In a surprise decision, the U.S. Navy awarded the majority of the work for its Next Generation Enterprise Network (NextGen) to Hewlett Packard (HP). NextGen is going to be the successor to the Navy-Marine Corps Intranet (NMCI), providing a full range of network and computing services for 400,000 computers and 800,000 users.
Rather than contracting with a single large prime to provide overall management, configuration control and direction for this very complex system, the way that NMCI had been managed, the Navy decided to break the new contract into a number of pieces each of which would be competed frequently. The Navy now will own the network and all the hardware, including mobile devices. In essence, it will be the general contractor for NextGen. Not only did the Navy plan to divide the overall management of NextGen into two parts, one dealing with running the network and the other with computing services, it also created some 35 specific service management contracts for specific capabilities and functions that it will re-compete on an annual basis. Many of these specific segments will focus on providing the Navy with commodity items such as computer hardware and commercial software.
The Navy’s approach is in keeping with the reforms to the acquisition system the Pentagon has taken under the overall heading of Better Buying Power (BBP). One of the central tenets of BBP is that by increasing competition among private contractors, the government can both receive a better price and improve performance. In addition, by taking on the responsibility of overall program management, the Navy can eliminate the additional expenses resulting from a private sector manager adding its fees to the costs of its subcontractors.
The NextGen competition appears to have validated the tenets of BBP and the Navy’s overall approach. The winning bid by HP was for about $3.5 billion for five years, more than $1 billion below what the Navy had estimated the program would cost. However, it remains to be seen whether the Navy will actually realize these savings once the costs of managing the dozens of contractors and re-competing each of the smaller, specific functional contracts annually are included.
The Navy also tempered its enthusiasm for competition by awarding the current NMCI contractor, HP, the two major component contracts for NextGen. This was a smart move. Both NMCI and the new NEXTGEN are extremely complex undertakings with hundreds of thousands of parts. It is going to be hard enough to ensure oversight of the entire program, not to mention integration of hardware, software, processes, protocols and information. By giving the major program elements to HP, the Navy reduced its risk of major problems down the road. That is at least for the next five years.
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