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How Navy Sliced $1 Billion From Intranet Deal

New contract terms led incumbent HP to shuffle partners and ultimately win NGEN contract -- but questions remain if Navy took the most cost-effective approach.

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One of the many questions that will continue to follow the Navy's newly awarded Next Generation Enterprise Network (NGEN) contract is whether the Navy has in fact chosen the most cost-effective approach to acquiring the computing, storage and network transport capabilities it has long sought.

Just last September, a Government Accountability Office report renewed concerns that the Navy's plan to replace the Navy Marine Corps Intranet (NMCI, the world's largest intranet) would cost about $38 billion through fiscal year 2024. The GAO expressed concern that the Navy had failed to do an extensive enough cost-benefit and life cycle-cost analysis for a project of this magnitude.

So when the Navy announced on June 28 that its incumbent supplier, HP Enterprise Services, had won the NGEN contract, valued at $3.45 billion over five years, Assistant Secretary Sean Stackley made it clear that the Navy expected that the new contract would save it more than $1 billion over five years, compared with earlier cost estimates.

Different Contract Approach

What changed, and how was the Navy able to get HP and its partners to sharpen their collective bid so dramatically?

Part of what promises to make NGEN more cost-effective than NMCI was the Navy's use of different contract provisions allowed under federal acquisition rules. Taking the different approach, the Navy gets to see a contractor's expenses. The contract rules used for NMCI, in contrast, made it "like buying a car -- you don't get to see the cost of the parts," says Bill Toti, a former commanding officer who served in the Navy for 26 years and who now heads the NGEN team for HP Enterprise Services.

Toti understood that the winning contractor would need to assemble a team of partners that could not only deliver secure network services on a huge scale but also have the systems to provide auditable expense records that meet federal requirements. The NGEN contract gave HP the impetus to reboot its team of service providers, bringing in major league, government-savvy network operators, including AT&T Government Solutions, IBM Global Business Services Federal, Lockheed Martin Services and Northrop Grumman Systems.

In doing so, it also gave HP a better shot at winning both halves of the NGEN contract, by combining the enterprise computing and transport services portions of the program, and in the end offering a lower total cost.

The Navy took two other negotiating steps. It held competitions for 35 specific service management segments within the NGEN program, which the Navy plans to put out to competitive bidding once again each year. With exposed expenses now part of the contract, even the winning partners on HP's team have to keep their prices in line with more nimble technology providers.

And in a move expected to keep the NGEN players more agile, the Navy is insisting that as much as 35% of the contract's services go to small businesses, "which we think will help to bring innovation," Assistant Secretary Stackley says.

Whether that expectation proves true, and the Navy has indeed discovered ways to deliver NGEN's promised value at the right price, remains an open question. Now that the long-awaited NGEN contract has gotten underway, we'll soon see.

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