Taking the Plunge

s the economy has weakened over the past year, major companies and federal agencies have cut back on their information technology investments. But several agencies have bucked the trend, embarking on major IT projects full of risk and promise. Among the biggest are the Navy Marine Corps Intranet (NMCI) and the Customs Service's Automated Commercial Environment (ACE). The Navy awarded the five-year, $4.1 billion NMCI contract to Electronic Data Systems last October. NMCI is an outsourcing of the technology, maintenance and help desk support of 350,000 desktop computers and 200 networks. The Customs Service finally awarded ACE, its long-awaited $1.3 billion modernization program, to IBM Global Services on April 27. The Navy and Customs capitalized on recent procurement reforms in their approaches to the new pacts. For example, NMCI is heavily laced with incentives for EDS. If the company doesn't meet its goals under the contract, it will not be paid. By the same token, the company will get a bonus if it exceeds the goals. With ACE, Customs avoided setting specific parameters in the contract, instead presenting IBM with its vision for the new system and letting the company fill in the details. "Customs took full advantage of the procurement reform of the last six to 10 years," says Woody Hall, the agency's chief information officer. "The ACE contract has more to do with acquiring a proven source than acquiring a specific program." EDS and IBM are big names in the IT world. Yet they won't do all the work for NMCI or ACE. Computer Sciences Corp., KPMG Consulting and Lockheed Martin Mission Systems will help build ACE, while Dell, Microsoft, Raytheon and MCI WorldCom are on the NMCI team. As part of its winning bid, EDS committed to subcontract 40 percent of the NMCI contract to small businesses. Contracts like ACE and NMCI appear to be at odds with the slim growth of the fiscal 2002 IT budget. It is generally agreed that agencies will spend nearly $45 billion on IT in fiscal 2002-an enormous amount. Still, the IT budget is projected to grow just 1 percent over fiscal 2001 numbers, according to Federal Sources Inc., a market research firm based in McLean, Va. This is after a 7 percent increase from fiscal 2000 to fiscal 2001. (Federal Sources' figures include not only spending under large prime contracts, upon which the rankings in this issue are based, but spending on smaller contracts as well.) Jim Kane, president and CEO of Federal Sources, says the Bush administration will streamline the procurement process and boost outsourcing efforts. "The Bush administration clearly has a preference for a corporate management approach," Kane says. "This means the policy coming out of the Office of Management and Budget will have greater impact." Even in a slowing market, agencies are expected to spend more in several key areas. Federal Sources expects agencies increasingly to turn to the private sector for IT staffing and infrastructure, creating a $6 billion outsourcing market in fiscal 2002-12 to 13 percent of all federal IT spending. Agencies also are pouring money into information security, projected to be a $1.9 billion market next year. Finally, electronic government is expected to gain importance, creating a $2.2 billion market that centers on changing how the government interacts with its customers. Such efforts, Federal Sources predicts, will focus on "front office service delivery and back office operational efficiency."