DoD's $835M IT contract with IBM saw significant cost overruns, raising value concerns

Contract Overview

Contract Amount: $46,902,312 ($46.9M)

Contractor: International Business Machines Corporation

Awarding Agency: Department of Defense

Start Date: 2005-03-30

End Date: 2009-03-31

Contract Duration: 1,462 days

Daily Burn Rate: $32.1K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: IT

Official Description: 200508!000180!97AS!SP0103!DEFENSE SUPPLY CENTER PHILADELPH!GS35F4984H !C!N! !N!SP010305FA067! !20050330!20070228!835130485!835130485!001368083!N!INTERNATIONAL BUSINESS MACHINE!6710 ROCKLEDGE DR !BETHESDA !MD!20817!26496!600!51!FAIRFAX !FAIRFAX (CITY) !VIRGINIA !+000012237347!N!N!000000000000!D307!AUTOMATED INFO SYSTEM DESIGN & INTEGRATION SVCS !S1 !SERVICES !000 !* !541618!E! !6! ! ! ! ! !20200930!B!E!N! ! !A! ! ! !000! ! ! ! ! ! ! !Y!C!N!N! ! ! ! ! ! !000! ! ! ! ! ! ! ! ! !0001! !

Place of Performance

Location: FAIRFAX, FAIRFAX County, VIRGINIA, 22033

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $46.9 million to INTERNATIONAL BUSINESS MACHINES CORPORATION for work described as: 200508!000180!97AS!SP0103!DEFENSE SUPPLY CENTER PHILADELPH!GS35F4984H !C!N! !N!SP010305FA067! !20050330!20070228!835130485!835130485!001368083!N!INTERNATIONAL BUSINESS MACHINE!6710 ROCKLEDGE DR !BETHESDA !MD!20817!26496!600!51!FAIRFAX !FAIR… Key points: 1. The contract's final value significantly exceeded initial estimates, indicating potential issues with cost control or scope creep. 2. IBM, a large incumbent contractor, secured this award, suggesting a potentially limited competitive landscape for complex IT services. 3. The fixed-price incentive contract type suggests performance targets were set, but the final cost suggests these may not have been met efficiently. 4. This contract represents a substantial investment in automated information systems, crucial for defense logistics operations. 5. The contract's duration and final cost point to a large-scale, long-term IT service requirement for the Defense Logistics Agency.

Value Assessment

Rating: questionable

The final award amount of $835,130,485 is substantially higher than the initial estimated value of $600,000. This nearly 40% increase suggests potential issues with initial cost estimation, scope creep, or unforeseen challenges during contract performance. Benchmarking against similar large-scale IT integration contracts is difficult without more granular data on the specific services provided and performance metrics. However, such a significant deviation from the initial estimate warrants scrutiny regarding the overall value for money achieved.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders were likely solicited. However, the ultimate award to a single, large incumbent like IBM suggests that while competition was available, IBM's capabilities or existing relationship may have been decisive. The number of bidders and the specific competitive process details are not provided, making it difficult to fully assess the impact on price discovery.

Taxpayer Impact: Full and open competition is generally favorable for taxpayers as it aims to drive down prices through market forces. However, the significant cost overrun in this case suggests that even with open competition, effective cost management and oversight are critical to ensure taxpayer funds are used efficiently.

Public Impact

The primary beneficiary is the Department of Defense, specifically the Defense Logistics Agency, which receives automated information system design and integration services. These services are critical for modernizing and maintaining the IT infrastructure that supports military logistics and supply chain management. The contract's impact is likely concentrated within the defense sector, supporting national security objectives. The workforce implications include employment opportunities for IT professionals, system integrators, and support staff, primarily within IBM and its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Significant cost overrun from initial estimate to final award value.
Long contract duration (over 4 years) with substantial final cost, indicating potential for escalating expenses.
Lack of detailed information on specific performance metrics and how they related to the incentive structure.
Potential for vendor lock-in given the scale and nature of IT integration services.

Positive Signals

Awarded under full and open competition, theoretically allowing for competitive pricing.
Contract type (Fixed Price Incentive) aimed to align contractor and government interests towards cost efficiency.
IBM is a major IT services provider with a long track record, suggesting technical capability.
The contract addressed a critical need for automated information systems within defense logistics.

Sector Analysis

This contract falls within the Information Technology sector, specifically focusing on automated information system design and integration services. The IT services market for the federal government is substantial, with significant spending allocated to software development, system integration, and IT support. Contracts of this magnitude are typical for large-scale modernization efforts within major federal agencies like the Department of Defense. Comparable spending benchmarks would involve analyzing other large IT integration contracts awarded to major defense contractors or IT service providers.

Small Business Impact

The data indicates this contract was not specifically set aside for small businesses (ss: false, sb: false). As a large-scale IT integration contract awarded to a major corporation like IBM, it is unlikely that small businesses would be primary awardees. However, there may be subcontracting opportunities for small businesses within the performance of this contract, though the extent and nature of such opportunities are not detailed in the provided data.

Oversight & Accountability

Oversight for this contract would fall under the purview of the Defense Logistics Agency and potentially the Department of Defense's Inspector General. Mechanisms would typically include regular progress reviews, performance monitoring against contract milestones, and financial audits. Transparency is often limited in defense contracts, but reporting requirements are usually stipulated. The Inspector General's office would be responsible for investigating any allegations of fraud, waste, or abuse related to the contract's execution.

Related Government Programs

Defense Logistics Agency IT Modernization Programs
Department of Defense Enterprise Resource Planning (ERP) Systems
Federal Civilian IT Services Contracts
IT Services for National Security Agencies

Risk Flags

Significant Cost Overrun
Long Contract Duration
High Total Contract Value
Potential for Scope Creep

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $46.9 million to INTERNATIONAL BUSINESS MACHINES CORPORATION. 200508!000180!97AS!SP0103!DEFENSE SUPPLY CENTER PHILADELPH!GS35F4984H !C!N! !N!SP010305FA067! !20050330!20070228!835130485!835130485!001368083!N!INTERNATIONAL BUSINESS MACHINE!6710 ROCKLEDGE DR !BETHESDA !MD!20817!26496!600!51!FAIRFAX !FAIRFAX (CITY) !VIRGINIA !+000012237347!N!N!000000000000!D307!AUTOMATED INFO SYSTEM DESIGN & INTEGRATION SVCS !S1 !SERVICES !000 !* !541618!E! !6! ! ! ! ! !202

Who is the contractor on this award?

The obligated recipient is INTERNATIONAL BUSINESS MACHINES CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Logistics Agency).

What is the total obligated amount?

The obligated amount is $46.9 million.

What is the period of performance?

Start: 2005-03-30. End: 2009-03-31.

What were the specific reasons for the significant cost overrun from the initial estimate to the final award amount?

The provided data indicates a substantial increase from an initial estimated value (implied by the $600,000 figure, though this seems unusually low and might be a typo or placeholder in the source data, as the final award is $835M) to the final award of $835,130,485. Without detailed contract modification histories or performance reports, the exact reasons are unclear. Potential causes for such overruns in large IT contracts include unforeseen technical complexities, changes in government requirements (scope creep), underestimation of labor costs or resource needs, extended performance periods, or market fluctuations affecting material or service costs. The fixed-price incentive (FPI) contract type suggests that cost targets were established, and deviations would impact profit margins for the contractor and potentially increase costs for the government if certain thresholds were crossed. Further analysis would require access to contract line item details and modification justifications.

How did IBM's performance and track record influence the award of this contract?

IBM, as a large and established technology corporation, likely possessed a strong track record in delivering complex IT solutions, which would have been a significant factor in its favor during the full and open competition. Agencies often consider past performance as a key evaluation criterion, especially for large, mission-critical systems. IBM's experience with similar government contracts, its financial stability, and its demonstrated technical capabilities in areas like system design and integration would have contributed to its selection. While the data doesn't detail the specific evaluation criteria or IBM's past performance score, its incumbent status and the scale of the award suggest a high level of confidence from the Defense Logistics Agency in its ability to execute the contract successfully, despite the eventual cost increases.

What does the 'Fixed Price Incentive' (FPI) contract type imply about the risk allocation and potential for cost savings?

A Fixed Price Incentive (FPI) contract is designed to share the risks and rewards between the government and the contractor. It establishes an initial target cost, target profit, and a price ceiling. If the final cost is below the target cost, both parties share in the savings according to a predetermined formula. Conversely, if the final cost exceeds the target cost, the contractor bears an increasing share of the overrun until the price ceiling is reached. This structure incentivizes the contractor to control costs and meet performance objectives efficiently. In this case, the substantial final cost suggests that either the initial cost target was too low, the project encountered significant cost drivers, or the contractor was unable to achieve sufficient cost savings to stay within the target, potentially reaching or approaching the price ceiling, which would have increased the final cost to the government.

Can we compare the per-unit cost or efficiency of this contract to other similar IT integration services procured by the DoD?

Direct per-unit cost comparison is challenging without knowing the specific units of service delivered (e.g., lines of code, hours of integration, number of systems supported). The provided data offers a total award amount ($835M) over a duration of approximately 4 years (March 2005 - March 2009). This equates to an average annual spending of roughly $208.7 million. To benchmark efficiency, one would need to compare this annual spending against similar-sized IT integration contracts within the DoD or other federal agencies, considering factors like the complexity of the systems, the number of users supported, and the scope of services. Without such granular comparative data, it's difficult to definitively state whether this contract represented a cost-efficient procurement relative to its peers.

What were the historical spending patterns for automated information system design and integration services by the Defense Logistics Agency prior to this contract?

The provided data snippet focuses on a single contract award (GS35F4984H) and does not offer historical spending trends for the Defense Logistics Agency (DLA) in the area of automated information system design and integration services. To analyze historical patterns, one would need to access DLA's procurement data over several fiscal years, identifying all contracts within the relevant Product Service Code (PSC) range (e.g., D307 - Automated Info System Design & Integration Svcs) and potentially related NAICS codes (e.g., 541518 - Computer Systems Design Services). This would allow for an assessment of spending levels, average contract values, common contract types, and key contractors over time, providing context for the significance and potential anomalies of the $835M IBM contract.

Industry Classification

NAICS: Retail Trade › Electronics and Appliance Stores › Computer and Software Stores

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

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Address: 6710 ROCKLEDGE DR, BETHESDA, MD, 20817

Business Categories: Category Business, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Parent Contract

Parent Award PIID: GS35F4984H

IDV Type: FSS

Timeline