Turns out, that assessment is an understatement. The project being deployed under the management of Electronic Data Systems (EDS) has been a headache for all involved. Navy planners originally thought they would hire an outsourcer in 2000 and have an upgraded and secure network in 2001. Now the conversion of nearly 350,000 computer “seats” has slipped to at least 2005.
Meanwhile, EDS is suffering because its billing depends on meeting required service levels and on the number of computer desktop and laptop workstations, or seats, deployed. Despite winning what’s said to be the largest federal information- technology contract ever, worth as much as $8.8 billion, EDS has recorded a net loss of $1 billion on the venture so far.
Sgt. Garcia, responsible for supporting information systems for the logistics unit at his base in New Orleans, is frustrated that delivery of new Navy Marine Corps Intranet (NMCI) computer equipment keeps being delayed, and he can’t order replacements in the meantime.
Despite the “intranet” name, NMCI involves more than setting up private Web sites. While deployment of personal-computer seats is a measure of the project, it also includes servers, data centers and help desks. Overall, NMCI aims to unify and standardize Navy networks, most of which were established years ago by base commanders who procured their own computers and hired their own contractors.
With NMCI, the Navy established a master contract. EDS is also responsible for overseeing other major participants, including Microsoft, Dell, Cisco, MCI, Wam!Net and Raytheon, and smaller subcontractors.
For the most part, the NMCI contract excludes the tactical networks used aboard ships or by Marines deployed to combat zones. In other words, NMCI is for what the Navy calls “shoreside” networks, primarily at bases in the continental United States.
EDS seems to have badly underestimated the complexity of the project in its eagerness to be the low bidder, committing to accomplishing the project at a fixed price without an adequate understanding of the obstacles ahead. “I think they should have known better,” says Lorrie Scardino, a Gartner Inc. analyst who follows the outsourcing market.
Mike Koehler, a former Delta Air Lines technology vice president who joined EDS in January and is assigned to help straighten out the project, agrees it’s “shameful” that the company let itself and its client believe this was just another project. “This is by far the largest distributed environment I’ve ever seen and EDS has ever seen. Things that in a normal environment we would have been able to deal with become magnified at this scale and size,” says Koehler, the enterprise client executive for NMCI at EDS. “Grains of sand become mountains.”
Among the pitfalls:
Military planners had been thinking about a centralized, standardized network since the early 1990s. Outsourcing promised a way of getting a vendor to make the capital investment and contribute the skilled workforce, while turning ongoing upgrades and system management into a predictable expense.
The contract EDS won in 2000 was valued at up to $6.9 billion and in 2002 was expanded to an estimated $8.8 billion over 10 years (seven years, with a three-year option). The contract set maximum-pricing and minimum-performance requirements, while leaving room for schedule changes. By the beginning of this year, EDS had assumed network-management responsibilities for 303,000 seats, but as of January only about half of those—154,000—had been upgraded and certified as meeting the new network standards. In February, the Navy projected the conversion of all 346,133 seats would be done this year, but EDS has already said it will need until 2005.
EDS says the push to deploy lots of seats quickly at many locations inflated expenses and hurt cash flow because of the outlay for new computers. Now EDS wants to finish the job one base at a time.
One ex-sailor, who is currently working on NMCI for one of EDS’s subcontractors, says the new strategy should work better, even if it takes longer. EDS’s insistence on “trying to push as many seats as possible” created its own problems, he says, meaning technicians would often have to return to correct work that wasn’t done right the first time.
The Navy has been largely insulated from EDS’s cost overruns by the fixed-price contract. But EDS has signaled it will get more aggressive about billing extra for work it considers outside the bounds of the contract.
EDS stands to earn more by winning performance-incentive bonuses written into the contract for customer satisfaction. Those bonuses start when the user-satisfaction rate hits 85% and, if EDS could get the satisfaction rating above 95%, could be worth as much as $146 million annually. But so far that rating hasn’t even broken 70%.
The users who express the lowest satisfaction tend to be those who had the best computer equipment and support prior to the introduction of NMCI. For example, only a little over 50% of naval aviators give NMCI a positive rating, and they have more complaints about the new restrictions on computer use. On the other hand, more than 75% of reservists, who were relatively poorly equipped in the past, rate NMCI favorably.
