IBM awarded $35.2M for IT systems design, facing limited competition and fair value

Contract Overview

Contract Amount: $35,258,854 ($35.3M)

Contractor: International Business Machines Corporation

Awarding Agency: Department of the Treasury

Start Date: 2010-05-03

End Date: 2014-10-30

Contract Duration: 1,641 days

Daily Burn Rate: $21.5K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 4

Pricing Type: COST PLUS FIXED FEE

Sector: IT

Official Description: IBM FOR MEF R6.2 (A9CR4) AND R7 (A9CM3)

Place of Performance

Location: FAIRFAX, FAIRFAX County, VIRGINIA, 22033

State: Virginia Government Spending

Plain-Language Summary

Department of the Treasury obligated $35.3 million to INTERNATIONAL BUSINESS MACHINES CORPORATION for work described as: IBM FOR MEF R6.2 (A9CR4) AND R7 (A9CM3) Key points: 1. Contract awarded to a single, large vendor, suggesting potential for higher pricing. 2. Limited competition may indicate a specialized need or a less dynamic market. 3. Performance period spans over four years, requiring sustained oversight. 4. The contract type (Cost Plus Fixed Fee) can incentivize cost overruns. 5. This award represents a portion of broader IT modernization efforts within the IRS. 6. The vendor has a significant track record in large-scale government IT projects.

Value Assessment

Rating: fair

The contract's value of $35.2 million over four years for computer systems design services appears within a reasonable range for a large federal IT project. However, the Cost Plus Fixed Fee (CPFF) contract type carries inherent risks of cost escalation, as the contractor is reimbursed for allowable costs plus a fixed fee. Benchmarking against similar large-scale IT system design contracts is difficult without more specific service details, but the overall dollar amount is substantial. The fixed fee component provides some cost control, but the absence of strong performance incentives in the contract type warrants careful monitoring.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple vendors had the opportunity to bid. However, the data shows only 4 bids were received, which is a relatively low number for a full and open competition of this magnitude. This suggests that while the process was open, the pool of qualified bidders may have been limited, or the specific requirements of the solicitation may have deterred broader participation. The limited number of bids could impact price discovery and potentially lead to less aggressive pricing than a more competitive scenario.

Taxpayer Impact: While the competition was open, the low number of bids suggests taxpayers may not have received the full benefit of a highly competitive market, potentially resulting in a higher final cost than if more vendors had actively competed.

Public Impact

The primary beneficiaries are the Internal Revenue Service (IRS) and its employees, who will receive updated and improved computer systems. The services delivered include the design and development of complex IT systems, crucial for tax administration and processing. The geographic impact is primarily within the IRS's operational centers, likely concentrated in Virginia where the contractor is located. The contract supports a workforce of IT professionals and system designers, both within the contractor's organization and potentially within the IRS for oversight and integration.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost Plus Fixed Fee contract type can lead to cost overruns if not managed tightly.
Limited number of bids in a full and open competition may indicate market concentration or high barriers to entry.
The long duration of the contract requires sustained oversight to ensure performance and value.
Potential for vendor lock-in given the specialized nature of IT system design.

Positive Signals

Awarded through full and open competition, ensuring a fair process.
The contractor, IBM, is a well-established entity with extensive experience in large government IT projects.
The contract aims to modernize critical IRS IT infrastructure.
The fixed fee component provides a defined profit margin, offering some cost predictability.

Sector Analysis

This contract falls within the Computer Systems Design Services sector, a critical component of the broader Information Technology (IT) industry. This sector is characterized by high demand for specialized expertise in software development, system integration, and IT consulting. The market size for government IT services is substantial, with agencies continually seeking to modernize legacy systems and adopt new technologies. IBM's role here is typical for large IT service providers competing for significant federal contracts that require deep technical capabilities and project management experience. Comparable spending benchmarks would involve looking at other large-scale IT system development contracts awarded by agencies like the Department of Defense or other Treasury bureaus.

Small Business Impact

This contract was not set aside for small businesses and was awarded to a large corporation, IBM. There is no indication of specific subcontracting plans for small businesses within the provided data. Therefore, the direct impact on the small business ecosystem is likely minimal, as the primary awardee is a major prime contractor. Future analysis could explore subcontracting reports to determine if small businesses were engaged indirectly.

Oversight & Accountability

Oversight for this contract would primarily reside with the contracting officers and program managers within the IRS and the Department of the Treasury. The Cost Plus Fixed Fee structure necessitates rigorous monitoring of costs and performance to ensure the government receives value. Transparency is facilitated through contract award databases and reporting requirements. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse, with the Treasury Inspector General for Tax Administration (TIGTA) being the relevant oversight body.

Related Government Programs

IRS IT Modernization Programs
Federal Civilian IT Services
Large-Scale Systems Integration Contracts
Department of the Treasury IT Procurement

Risk Flags

Cost Plus Fixed Fee contract type
Limited number of bidders for a large contract
Potential for cost overruns
Long contract duration requires sustained oversight

Frequently Asked Questions

What is this federal contract paying for?

Department of the Treasury awarded $35.3 million to INTERNATIONAL BUSINESS MACHINES CORPORATION. IBM FOR MEF R6.2 (A9CR4) AND R7 (A9CM3)

Who is the contractor on this award?

The obligated recipient is INTERNATIONAL BUSINESS MACHINES CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of the Treasury (Internal Revenue Service).

What is the total obligated amount?

The obligated amount is $35.3 million.

What is the period of performance?

Start: 2010-05-03. End: 2014-10-30.

What is IBM's track record with similar large-scale IT system design contracts for federal agencies?

IBM has a long and extensive track record of securing and executing large-scale IT system design and integration contracts across numerous federal agencies, including the Department of Defense, NASA, and various civilian departments. They are known for their capabilities in areas such as cloud computing, data analytics, cybersecurity, and enterprise resource planning systems. Historically, IBM has been a major player in government IT modernization efforts. However, like many large contractors, they have also faced scrutiny regarding contract performance, cost overruns, and competition issues on specific projects. Evaluating their performance on this IRS contract would require examining specific deliverables, adherence to schedule, and budget management compared to initial projections and the contract's fixed fee.

How does the $35.2 million value compare to other IRS IT system design contracts?

The $35.2 million award value for this contract is substantial, placing it among significant IT investments for the IRS. To provide a precise comparison, one would need to analyze historical IRS IT contract data, specifically looking for contracts categorized under 'Computer Systems Design Services' (NAICS 541512) with similar durations and scope. However, given the IRS's ongoing need for modernization and the complexity of tax administration systems, awards in the tens of millions are not uncommon for major system overhauls or new developments. This figure should be viewed in the context of the IRS's overall IT budget, which typically runs into billions of dollars annually, reflecting the scale of technology required to manage the nation's tax system.

What are the primary risks associated with a Cost Plus Fixed Fee (CPFF) contract for IT system design?

The primary risk with a CPFF contract, especially for complex IT system design, is the potential for cost escalation. While the contractor's profit (the fixed fee) is predetermined, the government bears the risk of all allowable costs incurred. If the project encounters unforeseen technical challenges, scope creep, or inefficiencies, the total cost to the government can significantly exceed initial estimates, even though the contractor's fee remains constant. This structure can reduce the contractor's incentive to control costs aggressively, as their profit is guaranteed regardless of the final cost. Effective oversight, clear scope definition, and robust cost tracking are crucial to mitigate these risks.

What does the limited number of bids (4) in a full and open competition imply for price discovery?

A limited number of bids, even in a full and open competition, can suggest several things about price discovery. Firstly, it might indicate that the market for this specific type of service is concentrated, with only a few companies possessing the necessary technical expertise, security clearances, or capacity to undertake the project. Secondly, the solicitation requirements might have been highly specialized or demanding, inadvertently filtering out potential bidders. In such scenarios, price discovery may be less robust than if there were numerous competing offers. The government might not achieve the lowest possible price because the competitive pressure is reduced, potentially leading to higher costs for taxpayers compared to a scenario with more active bidders.

How has IRS spending on IT system design services trended over the past five years?

Analyzing IRS spending trends on IT system design services over the past five years would require access to detailed federal procurement data. Generally, federal agencies, including the IRS, have faced increasing pressure to modernize their IT infrastructure to improve efficiency, security, and service delivery. This often translates to sustained or increasing investment in system design and development. Factors like evolving tax laws, cybersecurity threats, and the need for better data analytics likely drive consistent demand. However, specific spending levels can fluctuate based on budget allocations, the initiation of new modernization projects, and the completion of existing ones. A detailed analysis would reveal specific peaks and troughs in spending related to system design.

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: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Offers Received: 4

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 6710 ROCKLEDGE DR, BETHESDA, MD, 08

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $38,022,727

Exercised Options: $37,800,102

Current Obligation: $35,258,854

Parent Contract

Parent Award PIID: TIRNO06D00019

IDV Type: IDC

Timeline