Small Businesses Succeeding As USAF’s $9B NetCents Contract Receives Promo Push

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In FY 2005, the US Air Force designated 8 five-year NetCents contract winners: 4 small businesses and 4 large ones. Each, it turn, brings a host of partners in with them but manages any contracts received through one point of contact & responsibility. In short, NetCents created a single contract to competitively buy IT products and services, aimed at increasing the standardization of hardware and software service-wide. A November 2005 article in Federal Computer Weekly reported that the US Air Force’s CIO was readying a new memo covering policy, marketing and training information for the $9 billion Network Centric Solutions (NetCents) contract so it will be used 80% of the time to buy IT products and services. At the moment, they’re a long way from that. The patterns within the NetCents awards are interesting, and DID will discuss some of them. We’re also going to highlight one of the small business winners, a company called Telos. They’ve picked up an impressive share of NetCents awards. Their people also took the time to talk to DID about the dynamics of NetcCents – and even some best practices for other government agencies agencies looking at implementing these kinds of large, omnibus umbrella […]
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In FY 2005, the US Air Force designated 8 five-year NetCents contract winners: 4 small businesses and 4 large ones. Each, it turn, brings a host of partners in with them but manages any contracts received through one point of contact & responsibility. In short, NetCents created a single contract to competitively buy IT products and services, aimed at increasing the standardization of hardware and software service-wide.

A November 2005 article in Federal Computer Weekly reported that the US Air Force’s CIO was readying a new memo covering policy, marketing and training information for the $9 billion Network Centric Solutions (NetCents) contract so it will be used 80% of the time to buy IT products and services. At the moment, they’re a long way from that.

The patterns within the NetCents awards are interesting, and DID will discuss some of them. We’re also going to highlight one of the small business winners, a company called Telos. They’ve picked up an impressive share of NetCents awards. Their people also took the time to talk to DID about the dynamics of NetcCents – and even some best practices for other government agencies agencies looking at implementing these kinds of large, omnibus umbrella contracts.

The NetCents Experience: FY 2005

When the government awarded NetCents, they set an original goal of giving 20% of the business awarded through the contract to the four small-business contract holders. Instead, small businesses have excelled. The Air Force obligated $450 million worth of IT products and services on NetCents for FY 2005, the first year of the contract. Small businesses won $251 million of the $450 million, or 58% dollars awarded. As an example, note this release from small business qualifier Telos concerning its September 2005 contract wins under the program – Telos alone won about 15% of NetCents’ total FY 2005 contract dollars.

One thing DID did spot in the release is that many of Telos’ September 2005 NetCents contracts came “from areas outside of the company’s traditional business domains,” largely from partnering with established telecom providers.

The obvious questions one asks are:

# How can small businesses possibly win such a large%age of IT infrastructure contracts, which tend to require big-company capabilities?
# How does having a company like Telos go outside of its traditional business domains and bring in third party companies (plus whatever fees it collects for itself) a savings for the taxpayer?

Answering those question will help clarify the nature of these large umbrella contracts, and highlight some of their ins and outs. DID will close with some best practice thoughts from Telos and other sources.

Nuts & Bolts: How These Contracts Work

In a sense, NetCents is no different from any other large agency-type contract that one finds in the government sphere. The work scope is very large, so teams are the only way to cover it. This means that hundreds of companies have an interest in NetCents, even if only 8 firms “win.” Indeed, Telos noted to DID that their original bid had about 25 team-mates, including Verizon, EDS, ITT, Nextel, as well as small companies. As they find new suppliers who can fit with their constellation and add new capabilities, the roster list of partners grows and is managed internally. As of December 2005, Telos was up to about 50 partners – some of whom were also partners with other winners.

While the list seems to be about small vs. large companies, therefore, it’s really about teams led by either a very major integrator like Lockheed or Booz Allen Hamilton, or a similar team led by a smaller integrator like Telos. This makes the playing field much more even than it seems at first glance.

Once the teams are assembled and the government’s evaluation process is complete, winners are selected with a deliberate policy of mixing smaller and larger firms. As the September 13, 2004 DefenseLINK announcement notes:

“The Centech Group, Arlington, Va.; Multimax, Largo, Md.; NCI, Reston, Va.; Northrop Grumman, McLean, Va.; Booz-Allen Hamilton, McLean, Va.; General Dynamics, Needham, Mass., and Lockheed Martin, Manassas, Va., were awarded on Sept. 10, 2004, a $9,000,000,000 indefinite delivery/indefinite quantity contract to provide for Network-Centric (NETCENTS) Information Technology, Networking, Telephony and Security, Voice, Video and Data Communications Commercial-off-the-Shelf products, system solutions and systems hardware and software to satisfy the requirements for interoperability, compatibility, and resource sharing of both Government Furnished Equipment and Contractor Furnished Equipment, supporting the Global Information Grid architecture. This work will be complete by September 2009. Solicitation began April 2004. The Headquarters Standard Systems Group, Maxwell Air Force Base, Gunter Annex, Ala., is the contracting activity (FA8771-04-D-0002 – 0009).

Though not announced in the DoD release’s seven winners, Telos’ September 22, 2004 release affirms it as the eighth and final NetCents winner.

This award is only the first step. Having established the team leads, solicitations are issued under NetCents and most are competed among all eight winners. There are a few hundred RFPs (Request For Proposals), and a few thousand RFQs (Request For Quotation).

With all those RFPs and RFQs out there, unning them as individual, open RFPs/ RFQs competition and agreements each time would be a significant time sink, and also introduce potential quality issues. In contrast, having standard contract terms and an approved set of consortia who have already put themselves together creates significant government savings in time and effort.

There is also an escape clause. NetCents has a waiver provision, so if the government can find a cheaper option, they can waiver it and go outside. Each major command CIO has waiver authority for their command.

Telos’ Experience

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Once a firm wins, the contracts don’t just start flowing immediately. The winning contractors have the contract vehicle, but it’s no good to anyone unless government agencies and departments under the contracts’ umbrella actually use it.

That’s why the first 6 months of a large umbrella contract like this is so very different from months 6-12, and the contemplated business case for the issuing agency needs to expect that. During those first six months, both sides get through the learning curve. There’s a lot of education going on among the government side, with contractors and sometimes members of the issuing agency visiting all of the major commands and agencies in an extended roadshow.

Meanwhile, on the contractor side, there’s a lot of infrastructure to build. In Telos’ case, they built a dedicated a NetCents portal for their partners and potential customers, with over 100,000 products in it. The initial portal was reportedly up in about a month, but it is an iterative process and requires ongoing maintenance as the team and customer rosters grow and new opportunities arise.

Because NetCents was awarded in September 2004 around the beginning of a new fiscal year, September 2005 was the first real buying season. Telos reported receiving 50-100 RFPs per day in September, a very substantial surge. Fortunately, the ramp-up time allowed all parties to be ready when that happened. As their release notes, Telos won 101 deals in September 2005.

Overall, during the first year of the contract Telos has been awarded a total of 184 deals that equate to almost $65 million in revenue. The orders signed in September of 2005 represented over 20% of the full year’s revenue through this vehicle.

Thoughts Re: Best Practices – for the Government

At the end of our discussions, DID asked Telos’ executives whether they had any advice for their counterparts on the other side of the fence, who might wish to design similar “agency” umbrella contracts. As it happens, they did.

* Don’t even come out to industry, or even offer hints of what’s coming until you have a well-thought out acquisition strategy. Otherwise, rumours fly immediately. Pretty soon firms are trying to put together partnership consortia at warp speed, and they may well end up being unsuited to the actual requirements. This is a huge waste of time for everybody, and guarantees substandard participation by contractors and headaches later on the government side.

* Know your providers’ industry, and make sure the acquisition strategy doesn’t shut out important segments. Failure to understand this can be nothing short of catastrophic. As a for instance, the US Department of Homeland Security’s FirstSource contract covers 150,000 employees, for IT commodities. Yet the contract is reportedly constrained to companies of 150 employees or less. Think about that for a second, and ask yourself how much of the main software on your computer comes from companies with under 150 employees. Or how confident you’d be in mass buys from a hardware manufacturer of that size. The bottom line is that noble motives but poor execution means an unrealized business case.

* The process of starting these kinds of contract arrangements and getting these out these always takes longer than you think.

* Keeping the previous caveat in mind, in a perfect world you want to make large-scale “agency” contract awards in the March-May time frame. That gives everyone enough time to get ready for the big July-October buying season that happens as annual budgets are winding down. The description of Telos’ experiences explains the sorts of things that go into that ramp-up time.

* This base contract vehicle award timeline might be forced back it the scope or nature of the program requires a lot of education before enough people will understand and use it. The exception is transitions like ITES to ITES II – both huge contracts and very complex, but ITES II is not substantially different from a buyer education point of view.

As an appropriate close-out to this Net-Centric article, DID gives our readers an apropos quote from former Sun Microsystems CIO Bill Raduchel:

“You can’t have a virtual conversation unless you also have real conversations. The indispensable complementary technology to the Net is the Boeing 747.”

Along those lines…

* Contractors will usually do a trip to each major command once they have won the contract, and they find that there is no substitute. Seeing things first hand and getting a “feel” for a place matters, and drafters might consider doing likewise during the drafting process.

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