sector, specifically focusing on support and maintenance. The IT services market is vast and highly competitive, encompassing a wide range of services from hardware maintenance to complex software development and cloud solutions. Federal IT spending represents a significant portion of the overall federal budget, with agencies constantly seeking to modernize systems and improve efficiency. Contracts like this are typical for maintaining the operational backbone of government agencies, ensuring continuity of services.

Small Business Impact

The data indicates that this contract was not set aside for small businesses (ss: false, sb: false). This means the primary award went to a large business, Magna Systems Inc. While there's no explicit mandate for small business subcontracting, large federal contracts often present opportunities for small businesses to participate as subcontractors. The extent to which Magna Systems Inc. will engage small businesses for specialized IT support or other services will determine the impact on the small business ecosystem. Agencies are increasingly encouraged to promote small business participation, so monitoring subcontracting plans would be beneficial.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of Health and Human Services (HHS) and its contracting officers. The Cost Plus Award Fee (CPAF) structure necessitates robust performance monitoring to ensure the contractor meets defined objectives and earns the award fee. Transparency regarding performance metrics and fee allocation would be key. While specific Inspector General (IG) jurisdiction isn't detailed, HHS's Office of Inspector General (OIG) typically oversees federal contracts for waste, fraud, and abuse, and would likely have oversight authority if issues arose.

Related Government Programs

Federal IT Infrastructure Support Services
Health Information Technology Services
IT Managed Services Contracts
Cost-Plus-Award-Fee Contracts
Department of Health and Human Services IT Spending

Risk Flags

Potential for cost overruns due to CPAF structure
Limited competition may impact price discovery
Lack of explicit small business subcontracting goals
Long-term reliance on a single vendor
Performance metrics clarity and enforceability

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $16.0 million to MAGNA SYSTEMS INCORPORATED. RFTOP NO. 280-06-0160

Who is the contractor on this award?

The obligated recipient is MAGNA SYSTEMS INCORPORATED.

Which agency awarded this contract?

Awarding agency: Department of Health and Human Services (Substance Abuse and Mental Health Services Administration).

What is the total obligated amount?

The obligated amount is $16.0 million.

What is the period of performance?

Start: 2006-08-31. End: 2011-08-31.

What is the track record of Magna Systems Incorporated in performing similar federal IT support contracts?

To assess Magna Systems Incorporated's track record, a review of their past performance on federal contracts, particularly those with similar scope, complexity, and pricing structures (like CPAF), would be necessary. This would involve examining past performance evaluations, any documented disputes or contract terminations, and their history of meeting delivery schedules and quality standards. Information from sources like the Federal Procurement Data System (FPDS) or agency-specific past performance databases could provide insights. A strong track record suggests a lower risk of performance issues, while a history of problems might indicate potential future challenges for this current contract.

How does the average annual cost of this contract ($32 million) compare to similar IT support contracts within HHS or other federal agencies?

Benchmarking the average annual cost of $32 million requires comparing it against IT support contracts of similar size, scope, and complexity awarded by HHS or other federal agencies over a comparable period. Factors such as the specific services provided (e.g., help desk, network management, cybersecurity support), the number of users supported, and the geographic locations served are critical for a fair comparison. Without access to detailed comparative data, it's challenging to definitively state whether this represents excellent, fair, or questionable value. However, the significant total award value suggests a substantial requirement that warrants careful cost analysis against market rates and peer contracts.

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

The primary risks associated with a Cost Plus Award Fee (CPAF) contract type revolve around cost control and performance definition. While CPAF incentivizes performance through an award fee, it can also lead to higher overall costs compared to fixed-price contracts if the base cost reimbursement is not tightly managed or if the award fee criteria are not sufficiently stringent or objective. There's a risk that the contractor may focus on maximizing the award fee rather than achieving the most cost-effective solution. Effective oversight is crucial to ensure that costs are reasonable and allocable, and that the award fee structure genuinely drives desired outcomes without encouraging unnecessary spending.

What is the potential impact of this contract on the Substance Abuse and Mental Health Services Administration's (SAMHSA) ability to deliver its core services?

This contract is critical for SAMHSA's operational continuity. By providing essential IT support, Magna Systems Incorporated helps ensure that SAMHSA's internal systems, networks, and user access function reliably. This directly impacts SAMHSA's ability to manage data, communicate effectively, process grants, and ultimately deliver its mental health and substance abuse services to the public. A well-executed IT support contract minimizes disruptions and allows the agency's personnel to focus on their programmatic missions rather than technical issues. Conversely, any performance failures could significantly hinder SAMHSA's operations and service delivery.

How has federal spending on IT support services evolved over the period this contract spans (2006-2011) and how does this award fit into that trend?

The period of this contract (2006-2011) was characterized by increasing federal investment in IT modernization and shared services, driven by initiatives like the President's Management Agenda and the push for greater efficiency and interoperability. Federal IT spending generally saw upward trends during these years, reflecting the growing reliance on technology across agencies. This $160 million award to Magna Systems Inc. for IT support services fits within this trend as a significant investment by HHS/SAMHSA to maintain and potentially upgrade its technological infrastructure during a period of heightened focus on IT capabilities within the government.

What are the implications of awarding this contract to a single vendor, Magna Systems Inc., for future competition and innovation in this service area?

Awarding a large, long-term contract like this to a single vendor can have mixed implications for future competition and innovation. On one hand, it provides stability and a clear path for service delivery. However, it can also create a barrier to entry for potential competitors who may not have had the opportunity to demonstrate their capabilities. Over the contract's five-year duration, Magna Systems Inc. may gain significant institutional knowledge and a strong incumbent advantage, potentially making it harder for other firms to compete effectively when the contract is re-competed. This could stifle innovation if the incumbent becomes complacent or if the contract terms don't actively encourage new approaches.

Contractor Details

Address: 340 E 2ND ST STE 409, LOS ANGELES, CA, 90

Business Categories: Category Business, Self-Certified Small Disadvantaged Business, Small Business, Small Disadvantaged Business, Special Designations

Financial Breakdown

Contract Ceiling: $16,044,499

Exercised Options: $16,044,499

Current Obligation: $16,044,499

Parent Contract

Parent Award PIID: 280020300

IDV Type: IDC

Timeline